COMPLETE BUSINESS SOLUTIONS INC, 10-K, 1998-03-31

COMPLETE BUSINESS SOLUTIONS INC
10-K, 1998-03-31
COMPUTER PROGRAMMING SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------

FORM 10-K

<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>

COMMISSION FILE NUMBER 0-22141

COMPLETE BUSINESS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

MICHIGAN
(State or Other Jurisdiction of
Incorporation or Organization)

32605 WEST TWELVE MILE ROAD, SUITE 250
FARMINGTON HILLS, MICHIGAN 48334
(Address of principal executive office)
38-2606945
(IRS Employer Identification No.)

48334
(Zip Code)

Registrant's telephone number, including area code: (248) 488-2088

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

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

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

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

The aggregate market value of common stock held by non-affiliates of the
registrant as of March 13, 1998 was $437,896,813.

The number of shares outstanding of the registrant's common stock as of
March 13, 1998 was 26,989,020.

DOCUMENTS INCORPORATED BY REFERENCE

None
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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES

FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

INDEX

<TABLE>
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Market for the Registrant's Common Equity and Related
Item 5. Stockholder Matters......................................... 10
Item 6. Selected Consolidated Financial Data........................ 11
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations................................... 11
Item 8. Financial Statements and Supplementary Data................. 20
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure.................................... 42
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 43
Item 11. Executive Compensation...................................... 44
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 46
Certain Relationships and Related Transactions (in
Item 13. thousands).................................................. 46
PART IV
Exhibits, Financial Statement Schedule and Reports on Form
Item 14. 8-K......................................................... 48
Signatures............................................................ 49
</TABLE>

APECS(R) is a registered trademark of the Company. COSMO(sm) and The Time
Machine 2000(sm) are service marks of the Company. All trademarks, service marks
and trade names referred to in this Form 10-K are the property of their
respective owners.
<PAGE> 3

PART I

ITEM 1. BUSINESS

STOCK DIVIDEND

On February 18, 1998, the Board of Directors declared a two-for-one split
of the Company's common stock, effected in the form of a stock dividend payable
on March 19, 1998 to shareholders of record on March 5, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. All references to number of shares, except
shares authorized, the number of options and per share information in this Form
10-K have been adjusted to reflect the stock split on a retroactive basis.

GENERAL

Complete Business Solutions, Inc. and subsidiaries (CBSI or the Company), a
Michigan corporation founded in 1985, is a worldwide provider of IT services to
large and mid-size organizations. The Company offers its clients a broad range
of IT services, from advising clients on strategic technology plans to
developing and implementing appropriate IT applications solutions. CBSI offers
custom-tailored solutions based on an assessment of each client's needs. The
Company's services include: (i) Year 2000 conversion and testing services; (ii)
applications development and maintenance; (iii) reengineering legacy
applications to client/server technology; (iv) client/server applications
development; (v) IT consulting services; (vi) packaged software implementation;
and (vii) contract programming services.

CBSI provides services in a wide variety of computing environments and uses
leading technologies, including Year 2000 tools, client/server architectures,
object-oriented programming languages and tools, distributed database management
systems, and the latest network and communications technologies. The Company
believes that the breadth of its service offerings fosters long-term client
relationships, affords cross-selling opportunities, minimizes dependence on any
single technology or client and enables the Company to serve as a single source
provider for its clients' IT applications solutions. This single or preferred
provider approach is consistent with CBSI's full life-cycle, client-oriented
partnership approach to IT solutions.

CBSI provides IT services to clients in a diverse range of industries. Its
clients include American President Lines, Chrysler Corporation, Citibank, Ford
Motor Company, IBM, IBM Global Solutions/ Foremost Insurance, Lands' End, the
State of Indiana, the State of Nevada, S.W.I.F.T., Spartan Stores and UNUM Ltd.
During 1997, the Company provided services to over 295 clients in the U.S.,
Europe and Asia. The Company's strategy is to maximize its client retention rate
and secure additional engagements by providing both quality services and client
responsiveness. For each of the fiscal years 1997, 1996, and 1995, existing
clients from the previous fiscal year generated at least 80% of the Company's
revenues. These recurring revenues have contributed significantly to the
Company's 30% compound annual revenue growth rate over the past five fiscal
years.

Since 1992, CBSI has developed an extensive offshore infrastructure in
India, including two modern software development centers in Bangalore and
Chennai (formerly Madras) and a training center in Hyderabad. The Company
believes this established offshore infrastructure is one of the largest in the
industry and differentiates it from those competitors who have no offshore
capability, have recently established offshore capability or rely mostly on
contract service providers to offer such services. With its offsite and offshore
development options, the Company can quickly provide clients with IT
applications solutions on a cost-effective basis.

In March 1997, the Company completed an initial public offering of
5,000,000 shares of its Common Stock at a price of $6 per share. This offering
consisted of 4,600,000 shares of newly issued Common Stock and 400,000 shares
sold by a selling shareholder. This initial public offering generated net
proceeds of approximately $23.6 million which were used to repay outstanding
debt, payment of previously undistributed S corporation earnings, expansion of
existing operations, development of new service lines and other general working
capital purposes. In August 1997, the Company completed a secondary offering of
5,200,000 shares of

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its Common Stock at a price of $14 1/8 per share. This secondary offering
consisted of 2,900,000 shares of newly issued Common Stock and 2,300,000 shares
sold by selling shareholders. This offering generated net proceeds of
approximately $38 million which are intended to be used for the further
expansion of existing operations, possible acquisitions and mergers of related
businesses and other general corporate purposes.

On September 30, 1997 the Company filed a shelf-registration statement
covering 10,000,000 shares of Common Stock to be issued in conjunction with the
future acquisition of assets, businesses or securities. In November 1997, a
portion of these shares were used to merge with Synergy Software, Inc.
(Synergy), a privately held Illinois corporation which specializes in packaged
software implementation, client server development and high-end IT consulting
services. In January 1998, the Company merged with c.w. Costello & Associates,
inc. (Costello), a privately held Connecticut corporation. Costello is a
premiere provider of IT services to large and mid-sized corporations throughout
the United States. The mergers with Synergy and Costello further strengthen the
Company's service offerings, expand the Company's presence in the eastern and
Chicago areas of the United States, and add approximately 850 highly regarded IT
professionals to the Company. For further discussion of these mergers see Notes
3 and 18 of Notes to Consolidated Financial Statements included later in this
Form 10-K.

THE CBSI SOLUTION

The CBSI solution enables its clients to use IT as a more effective
business tool consistent with their evolving business needs. The following are
key attributes of the CBSI solution:

Provide a Broad Range of IT Services. The Company offers its clients a
broad range of IT services from development, reengineering and maintenance of
legacy applications systems to client/server applications development,
Internet/intranet and other emerging technologies. The Company therefore can
serve as the single source for a client's IT applications solutions. The Company
provides its services in a wide variety of computing environments and uses
technologies that include mainframe and client/server architectures,
object-oriented programming languages and tools, distributed database management
systems, Year 2000 tools and network and communications technologies.

Solve Year 2000 Problem. The Company has developed a formal project
management methodology, known as The Time Machine 2000, that addresses all
aspects of the Year 2000 problem in mainframe, client/server and LAN
environments. This methodology helps assure a quality conversion process and
addresses application portfolio analysis, impact assessment, strategic planning,
conversion, testing and implementation. The Company has developed Year 2000
conversion factories to provide cost-effective and timely conversion solutions
for its clients. The conversion factories, located at both CBSI's U.S. and
Indian headquarters, employ professionals who have been specifically trained to
meet the particular demands of Year 2000 engagements. The Company also provides
Year 2000 enterprise-level consulting and testing services. CBSI has already
successfully completed all phases of Year 2000 projects for a variety of
clients.

Offer Flexible Project Delivery. The Company offers its clients a choice
among any combination of the following three options for delivery of project
work: (i) onsite at the client facility; (ii) offsite at a CBSI development
facility in Michigan, California or Illinois; and (iii) offshore at CBSI
development facilities in India. These options enable the Company's clients to
determine their degree of project oversight and to control the costs and speed
of project delivery. Execution of all or part of IT projects offshore can result
in significant time and cost savings when compared to domestic delivery of such
services. CBSI has developed a formal project management methodology, CBSI
Offsite Success Management Methodology ("COSMO"), which is specifically designed
to meet the needs of offsite and offshore projects.

To meet the growing worldwide demand for offshore IT services, the Company
has invested in an extensive offshore infrastructure in India, including two ISO
9001 compliant software development centers in Chennai and Bangalore. In
contrast to competitors who have no offshore capability, have only recently
established offshore capability or rely mostly on contract service providers to
offer such services, the Company

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has established an offshore infrastructure which it believes is one of the
largest in the industry. As of December 31, 1997, the Company employed over 800
professionals in these centers, which have the capacity to accommodate in excess
of 1,500 professionals. With its offsite and offshore development options, the
Company can quickly provide solutions tailored to the IT needs of its clients.

Recruit and Train Globally. The Company has established a domestic and
international network to recruit employees of all experience levels, from recent
college graduates to seasoned IT professionals. The Company provides new
recruits with up to two months of training in software engineering techniques
and key technologies. During 1997, the Company expanded its training program to
include technically able students from the public at large. CBSI began a program
to provide these students with intensive, hands-on training in various
programming languages and Year 2000 conversion skills, all done in an
industry-like environment. The Company then hires some of these individuals and
places the rest with other leading computer firms -- including customers and IT
service companies. To support this effort, CBSI receives tuition fees from
students and a placement fee from job recruitment agencies. To accommodate this
expansion, the Company made significant investments in three training centers in
the United States and nine in India. These centers employ full-time instructors
and are equipped with client/server and mainframe hardware, software and
development tools.

CBSI GROWTH STRATEGIES

The Company's goal is to become the preferred provider of IT services to an
expanding base of clients. The Company's strategy to achieve this goal includes
the following elements:

Cross-Sell Services to Existing Clients. The Company believes it will grow
by continuing to establish and maintain long-term client relationships. The
access and goodwill offered by these relationships provide the Company with
significant advantages over its competitors in marketing additional services and
solutions to such clients. The Company also believes its long-term client
relationships and ability to address all of its clients' IT applications needs
distinguish the Company from many of its competitors.

Increase and Build Upon Year 2000 Engagements. The Company is marketing its
Year 2000 conversion capabilities and Year 2000 testing services to existing and
new clients. CBSI anticipates that Year 2000 conversion services will represent
a significant percentage of its revenues for the next few years. The Company
performs a detailed analysis of clients' existing IT systems and applications in
connection with these services. The Company intends to expand its Year 2000
enterprise-level consulting and testing services in mainframe, client/server and
LAN environments. The Company's strategy is to leverage its knowledge of
clients' IT applications systems obtained during Year 2000 projects into
additional engagements involving other services, including maintaining existing
applications systems and reengineering to client/server technology, implementing
ERP software packages and providing Internet/intranet applications solutions.

Capitalize and Expand on Significant Investments in Infrastructure and
Capabilities and Increase International Capabilities. The Company has made and
will continue to make additional significant investments in its offsite and
offshore infrastructures as well as its systems, methodologies, training
programs and marketing efforts. These investments include two client/server
labs, three U.S. software development centers, two offshore software development
centers, nine training centers and dedicated, high-speed satellite communication
links. The Company believes that its existing offshore investments can support a
larger organization and in addition, intends to significantly expand its U.S.
and offshore facilities.

Expand Service Offerings. The Company evaluates emerging technologies as a
source of additional service offerings for its existing and prospective clients.
For example, during 1997 the Company added new service offerings, including
Internet/intranet applications and implementation of ERP software packages such
as ORACLE, PEOPLESOFT and SAP. The Company anticipates that its broad and
expanding range of services will minimize its dependence on any single
technology.

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Pursue Targeted Acquisitions and Mergers. Using either cash or its Common
Stock, or a combination thereof, the Company continues to seek acquisitions and
mergers that complement its core skills and that have the potential to increase
the overall value of the Company, rather than merely increase its revenues.
Examples of such companies would include those with specific industry or
technical skills that fit well with the Company's existing and targeted client
base, such as Synergy Software, Inc. and c.w. Costello & Associates, inc.

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CBSI SERVICES

The Company offers its clients a broad range of IT services, from advising
clients on strategic technology plans to developing and implementing appropriate
IT solutions. The Company provides services in the following categories:

===============================================================================================================
CBSI SERVICES DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year 2000 Conversion and Testing Services - Conduct impact assessments and assist clients
with strategic planning for Year 2000 compliance
- Renovate existing applications to make them
Year 2000 compliant
- Replace existing software with Year 2000
compliant software packages
- Reengineer legacy applications to Year 2000
compliant client/server technology
- Enterprise-level consulting and testing
services
- PC/LAN distributed computing evaluation
services
- ---------------------------------------------------------------------------------------------------------------
Applications Development and Maintenance - Design large-scale, complex solutions capable
of managing transaction-intensive applications
- Develop and maintain applications using COBOL,
CICS, DB2 and other programming environments
- ---------------------------------------------------------------------------------------------------------------
Reengineering Legacy Applications to - Reengineer from centralized, mainframe-based
Client/Server Technology system to open, distributed architecture
- Preserve core application logic
- Reengineer existing legacy systems into
mainframe-based super server in multi-tiered,
distributed architecture
- ---------------------------------------------------------------------------------------------------------------
Client/Server Applications Development - Conceptualize and design systems based on
distributed object-oriented technologies and
methodologies such as BOOCH and RAMBAUGH
- Develop applications using SYBASE, SQL Server,
ORACLE, INFORMIX, and Access databases; Visual
Basic, Powerbuilder, C++ as graphical user
interfacers; and UNIX, OS/2 and Windows NT
operating systems
- ---------------------------------------------------------------------------------------------------------------
Packaged Software Implementation - Implement packaged software solutions
(PEOPLESOFT, ORACLE, SAP)
- Customize software packages to client
specifications
- Provide user group training
- ---------------------------------------------------------------------------------------------------------------
IT Consulting Services - Provide technical architecture and network
design, information technology planning, data
warehousing and business process reengineering
consulting services
- Design and develop Internet and intranet
solutions using Java/Java Script/Java applets
and HTML
- ---------------------------------------------------------------------------------------------------------------
Contract Programming Services - Develop software applications (client/server
and mainframe)
- Reengineer software applications across
platforms
- Maintain and enhance software applications
(client/server and mainframe)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

The Company uses both industry-proven and proprietary methodologies to
enhance the quality, consistency and efficiency of its projects. All levels of
the Company's IT consultants, from entry-level programmers to project managers,
are given formal instruction in various aspects of these methodologies. A
methodology used by the Company is METHOD/1, which the Company licenses from
Andersen Consulting. CBSI has extended METHOD/1 to incorporate the Company's
Time Machine 2000 and COSMO methodologies. The COSMO methodology is specifically
designed to meet the needs of offsite and offshore

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projects. This methodology contains the specific procedures required to
coordinate the activities of multiple sites across different time zones. All
three methodologies enable CBSI to provide applications development in a
controlled manner with repeatable and proven processes. Quality assurance is
handled by a common centralized unit. A team of quality specialists performs
project quality reviews and inspections, maintains the Company's project
management methodologies and assists project managers in estimating costs and
executing projects.

SOFTWARE PRODUCTS

The Company's primary software product offering is the Advanced Program for
Educational Computer Solutions ("APECS") software which is licensed by
approximately 70 different users. Clients use APECS to manage the business and
student records of educational institutions for K-12 school districts and for
higher education. The Company provides periodic enhancements to the product and
maintenance to the users. APECS systems are installed at major sites throughout
the United States. Among the current users are Allentown High School District,
Pennsylvania; University of Detroit Mercy, Michigan; and Monroe Community
College, Michigan. The Company is currently reengineering this system to a
client/server environment. The Company maintains this product at its Chennai,
India and Lombard, Illinois facilities.

SALES AND MARKETING

The majority of new sales are generated by the Company's business units,
each of which focus on clients within a geographic area or industry group. The
manager of each business unit is compensated based on the financial performance
of the Company, the unit and other contributions to the Company. The business
unit manager is responsible for managing client relationships, ensuring the
delivery team is performing as expected and identifying new business
opportunities. This structure fosters an entrepreneurial atmosphere within each
business unit. Because of the relationships the business unit managers maintain
with their clients, these managers are positioned to identify opportunities to
cross-sell the Company's services. Such relationships also result in a
significant number of client referrals.

The Company also uses telemarketers to establish initial client contact and
prequalify potential new clients. Qualified prospective clients are referred to
the Company's dedicated sales group, whose backgrounds include both technical
and sales experience. This sales group is responsible for identifying clients'
needs and promoting the Company's services to potential clients. Once potential
clients are further qualified by the sales group, the Company assembles a team
consisting of sales group members, the appropriate business unit manager and a
project delivery manager. This team makes the client sales call and is
ultimately responsible for closing the sale.

In addition to its sales group, the Company has a dedicated marketing
department which works in conjunction with an outside public relations firm. The
marketing department is responsible for coordination of all corporate
communications, including the scheduling of press conferences to promote the
Company's services and delivery methodologies.

CLIENTS

The Company's largest client accounted for 7%, 11% and 18% of the Company's
total revenues for fiscal years 1997, 1996, and 1995 respectively. No other
client accounted for more than 7% of the Company's revenues in 1997 or 10% of
the Company's revenues in 1996 and 1995.

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The following is a sample of the organizations to which the Company
provided services during the fiscal year ended December 31, 1997:

<TABLE>
<CAPTION>
YEAR OF
FIRST
CLIENT ENGAGEMENT
<S> <C>
MANUFACTURING:
Chrysler Corporation...................................... 1985
Ford Motor................................................ 1989
Johnson Controls.......................................... 1994
RETAIL DISTRIBUTIONS:
Spartan Stores............................................ 1992
The GAP................................................... 1993
Lands' End................................................ 1996
PUBLIC SECTOR:
State of Michigan......................................... 1988
State of Indiana.......................................... 1992
State of Nevada........................................... 1992
TRANSPORTATION:
American President Lines.................................. 1990
FINANCIAL SERVICES:
S.W.I.F.T. ............................................... 1985
Harris Bank............................................... 1993
Citibank.................................................. 1996
INSURANCE:
UNUM Ltd. ................................................ 1995
IBM Global Solutions/Foremost Insurance................... 1996
TECHNOLOGY:
IBM....................................................... 1989
Tandem Computers.......................................... 1989
Union Pacific Technology.................................. 1992
UTILITIES:
Michigan Consolidated Gas Co. ............................ 1992
Southern California Edison................................ 1994
South Carolina Electric & Gas............................. 1995
</TABLE>

HUMAN RESOURCES

The Company's success depends in large part on its ability to attract,
develop, motivate and retain highly skilled IT professionals. The Company's
strategy for achieving "career-based employment" includes career planning,
thorough initial and ongoing training, allocation of assignments in accordance
with employee skills and career objectives and a comprehensive benefits package
including a Company-matched 401(k) plan, health and dental insurance, short-term
disability insurance, a flexible spending account and tuition reimbursement. The
Company has used employee stock options as part of its recruitment and retention
strategy. Effective January 1, 1998, the Company established an Employee Stock
Purchase Plan to allow eligible employees to purchase Company stock at a
discount and without the use of a stock broker.

As of December 31, 1997, the Company had 33 full-time employees dedicated
to recruiting IT professionals and managing its human resources. The Company's
recruiting activities draw on an international pool of IT talent. The Company
has full-time personnel dedicated to handling visa application and compliance
issues for international recruits. CBSI actively recruits in the United States,
India, United Kingdom, Australia, New Zealand, the Philippines, Mexico and
Singapore. Recruiting methods include advertisement in leading newspapers and
trade magazines, the Company's web site and participation in career fairs. The
Company also participates in on-campus recruiting for recent college graduates
and has hired from various universities, including the University of Michigan,
the University of Alabama, Michigan State University, the
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University of Notre Dame, University of Florida A&M, California State University
and Central Michigan University. In addition, the employees receive bonuses for
referring individuals and screening candidates for new positions.

The Company has established employee training centers located in Michigan
and India. These training centers employ full-time instructors and are equipped
with client/server and mainframe hardware, software and development tools. New
college graduates receive two months of full-time classroom instruction in
mainframe (IMS, DB2, CICS, COBOL) or client/server (UNIX, C, C++, OS/2
Presentation Manager) skills. This training is followed by one month of
self-study. Employees receive full salary and benefits during this training
period. Between projects and after business hours, all IT professionals receive
ongoing training on a variety of technology platforms. The Company's education
and training department helps employees make the transition from legacy to
client/server skills by providing cross-platform training in new technologies.
In addition to comprehensive technical training, the Company provides extensive
training in quality processes and cross-cultural communication skills. The
Company also offers training courses to non-employees for a fee. The Company may
hire graduates of these training programs.

As part of its retention efforts, the Company has formulated a strategy for
minimizing turnover which emphasizes: (i) human resource management; (ii)
contractual limitations effective upon termination of employment; (iii)
competitive salaries; (iv) comprehensive benefits; (v) employee stock options;
and (vi) deferred compensation.

The Company's IT professionals typically have Bachelor's or Master's
degrees in Computer Science or another technical discipline. As of December 31,
1997, the Company had 2,067 employees comprised of 1,862 IT professionals, 43
sales and marketing personnel, and 162 general and administrative personnel. As
of December 31, 1997, the Company also had 153 independent contractors working
on client engagements.

COMPETITION

The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include Cambridge
Technology Partners, Information Management Resources, Inc. and Keane, Inc.,
along with participants from a variety of market segments, including "Big Six"
accounting firms, and implementation firms, applications software firms,
programming companies and temporary staffing firms. The Company believes that
the principal competitive factors in the IT services industry include the range
of services offered, technical expertise, responsiveness to client needs, speed
in delivering IT solutions, quality of service and perceived value. Based on the
Company's experience in competitive situations, the Company believes that it
competes favorably with respect to these factors.

INTELLECTUAL PROPERTY RIGHTS

The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. In addition, the
laws of certain foreign countries in which the Company's products are, or may
be, developed or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the U.S. This lack of
protection may impair the Company's ability to protect its intellectual property
adequately and could have a material adverse impact on the Company's business.

The Company has developed and owns the proprietary rights for The Time
Machine 2000 and COSMO methodologies; however, the copyrights to such
methodologies have not been registered. In addition, the Company owns service
marks for The Time Machine 2000 and COSMO and has a pending federal trademark
application for each.

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<PAGE> 11

Software developed by the Company in connection with a client engagement is
typically assigned to the client. In limited situations, the Company may retain
ownership, or obtain a license from its client, which permits CBSI or a third
party to market the software for the joint benefit of the client and CBSI or for
the sole benefit of CBSI. The Company has also developed and copyrighted or
acquired software products which are generally licensed to users pursuant to a
license agreement. The Company's software products include APECS, APECS Custom
View and Micro APECS Scheduler. APECS is a registered trademark of the Company.

ITEM 2. PROPERTIES

The Company leases approximately 50,000 square feet of office space in
Farmington Hills, Michigan which is used for the development center and by the
Company's senior management, administrative personnel, human resources, and
sales and marketing functions. This lease expires in June 2008. The Company
leases major facilities in Schaumburg, Illinois, and Milpitas, California. The
Company also leases small facilities throughout the United States.

In addition, the Company has offshore offices. The Company leases
approximately 64,000 square feet of office space in Chennai, India which serves
as its headquarters in India. These leases expire in 2003. The Company owns a
facility totaling approximately 7,000 square feet in Bangalore, India. The
Company also leases facilities in the United Kingdom, Singapore, and Bangalore
and Hyderabad, India.

The Company believes that these facilities and the facilities leased by
c.w. Costello & Associates, inc. are adequate for its anticipated future needs.

ITEM 3. LEGAL PROCEEDINGS

The Company has received a third-party complaint filed against it and other
parties on February 3, 1997, by Network Six, Inc. ("NSI") in the Circuit Court
of the First Circuit for the State of Hawaii. The third-party claims are
asserted in an action that the State of Hawaii has brought against NSI. The
Company has also received an answer and counterclaim, dated January 31, 1997,
served by NSI in an action brought by the Company against NSI in the Superior
Court of the State of Rhode Island. The Company acted as a subcontractor to NSI
in connection with the development of software for the State of Hawaii.
Additionally, NSI and the Company were parties to a letter of intent, now
terminated, for the purpose of exploring a business combination or merger. The
Company's suit against NSI in Rhode Island, as well as the State of Hawaii's
suit against NSI in Hawaii, arise from the Hawaii software project.

The allegations of NSI's third-party complaint in the Hawaii action and
NSI's counterclaim in the Rhode Island action are substantively identical. NSI
alleges that the Company wrongfully used information gained in connection with
the letter of intent to attempt to gain control of the State of Hawaii project,
interfered with NSI's relationship with the State of Hawaii, employed or
solicited the employment of NSI employees in violation of contract, and
otherwise breached contractual or other obligations to NSI. NSI seeks damages of
approximately $481 thousand from the Company for services and personnel
allegedly provided to it by NSI, damages of $60 million predicated on a decline
in the market value of NSI's publicly-traded stock, and other unspecified
losses. On May 30, 1997, the Circuit Court of the First Circuit for the State of
Hawaii granted the Company's motion to dismiss claims asserting bad faith breach
of contract with prejudice, and conspiracy without prejudice.

The Company believes that it has not breached any contractual or other
obligation to NSI as alleged either in the third-party complaint or the
counterclaim, and that it possesses meritorious defenses or set-offs to all of
NSI's claims. The Company does not believe that NSI's actions will result in
material liability to it, or that they will have a material adverse effect on
its financial condition, business, or operations, and intends to vigorously
contest the claims asserted in both actions.

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

No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1997.

9
<PAGE> 12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock commenced trading on the Nasdaq National Stock
Market under the symbol CBSL on March 5, 1997. As of March 13, 1998 there were
approximately 168 shareholders of record of the Company's Common Stock. The
Company paid a 2 for 1 stock dividend on its Common Stock on March 19, 1998. The
following table sets forth the range of high and low closing sale prices for the
Company's Common Stock for the periods indicated:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997 HIGH LOW
<S> <C> <C>
First quarter (From March 5, 1997).......................... $ 6.13 $ 4.38
Second quarter.............................................. 12.88 4.44
Third quarter............................................... 16.19 12.00
Fourth quarter.............................................. 23.82 14.25
</TABLE>

As of March 13, 1998 the closing price of the Company's Common Stock was $31.25
per share.

10
<PAGE> 13

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF INCOME DATA(1):
Revenues.................................... $45,382 $59,733 $72,658 $92,750 $123,775
Cost of revenues............................ 34,453 44,868 57,157 69,749 89,600
------- ------- ------- ------- --------
Gross profit................................ 10,929 14,865 15,501 23,001 34,175
Selling, general and administrative
expenses................................. 8,776 11,615 12,858 16,930 22,530
Merger costs................................ -- -- -- -- 1,203
------- ------- ------- ------- --------
Income from operations...................... 2,153 3,250 2,643 6,071 10,442
Interest expense (income), net.............. 196 338 676 520 (1,506)
Equity in loss of investee.................. -- -- -- 110 251
------- ------- ------- ------- --------
Income before provision for income taxes and
minority interest........................ 1,957 2,912 1,967 5,441 11,697
Provision for income taxes.................. 3 9 10 108 4,114
Minority interest........................... 127 176 252 158 82
------- ------- ------- ------- --------
Net income.................................. $ 1,827 $ 2,727 $ 1,705 $ 5,175 $ 7,501
======= ======= ======= ======= ========
Pro forma incremental income tax provision..................................... $ 1,805 $ (109)
======= ========
Pro forma net income........................................................... $ 3,370 $ 7,610
======= ========
Pro forma diluted earnings per share........................................... $ 0.20 $ 0.35
======= ========
Diluted weighted average shares outstanding.................................... 16,906 21,564
======= ========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA(1):
Cash and cash equivalents.................... $ 596 $ 888 $ 1,261 $ 3,743 $57,234
Working capital.............................. 2,787 4,605 6,679 11,910 67,940
Total assets................................. 16,511 21,986 24,664 33,699 95,732
Revolving credit facility and long-term
debt...................................... 4,189 5,933 6,316 6,191 --
Minority interest............................ 175 350 552 1,503 --
Total shareholders' equity................... 6,587 9,195 10,106 15,918 77,774
</TABLE>

- -------------------------

(1) Historical statement of income and balance sheet data have been restated to
reflect the merger with Synergy Software, Inc. which occurred on November
20, 1997. This merger has been accounted for by the pooling of interests
method of accounting. Information for Synergy Software Inc., for 1993 and
1994 is unaudited. See Note 3 of Notes to Consolidated Financial Statement.

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

The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto. With the exception of
statements regarding historical matters and statements regarding the Company's
current status, certain matters discussed below and throughout this report are
forward-looking statements that involve substantial risks and uncertainties that
could cause actual results to differ materially from targets or projected
results. Such forward-looking statements regarding targets or projections may be
identified by the use of the words "anticipate", "believe", "estimate",
"expect", "plan" and similar expressions. Factors that could cause such
differences include the recruitment and retention of IT professionals,
government regulation of immigration, increasing significance and risks of
non-U.S. operations, variability of operating results, decrease

11
<PAGE> 14

in demand for Year 2000 services, exposure to conditions in India, fixed-price
projects, competition, management of growth, rapid technological change, risks
related to mergers and acquisitions and potential liability to clients each of
which are discussed herein under the caption "Factors that may Affect Future
Results".

OVERVIEW

Complete Business Solutions, Inc. is a worldwide provider of IT services to
large and mid-size organizations. The Company has been profitable every year
since its inception in 1985, and has experienced a compound annual revenue
growth rate of approximately 30% over the past five fiscal years. The Company
leverages its existing client base by providing quality services and by being
responsive to clients. For each of the fiscal years 1997, 1996, and 1995,
existing clients from the previous fiscal year generated at least 80% of the
Company's revenues.

The Company's revenues are generated primarily from professional services
fees. The Company's service offerings include: (i) Year 2000 conversion and
testing services; (ii) applications development and maintenance; (iii)
reengineering legacy applications to client/server technology; (iv)
client/server applications development; (v) IT consulting services; (vi)
packaged software implementation; and (vii) contract programming services.
Contract programming services are typically provided as a member of a project
team working under the direct supervision of the client, are typically billed on
a time-and-materials basis, and have lower gross profit margins than other
professional service offerings. For all other professional service offerings,
the Company generally assumes responsibility for project management and may bill
the client on either a time-and-materials or fixed-price basis, although such
projects are generally billed on a time-and-materials basis. The Company has
been shifting its business away from contract programming services toward higher
margin service offerings.

The Company recognizes revenues on a time-and-materials basis as the
services are performed. On fixed-price engagements, the Company recognizes
revenues under the percentage of completion method.

CBSI's most significant cost is project personnel cost, which consists
primarily of salaries, wages and benefits for its IT professionals. The Company
strives to maintain its gross profit margin by controlling project costs and
offsetting increases in salaries and benefits with increases in billing rates.
The Company has also established a human resource allocation team to ensure that
IT professionals are quickly placed on assignments to minimize nonbillable time
and are placed on assignments that utilize their technical skills and allow for
maximum billing rates. In addition, the Company has realized higher gross profit
margins from the Company's shift to offshore projects in India, where the
salaries of IT professionals are lower as a percentage of professional service
fees. This benefit is partially offset due to additional coordination efforts
and costs for offshore projects.

In an effort to sustain its growth and profitability, the Company has made
and continues to make substantial investments in infrastructure, including: (i)
software development centers in three locations in the U.S. and two locations in
India; (ii) Year 2000 conversion factories in the U.S. and India; (iii) global
recruiting and training centers; and (iv) expanded training programs. The
Company believes that the results of these strategic investments have not yet
been fully realized.

12
<PAGE> 15

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain
operational data from the Company's consolidated statements of income as a
percentage of total revenues:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues................................................. 100.0% 100.0% 100.0%
Cost of revenues......................................... 72.4 75.2 78.7
----- ----- -----
Gross profit............................................. 27.6 24.8 21.3
Selling, general and administrative expenses............. 19.2 18.3 17.7
----- ----- -----
Income from operations................................... 8.4% 6.5% 3.6%
</TABLE>

1997 COMPARED TO 1996

Revenues. The Company's revenues increased approximately 33% to $123.8
million in fiscal year 1997 from $92.8 million in fiscal year 1996. This growth
in revenues is primarily attributable to increases in the Company's IT
professional workforce, increases in average billing rates, further expansion of
the Company's international operations and additional services provided to
existing clients. The Company's IT professional workforce increased
approximately 23% during fiscal year 1997 from the previous fiscal year.
Revenues from international operations, principally offshore development
centers, increased approximately 157% to $14.7 million in fiscal 1997 from $5.7
million in the previous fiscal year. Revenues from existing clients increased
approximately $17.4 million in fiscal 1997 from the previous fiscal year.

Gross Profit. Gross profit consists of revenues less cost of revenues.
Costs of revenues consists primarily of salaries (including nonbillable and
training time), benefits, travel and relocation for IT professionals. In
addition, cost of revenues includes depreciation and amortization, direct
facility costs and contractual services. Gross profit increased approximately
49% to $34.2 million in fiscal year 1997 compared to $23.0 million in fiscal
year 1996. This increase in gross profit is primarily attributable to increases
in the Company's IT professional workforce and average U.S. billing rates, as
well as the continued expansion of the Company's offshore development centers.
Gross profit as a percentage of revenues increased to approximately 27.6% in
fiscal year 1997 compared to 24.8% in fiscal year 1996. This increase in gross
profit as a percentage of revenues is primarily attributable to the Company's
continued strategic shift of its business toward higher margin service
offerings, including Year 2000 services, and the increasing utilization and
expansion of the Company's offshore development centers which operate at higher
gross profit and operating margins. During fiscal year 1997, approximately 19%
of the Company's revenue was generated from contract programming, a lower margin
service offering, compared to 32% in fiscal year 1996, while Year 2000 revenue
represented 14% of the Company's revenue in fiscal year 1997 up from 6% in
fiscal year 1996.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses consists primarily of costs associated with the
Company's direct selling and marketing efforts, human resources and recruiting
departments, administration, and indirect facility costs. Selling, general and
administrative expenses increased approximately 33% to $22.5 million in fiscal
year 1997, excluding approximately $1.2 million of costs incurred in conjunction
with the merger with Synergy Software, Inc., from $16.9 million in fiscal year
1996. This increase resulted from the continued expansion of the Company's
direct selling and marketing effort, further enhancement of infrastructure, and
other general overhead costs increases necessary to support the Company's
continued revenue growth. Exclusive of its merger costs in 1997, selling,
general and administrative expenses represented approximately 18% of revenues
for fiscal years 1997 and 1996.

Interest Expense (Income). Interest income for the year ended December 31,
1997 was $1.5 million, as compared to interest expense of $.5 million for the
year ended December 31, 1996. This change is primarily due to reduced interest
expense resulting from the repayment of outstanding debt during the first
quarter of 1997, and interest earned from the investment of net proceeds from
the Company's public offerings of Common Stock in 1997.

13
<PAGE> 16

1996 COMPARED TO 1995

Revenues. The Company's revenues increased approximately 28% to $92.8
million in fiscal year 1996 from $72.7 million in 1995. This growth in revenues
is primarily attributable to additional services provided to existing clients
and the expansion of the Company's client base. Revenues from existing clients
in 1996 increased $8.5 million over revenues from those clients during 1995.
Revenues from the Company's international operations increased 24% to $5.7
million in fiscal year 1996 from $4.6 million in fiscal year 1995.

Gross Profit. Gross profit increased approximately 48% to $23.0 million in
fiscal year 1996 from $15.5 million in fiscal year 1995. This increase in gross
profit is attributable primarily to the expansion of the Company's client base,
and the impact of the Company incurring approximately $3.0 million in excess
personnel cost, primarily in 1995, to meet the demands of a fixed price project
(the "Fixed-Price Project") to design and develop a human services and child
enforcement system for a state government. Gross profit as a percentage of
revenues increased to 24.8% in fiscal year 1996 from 21.3% in fiscal year 1995.
This increase is due primarily to billing rate increases partially offset by
salary increases to IT professionals in 1996 and the impact of the Fixed-Price
Project on fiscal year 1995 results.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32% to $16.9 million in fiscal year 1996 from
$12.9 million in fiscal 1995. This increase resulted from expenses incurred to
build and enhance the infrastructure necessary to support the Company's
continued revenue growth. As a percentage of revenues, selling, general and
administrative expenses represented approximately 18% for fiscal years 1996 and
1995.

LIQUIDITY AND CAPITAL RESOURCES

From the Company's inception in 1985 through March 5, 1997, the Company
generally funded its operations and working capital needs through internally
generated funds, periodically supplemented by borrowings under the Company's
revolving credit facility with a commercial bank. The Company's cash provided by
operations was $11.8 million, $5.0 million, and $1.8 million for the fiscal
years ending December 31, 1997, 1996 and 1995 respectively.

The principal use of cash for investing activities during the three fiscal
years ending December 31, 1997 was for the purchase of property and equipment
and computer software primarily as part of the development and enhancement of
the Company's offshore software development centers.

Historically, borrowings and repayments under the Company's revolving
credit facility represented the most significant components of cash provided or
used by financing activities. However, net cash provided by financing activities
increased to approximately $45.1 million in fiscal year 1997 primarily due to
the Company realizing net proceeds of approximately $61.6 million from its
public offerings. All outstanding borrowings under the revolving credit facility
as of March 5, 1997 were repaid from the proceeds of the initial public
offering. In connection with the termination of the Company's S corporation
status, the Company has made partial distributions of its previously
undistributed S corporation earnings totaling $10.6 million.

Under an arrangement with a commercial bank, the Company may borrow an
amount not to exceed $21 million with interest at the bank's prime interest
rate, or the Libor rate plus 1 1/2%. The borrowings under this facility are
short-term, payable on demand and are secured by trade accounts receivable and
equipment of the Company. As of December 31, 1997, there were no borrowings
outstanding under this facility. In recent years, the Company has executed
several short-terms notes with the bank to finance the purchase of equipment and
software. During fiscal year 1997, the balances outstanding on these notes were
repaid.

The international operations of the Company, principally the offshore
development centers, accounted for approximately 11.9% and 6.2% of the Company's
total revenues in fiscal years 1997 and 1996 respectively. Most of the Company's
revenues are billed in U.S. dollars. The Company recognizes transaction gains
and losses in the period of occurrence. Foreign currency fluctuations in fiscal
years 1997 and 1996 did not have a material impact on income from operations as
currency fluctuations on revenue denominated in a foreign currency were offset
by currency fluctuations on expenses denominated in a foreign currency. There
were no material operating trends or effects on liquidity as a result of
fluctuations in the functional currency. The
14
<PAGE> 17

Company does not generally use any types of derivatives to hedge against foreign
currency fluctuations, nor does it speculate in foreign currency.

Inflation did not have a material impact on the Company's revenues or
income from operations in fiscal years 1997, 1996 and 1995.

The Company continues to address the impact of the year 2000 issue on its
internal systems. The Company believes the cost associated with its plan to
convert its internal systems will not be material. In addition, the Company
anticipates that Year 2000 conversion services will represent a significant
percentage of its revenues for the next few years.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," was issued in February 1997. The Company
will be required to adopt the new standard for the year ended December 31, 1998.
This statement requires specific disclosure regarding the Company's capital
structure, including descriptions of the securities comprising the capital
structure and the contractual rights of the holders of such securities. The
Company will adopt this statement in fiscal year 1998.

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," was issued in June 1997. The Company will be required to
adopt the new standard for the year ended December 31, 1998, although early
adoption is permitted. The primary objective of this statement is to report and
disclose a measure ("comprehensive income") of all changes in equity of a
Company that result from transactions and other economic events of the period
other than transactions with owners. The Company will adopt this statement in
fiscal year 1998.

Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997. The
Company will be required to adopt the new standard for the year ended December
31, 1998, although early adoption is permitted. This statement requires use of
the "management approach" model for segment reporting. The management approach
model is based on the way the Company's management organizes segments within the
Company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company. The Company will adopt this statement in fiscal year 1998.

Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued in
February 1998. The Company will be required to adopt the new standard for the
year ended December 31, 1998. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when Statement of Financial Accounting Standards No. 87, 88 and 106
were issued. The Company will adopt this statement in fiscal year 1998.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Recruitment and Retention of IT Professionals

The Company's business involves delivering IT services and is
labor-intensive. The Company's success depends upon its ability to attract,
develop, motivate and retain highly-skilled IT professionals and project
managers possessing the technical skills and experience necessary to deliver the
Company's services. Qualified IT professionals are in high demand worldwide and
are likely to remain a limited resource for the foreseeable future. There can be
no assurance that qualified IT professionals will continue to be available to
the Company in sufficient numbers, or at wages that the Company is able to pass
along to clients, or that the Company will be successful in retaining current or
future employees. Failure to attract or retain qualified IT professionals in
sufficient numbers could have a material adverse effect on the Company's
business, operating results and

15
<PAGE> 18

financial condition. Historically, the Company has conducted a significant
portion of its recruiting outside the countries where the client's work was
performed. Accordingly, any perception among the Company's IT professionals,
whether or not well founded, that the Company's ability to assist them in
obtaining H-1B temporary work permits and permanent residency status has
diminished could lead to significant employee attrition which could result in
the Company incurring increased costs for IT professionals.

Government Regulation of Immigration

The Company recruits its IT professionals on a global basis to create a
workforce that it can deploy wherever required and, therefore, must comply with
the immigration laws in the countries in which it operates, particularly the
United States. As of March 13, 1998, approximately 23% of CBSI's worldwide
workforce was working under H-1B temporary work permits in the United States.
There is a limit on the number of new H-1B permits that may be approved in a
fiscal year. In years in which this limit is reached, the Company may be unable
to obtain enough H-1B permits to meet its personnel requirements. If the Company
were unable to obtain H-1B permits for its employees in sufficient quantities or
at a sufficient rate, the Company's business, operating results and financial
condition could be materially and adversely affected. Furthermore, Congress and
administrative agencies with jurisdiction over immigration matters have
periodically expressed concerns over the levels of legal and illegal immigration
into the U.S. These concerns have often resulted in proposed legislation, rules
and regulations aimed at reducing the number of work permits that may be issued.
Any changes in such laws and regulations making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain foreign
employees, could require the Company to incur additional unexpected labor costs
and other expenses. Any such restrictions or limitations on the Company's hiring
practices could have a material adverse effect on the Company's business,
operating results and financial condition.

Increasing Significance and Risks of Non-U.S. Operations

The Company's international consulting and offshore software development
operations are important elements of its growth strategy. The Company opened
offices in the United Kingdom in 1990, in Chennai, India in 1992, in Bangalore,
India in 1995 and in Hyderabad, India in 1996. These operations depend greatly
upon political climate and business and technology transfer laws in those
countries, and upon the continued development of technology infrastructure.
There can be no assurance that the Company's international operations will
continue to be profitable or support the Company's growth strategy. The risks
inherent in the Company's international business activities include unexpected
changes in the political climate, regulatory environments, foreign currency
fluctuations, tariffs and other trade barriers, difficulties in managing
international operations and potential foreign tax consequences, including
repatriation of earnings and the burden of complying with a wide variety of
foreign laws and regulations. The Company's failure to manage growth, attract
and retain personnel, manage major development efforts, or profitably deliver
services or a significant interruption in the Company's ability to transmit data
via satellite, could have a material adverse impact on the Company's ability to
maintain and develop successfully is international operations and could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- CBSI Growth Strategies."

The Company's international operations are subject to a number of special
risks, including currency exchange rate fluctuations, trade barriers, exchange
controls, political risks and risk of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies.

Variability Operating Results

The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the timing and number of client projects commenced and completed during the
quarter, the number of working days in a quarter, employee hiring, attrition and
utilization rates and progress on fixed-price projects during the quarter.
Because a high percentage of the Company's expenses, in particular personnel and
facilities costs, are relatively fixed, a variation in revenues may cause
significant variations in operating results. Additionally, the Company
periodically incurs cost
16
<PAGE> 19

increases due to both the hiring of new employees and strategic investments in
its infrastructure in anticipation of future opportunities for revenue growth.
No assurances can be given that quarterly results will not fluctuate, causing a
material adverse effect on the Company's financial condition.

Decrease in Demand for Year 2000 Services

The Company expects that it will continue to receive increased revenues
from additional Year 2000 engagements in the near term. However, the Company
expects that Year 2000 engagements and revenues derived from such engagements
will peak prior to calendar year 2000 as companies address their needs.
Thereafter, the Company expects that revenues derived from Year 2000 engagements
will steadily decline. In the absence of additional revenues from other sources,
a decline in such engagements could have a material adverse effect on the
Company's business, operating results and financial condition.

Exposure to Conditions in India

A significant element of the Company's business strategy is to continue to
develop its offshore software development centers in Bangalore and Chennai,
India. As of March 13, 1998, the Company had approximately 30% of its workforce
in India. The Indian government, as a means of encouraging foreign investment,
has provided significant tax incentives and exemptions to regulatory
restrictions. Certain of these benefits that directly affect the Company
include, among others, tax holidays (temporary exemptions from taxation on
operating income) and liberalized import and export duties. To be eligible for
certain of these tax benefits, the Company must meet certain conditions. A
failure to meet such conditions in the future could result in the cancellation
of the benefits. There can be no assurance that such tax benefits will be
continued in the future at their current levels. With respect to duties, subject
to certain conditions, goods, raw materials and components for production
imported by the Company's offices in India are currently exempt from the levy of
a customs duty.

Although wage costs in India are significantly lower than in the U.S. and
elsewhere for comparably skilled IT professionals, wages in India are increasing
at a faster rate than in the U.S. In the past, India has experienced significant
inflation and shortages of foreign exchange, and has been subject to civil
unrest and acts of terrorism. Although the inflation rate for the periods has
been insignificant, increases in inflation in the future could have a material
adverse effect on the Company's business, operating results and financial
condition. Additionally, changes in interest rates, taxation or other social,
political, economic or diplomatic developments affecting India in the future
could also have a material adverse effect on the Company's business, operating
results and financial condition.

Fixed-Price Projects

The Company undertakes certain projects on a fixed-price basis, as
distinguished from billing on a time-and-materials basis. Significant cost
overruns on fixed-price projects could have a material adverse effect on the
Company's business, operating results and financial condition. These risks may
be heightened if the Company acts as a subcontractor on a fixed-price project
because of its limited ability to control project variables and to negotiate
directly with the ultimate client. Although the Company intends to solicit fewer
fixed-price project engagements in the future, there can be no assurance that
any fixed-price project engagements that are accepted by the Company will be
profitable. Failure to achieve profitability on any fixed-price project
engagement could have a material adverse effect on the Company's business,
operating results and financial condition.

Competition

17
<PAGE> 20

programming companies and temporary staffing firms. Many of these competitors
have substantially greater financial, technical and marketing resources and
greater name recognition than the Company. In addition, there are relatively few
barriers to entry into the Company's markets and the Company has faced, and
expects to continue to face, additional competition from new entrants into its
markets. Moreover, there is a risk that clients may elect to increase their
internal IT resources to satisfy their applications solutions needs. Further,
the IT services industry is undergoing consolidation which may result in
increasing pressure on margins. These factors may limit the Company's ability to
increase prices commensurate with increases in compensation. There can be no
assurance that the Company will compete successfully with existing or new
competitors.

Management of Growth

The Company has experienced rapid growth that has placed significant
demands on the Company's managerial, administrative and operational resources.
Revenues have grown from $32.4 million in fiscal year 1992 to $123.8 million in
fiscal year 1997, and the number of employees has grown from 480 as of December
31, 1992 to 2,067 as of December 31, 1997. The Company's continued growth
depends on its ability to recruit and retain IT professionals, to increase its
international operations, to add service lines and to further expand its
offshore facilities. Effective management of growth initiatives will require the
Company to continue to improve its operational, financial and other management
processes and systems and to train, motivate and manage its IT professionals.
Failure to manage growth effectively and to train, motivate and manage its IT
professionals could have a material adverse effect on the Company's business,
operating results and financial condition.

Rapid Technology Change

The IT industry is characterized by rapid technological change, evolving
industry standards, changing client preferences and new product introductions.
The Company's success will depend in part on its ability to develop IT solutions
that keep pace with changes in the IT industry. There can be no assurance that
the Company will be successful in addressing these developments on a timely
basis or that, if these developments are addressed, the Company will be
successful in the marketplace. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
services noncompetitive or obsolete. The Company's failure to address these
developments could have a material adverse effect on the Company's business,
operating results and financial condition.

A significant number of organizations are attempting to migrate business
applications from a mainframe environment to advanced technologies, including
client/server architectures and packaged software solutions. As a result, the
Company's ability to remain competitive will be dependent on several factors,
including its ability to help existing employees maintain or develop mainframe
skills and to train and hire employees with skills in advanced technologies. The
Company's failure to hire, train and retain employees with such skills could
have a material and adverse impact on the Company's business. The Company's
ability to remain competitive will also be dependent on its ability to design
and implement, in a timely and cost-effective manner, effective transition
strategies for clients moving from the mainframe environment to client/server,
packaged software or other advanced architectures. The failure of the Company to
design and implement such transition strategies in a timely and cost-effective
manner could have a material adverse effect on the Company's business.

Risks Related to Acquisitions and Mergers

As a significant part of its business strategy, the Company has expanded
and will continue to seek to expand its operations through the acquisition of or
merger with additional businesses that complement its core skills and have the
potential to increase the overall value of the Company. There can be no
assurance that the Company will be able to identify, acquire or profitably
manage additional businesses or successfully integrate any acquired businesses
into the Company without substantial expenses, delays or other operational or
financial problems. The Company continuously evaluates potential business
combinations. Future acquisitions and mergers may involve a number of special
risks, including diversion of management's attention, failure to retain key
acquired personnel, unanticipated events or circumstances, legal liabilities and
amortization of
18
<PAGE> 21

acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Client satisfaction or performance problems within an acquired firm could have a
material adverse impact on the reputation of the Company as a whole. In
addition, there can be no assurance that acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of the Company to manage
its acquisition strategy successfully could have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
the Company may issue additional shares of its Common Stock to acquire such
additional businesses which may dilute earnings per share and reduce the
percentage ownership of existing shareholders.

Potential Liability to Clients

Many of the Company's engagements, including Year 2000 projects, involve
projects that are critical to the operations of its clients' businesses and
provide benefits that may be difficult to quantify. Although the Company
attempts to contractually limit its liability for damages arising from errors,
mistakes, omissions or negligent acts in rendering its services, there can be no
assurance that its attempts to limit liability will be successful. The Company's
failure or inability to meet a client's expectations in the execution of its
services could result in a material adverse change to the client's operations
and, therefore, could give rise to claims against the Company or damage the
Company's reputation, adversely affecting its business, operating results and
financial condition.

Absence of Long Term Contracts

The typical contractual engagement with a client is for a term of one to
three years. Generally, there is no assurance that a client will renew its
contract when it terminates. In addition, the Company's contracts are generally
cancelable by the client with 30 to 60 days notice. Under such contracts,
clients may unilaterally reduce the use of the Company's services without
penalty. Failure by the Company to retain its existing clients would materially
adversely effect its results of operations.

19
<PAGE> 22

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Complete Business Solutions, Inc.:

We have audited the accompanying consolidated balance sheets of Complete
Business Solutions, Inc. (a Michigan corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 did not audit the financial
statements of Synergy Software, Inc., a company that Complete Business
Solutions, Inc. merged with during 1997 in a transaction accounted for as a
pooling of interests, as discussed in Note 3. Such statements are included in
the related consolidated financial statements of Complete Business Solutions,
Inc. and reflect total revenues and net income of 10% and 28% in 1996, and 7%
and 40% in 1995, respectively, and 7% of total assets in 1996, of the
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to
amounts included for Synergy Software, Inc., is based solely upon the report of
the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Complete Business Solutions, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Detroit, Michigan,
February 6, 1998.
(except with respect to the
matter discussed in Note 15,
as to which the date is
March 19, 1998).

20
<PAGE> 23

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Synergy Software, Inc.

We have audited the balance sheet of Synergy Software, Inc., as of December
31, 1996 and the related statements of operations and retained earnings and cash
flows for the years ended December 31, 1996 and 1995 not presented separately
herein. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Synergy Software, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Chicago, Illinois
October 25, 1997

21
<PAGE> 24

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $57,234 $ 3,743
Accounts receivable, net............................... 25,175 22,689
Deferred taxes......................................... 2,131 --
Prepaid expenses and other............................. 1,168 1,136
------- -------
Total current assets.............................. 85,708 27,568
------- -------
Property and equipment, net................................. 6,456 5,213
Goodwill, net............................................... 2,809 --
Other assets................................................ 759 918
------- -------
Total assets...................................... $95,732 $33,699
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 3,766 $ 2,522
Accrued payroll and related costs...................... 7,945 4,944
Revolving credit facility.............................. -- 5,400
Other accrued liabilities.............................. 3,858 1,471
Distribution payable to shareholders................... 1,325 197
Deferred revenue....................................... 874 1,124
------- -------
Total current liabilities......................... 17,768 15,658
------- -------
Other liabilities........................................... 190 620
Minority interest........................................... -- 1,503
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, none issued............................... -- --
Common stock, no par value, 30,000,000 shares
authorized, 23,426,548 and 14,285,614 shares issued
and outstanding as of December 31, 1997 and 1996,
respectively (Note 15)
Additional paid-in capital............................. 74,300 3,229
Retained earnings...................................... 6,660 15,013
Stock subscriptions receivable......................... (2,503) (2,125)
Cumulative translation adjustment...................... (683) (199)
------- -------
Total shareholders' equity........................ 77,774 15,918
------- -------
Total liabilities and shareholders' equity........ $95,732 $33,699
======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
22
<PAGE> 25

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $123,775 $92,750 $72,658
Cost of revenues:
Salaries, wages and employee benefits.................. 68,577 58,032 49,032
Contractual services................................... 13,939 6,626 3,689
Project travel and relocation.......................... 5,910 3,638 3,258
Depreciation and amortization.......................... 1,174 1,453 1,178
-------- ------- -------
Total cost of revenues............................ 89,600 69,749 57,157
-------- ------- -------
Gross profit...................................... 34,175 23,001 15,501
Selling, general and administrative expenses................ 22,530 16,930 12,858
Merger costs................................................ 1,203 -- --
-------- ------- -------
Income from operations............................ 10,442 6,071 2,643
Interest expense (income), net.............................. (1,506) 520 676
Equity in loss of investee.................................. 251 110 --
-------- ------- -------
Income before provision for income taxes
and minority interest........................... 11,697 5,441 1,967
Provision for income taxes.................................. 4,114 108 10
Minority interest........................................... 82 158 252
-------- ------- -------
Net income........................................ $ 7,501 $ 5,175 $ 1,705
======== ======= =======
Basic earnings per share --
Weighted-average shares outstanding....................... 20,086 13,278 13,276
======== ======= =======
Basic earnings per share.................................. $ 0.37 $ 0.39 $ 0.13
======== ======= =======
Diluted earnings per share --
Weighted-average shares outstanding....................... 20,086 13,278 13,276
Dilutive effect of stock options.......................... 1,210 2,014 1,480
-------- ------- -------
Diluted weighted average shares outstanding............... 21,296 15,292 14,756
======== ======= =======
Diluted earnings per share................................ $ 0.35 $ 0.34 $ 0.12
======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED) (NOTE 15 AND 17)
<S> <C> <C> <C>
Net income as reported...................................... $ 7,501 $ 5,175 $ 1,705
Pro forma incremental income tax provision (benefit)........ (109) 1,805 385
-------- ------- -------
Pro forma net income........................................ $ 7,610 $ 3,370 $ 1,320
======== ======= =======
Basic earnings per share --
Weighted-average shares outstanding....................... 20,354 14,892 14,888
-------- ------- -------
Pro forma basic earnings per share........................ $ 0.37 $ 0.23 $ 0.09
======== ======= =======
Diluted earnings per share --
Weighted-average shares outstanding....................... 20,354 14,892 14,888
Dilutive effect of stock options.......................... 1,210 2,014 1,480
-------- ------- -------
Diluted weighted-average shares outstanding............... 21,564 16,906 16,368
-------- ------- -------
Pro forma diluted earnings per share........................ $ 0.35 $ 0.20 $ 0.08
======== ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 26

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON ADDITIONAL STOCK CUMULATIVE TOTAL
SHARES PAID-IN RETAINED SUBSCRIPTIONS TRANSLATION SHAREHOLDERS'
OUTSTANDING CAPITAL EARNINGS RECEIVABLE ADJUSTMENT EQUITY
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1994.... 13,275,428 $ 4 $ 9,191 $ -- $ -- $ 9,195
Net income.................... -- -- 1,705 -- -- 1,705
Distribution to
shareholders................ -- -- (635) -- -- (635)
Translation adjustment........ -- -- -- -- (159) (159)
---------- ------- -------- ------- ----- --------
Balance -- December 31, 1995.... 13,275,428 4 10,261 -- (159) 10,106
Net income.................... -- -- 5,175 -- -- 5,175
Translation adjustment........ -- -- -- -- (40) (40)
Distribution to
shareholders................ -- -- (423) -- -- (423)
Capital contribution.......... -- 1,100 -- -- -- 1,100
Stock options exercised....... 1,010,186 2,125 -- (2,125) -- --
---------- ------- -------- ------- ----- --------
Balance -- December 31, 1996.... 14,285,614 3,229 15,013 (2,125) (199) 15,918
---------- ------- -------- ------- ----- --------
Net income.................... -- -- 7,501 -- -- 7,501
Translation adjustment........ -- -- -- -- (407) (407)
Stock options exercised....... 535,670 1,204 -- (685) -- 519
Repayment of stock
subscriptions receivable.... -- -- -- 307 -- 307
Conversion of minority
shareholder................. 1,105,264 4,593 -- -- (77) 4,516
Issuances of common stock
during public offerings,
net......................... 7,500,000 61,640 -- -- -- 61,640
Distributions to
shareholders................ -- -- (12,220) -- -- (12,220)
Recapitalizations............. -- 3,634 (3,634) -- -- --
---------- ------- -------- ------- ----- --------
Balance -- December 31, 1997.... 23,426,548 $74,300 $ 6,660 $(2,503) $(683) $ 77,774
========== ======= ======== ======= ===== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

24
<PAGE> 27

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 7,501 $ 5,175 $ 1,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 2,298 2,259 1,843
Provision for doubtful accounts........................ 342 120 105
Minority interest...................................... 82 158 252
Provision for deferred taxes........................... (2,104) -- --
Equity in loss of investee............................. 251 110 --
Stock option expense................................... 236 -- --
Change in assets and liabilities:
Accounts receivable.................................. (2,923) (4,775) (3,568)
Prepaid expenses..................................... (144) (619) 29
Other assets......................................... (54) 12 (4)
Accounts payable..................................... 1,204 842 714
Accrued payroll and related costs and other
liabilities....................................... 5,561 1,687 434
Deferred revenue..................................... (402) 80 312
-------- ------- -------
Net cash provided by operating activities....... 11,848 5,049 1,822
-------- ------- -------
Cash flows from investing activities:
Investment in property, equipment and other............... (3,052) (3,708) (1,678)
Investment in affiliate................................... (405) (195) --
Net repayments on notes receivable -- shareholder......... -- 4 519
-------- ------- -------
Net cash used in investing activities........... (3,457) (3,899) (1,159)
-------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) on revolving credit facility.... (5,400) 50 (100)
Payments on long-term debt................................ (791) (531) (346)
Proceeds from issuance of long-term debt.................. -- 356 828
Net proceeds from issuances of common stock............... 61,640 -- --
S corporation distributions and other, net................ (10,304) (423) (634)
Proceeds from sale of stock in subsidiary, net............ -- 3,500 --
Repurchase of stock in subsidiary......................... -- (2,708) --
Capital contribution...................................... -- 1,100 --
-------- ------- -------
Net cash provided by (used in) financing
activities................................... 45,145 1,344 (252)
-------- ------- -------
Effect of exchange rate changes on cash..................... (45) (12) (38)
-------- ------- -------
Increase in cash and cash equivalents....................... 53,491 2,482 373
Cash and cash equivalents at beginning of period............ 3,743 1,261 888
-------- ------- -------
Cash and cash equivalents at end of period.................. $ 57,234 $ 3,743 $ 1,261
======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 69 $ 553 $ 705
Income taxes........................................... $ 5,508 $ 134 $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

25
<PAGE> 28

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations

Complete Business Solutions, Inc. (CBSI) was founded in 1985. CBSI and its
subsidiaries (the Company) is a worldwide provider of information technology
(IT) services to large and mid-size organizations. The Company offers its
clients a broad range of IT services, from advising clients on strategic
technology plans to developing and implementing appropriate IT solutions.

Principles of Consolidation and Organization

The consolidated financial statements include the accounts of CBSI and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial statements.

On November 20, 1997 the Company signed an Agreement and Plan of Merger
(Merger Agreement) with Synergy Software, Inc., (Synergy) a privately held
Illinois corporation. The merger with Synergy was accounted for by the pooling
of interests method of accounting, and accordingly, the accompanying
consolidated balance sheets and statements of income, cash flows and
shareholders' equity have been retroactively restated.

Through July 1996, CBSI held a 76% interest in Complete Business Solutions
(India) Private Limited (CBS India) with the remaining 24% interest held by an
entity affiliated with CBSI's shareholder (affiliated entity). In July 1996,
CBSI formed CBS Complete Business Solutions (Mauritius) Limited (CBS Mauritius)
and CBSI and the affiliated entity each contributed its ownership interest in
CBS India for a similar interest in CBS Mauritius.

In July 1996, CBS Mauritius sold an ownership interest to an unrelated
entity for approximately $3,500, net of transaction costs. Simultaneously, CBS
Mauritius repurchased its stock held by the affiliated entity for approximately
$2,708 and CBSI made a capital contribution of $1,708 to CBS Mauritius. The net
loss on this transaction was not material. As of December 31, 1996, CBSI owned
72% and the unrelated entity owned 28% of CBS Mauritius, which owned 100% of CBS
India.

As authorized in the CBS Mauritius Shareholders agreement and in connection
with the initial public offering of CBSI's Common Stock, the 28% shareholder of
CBS Mauritius converted its ownership interest in CBS Mauritius into 1,105,264
shares of CBSI's Common Stock. The acquisition of the minority shares was
accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the fair value of the net assets acquired has been
recognized as goodwill of approximately $2,931 in the consolidated balance
sheets and is being amortized over 20 years. The impact of this transaction on
prior years was not significant, therefore pro forma information has not been
provided.

Foreign Currency

For significant foreign operations, the local currencies have been
designated as the functional currencies. The financial statements of these
subsidiaries are translated into U.S. dollars using exchange rates in effect at
year end for assets and liabilities and at the average exchange rate during the
year for revenues and expenses. The resulting foreign currency translation
adjustment is reflected as a separate component of shareholders' equity as of
December 31, 1997 and 1996.

Transaction gains and losses, which were not significant in the years
presented, are reflected in the consolidated statements of income.

26
<PAGE> 29
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents include investments in highly liquid money market
funds with an initial maturity of three months or less.

Financial Instruments

The fair values and carrying amounts of certain of the Company's financial
instruments, primarily accounts receivable and payable, are approximately
equivalent.

The carrying amount of the revolving credit facility approximates fair
value due primarily to the variable rate of interest on this credit facility.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the expected life of the asset or term
of the lease, whichever is shorter.

Revenue Recognition

The Company recognizes professional service fee revenue on
time-and-materials contracts as the services are performed. Revenues on
fixed-priced contracts are recognized using the percentage of completion method.
Percentage of completion is determined by relating the actual cost of work
performed to date to the estimated total cost for each contract. If the estimate
indicates a loss on a particular contract, a provision is made for the entire
estimated loss without reference to the percentage of completion. Retainages,
which are not material for any of the years presented, are included in accounts
receivable in the accompanying consolidated balance sheets. The Company does not
have significant contracts whose original duration is in excess of twelve
months.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform with the 1997 presentation.

2. COMMON STOCK OFFERINGS

In March 1997, CBSI completed its initial public offering of 5,000,000
shares of its Common Stock at a price of $6 per share. This offering consisted
of 4,600,000 shares of newly issued Common Stock and 400,000 shares sold by a
selling shareholder. After underwriting discounts, commissions and other
issuance costs, net proceeds to the Company from this offering were
approximately $23,600. The net proceeds from this offering were used to repay
outstanding debt, payment of a portion of previously undistributed S corporation
earnings, and expansion of existing Company operations. The balance of these
proceeds have been invested and will be used for general corporate purposes,
including working capital needs.

In August 1997, CBSI completed a secondary offering of 5,200,000 shares of
its Common Stock at a price of $14 1/8 per share. This offering consisted of
2,900,000 shares of newly issued Common Stock and 2,300,000 shares sold by
selling shareholders. After underwriting discounts, commissions and other
issuance
27
<PAGE> 30
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs, net proceeds to the Company from this offering were approximately
$38,000. The net proceeds from this secondary offering have been invested and
will be used for further expansion of Company operations; development of new
service lines and possible acquisition of related businesses; and general
corporate purposes, including working capital needs.

3. MERGERS

On September 30, 1997, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 covering 10,000,000 shares of
Common Stock to be issued in conjunction with the future mergers or acquisition
of assets, businesses or securities.

On November 20, 1997, the Company signed a Merger Agreement with Synergy.
The Merger Agreement provided for all of the outstanding Synergy common stock to
be exchanged for 1,390,894 shares of CBSI's common stock. See Note 10.

Accounting policies of the entities were substantially the same, and both
entities reported results of operations on a calendar year basis. There were no
significant intercompany transactions requiring elimination in any period
presented.

Unaudited summarized results of operations and other changes in
shareholders' equity of the previously separate entities for the nine month
period ended September 30, 1997 are as follows:

<TABLE>
<CAPTION>
COMPLETE BUSINESS SYNERGY
SOLUTIONS, INC. SOFTWARE, INC.
<S> <C> <C>
Revenues................................................. $80,309 $9,252
======= ======
Gross profit............................................. $22,170 $2,643
======= ======
Income from operations................................... $ 7,629 $ 977
======= ======
Net income............................................... $ 5,085 $ 777
======= ======
Other significant changes to shareholders equity --
S Corporation distributions and other.................. $10,500 $ 395
======= ======
</TABLE>

On January 27, 1998, the Company signed a definitive merger agreement with
c.w. Costello & Associates, inc. This merger will be accounted for by the
pooling of interests method of accounting in 1998. See Note 18 of Notes to
Consolidated Financial Statements.

4. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

The allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance -- beginning of period.............................. $214 $162 $100
Provision................................................... 342 120 105
Charge-offs................................................. -- (68) (43)
Balance -- end of period....................................
---- ---- ----
$556 $214 $162
==== ==== ====
</TABLE>

The Company's largest client represents 5% and 6% of accounts receivable as
of December 31, 1997 and 1996, respectively, and represents 7%, 11% and 18% of
total revenues for the years ended December 31, 1997, 1996 and 1995,
respectively. No other client accounted for more than 10% of total revenues for
the years ended December 31, 1997, 1996 and 1995. In addition, over 80% of total
revenues in each year for the years ended December 31, 1997, 1996 and 1995,
respectively, were generated from existing clients from the previous fiscal
year.

28
<PAGE> 31
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company grants credit to clients based upon management's assessment of
their creditworthiness. Substantially all of the Company's revenues (and the
resulting accounts receivable) are from large and mid-size companies, major
systems integrators and governmental agencies.

5. PROPERTY AND EQUIPMENT

As of December 31, 1997 and 1996, property and equipment consisted of the
following:

<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
----------------- USEFUL
1997 1996 LIVES
<S> <C> <C> <C>
Equipment................................................ $ 7,702 $ 5,687 3-5 years
Buildings................................................ 1,044 986 31 years
Purchased software....................................... 2,123 1,959 3-5 years
Furniture and fixtures................................... 1,178 813 5-7 years
Leasehold improvements................................... 764 521 5 years
Automobiles.............................................. 429 221 5 years
------- -------
13,240 10,187
Accumulated depreciation................................. (6,784) (4,974)
------- -------
Property and equipment, net.............................. $ 6,456 $ 5,213
======= =======
</TABLE>

6. RELATED PARTY TRANSACTIONS

CBSI entered into two note arrangements aggregating $660 with a shareholder
with a weighted average interest rate of approximately 6%. The amount
outstanding on the notes was $574 as of December 31, 1994. These notes were
repaid during 1995.

During 1995, CBSI made non-interest bearing advances totaling $177,
respectively, to a shareholder. The outstanding advances were repaid in 1995. In
1996, CBSI made non-interest bearing advances of $46 to the same shareholder for
his personal use. The outstanding advances were repaid by the shareholder in
December, 1996.

During 1996, CBS India loaned approximately $100 to a related party. This
loan was short-term and payable on demand. This loan and accrued interest were
repaid during 1997.

During 1996, a shareholder loaned $608 to CBSI in exchange for a note. The
note was short-term and bore interest at 8.25%. This note and accrued interest
of $23 were repaid in December 1996.

The Company provided services to a client whose principal shareholder was a
former director of the Company. The Company earned approximately $129, $216 and
$111 for these services in 1997, 1996 and 1995, respectively.

The Company incurred approximately $478 and $182 for the years ended
December 31, 1997 and 1996, respectively, for consulting services provided by an
affiliate of an outside director. No consulting services were provided to the
Company by the director's affiliate during 1995.

In August 1997, in connection with the Company's secondary offering, a
related party paid the Company approximately $300 as required under Section
16(b) of the Exchange Act of 1934. This amount has been included in additional
paid-in capital in the accompanying consolidated balance sheets.

The above transactions were at prices and terms believed to be equivalent
to those available from unrelated parties.

See Note 1 for additional related party disclosures.

29
<PAGE> 32
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. REVOLVING CREDIT FACILITY

Under a credit arrangement with a commercial bank, the Company may borrow
an amount not to exceed $21 million at the bank's prime interest rate, or Libor
plus 1.5%. The borrowings under the facility are short-term, payable on demand
and are secured by trade accounts receivable and equipment of the Company.

The balance outstanding under this agreement at December 31, 1997 and 1996
was $0 and $5,400, respectively. The weighted average interest rate on the
outstanding borrowings was 7.7% at December 31, 1996.

The credit agreement contains various restrictive covenants which, among
other items, require the Company to maintain certain levels of tangible net
worth, a debt to earnings ratio, and a funded debt to capitalization ratio.

8. SELF-INSURANCE

CBSI is self-insured for health and dental benefits up to $80 per
occurrence. Insurance coverage is carried for risks in excess of this amount.
CBSI has recognized health and dental benefits expense of approximately $2,403,
$2,204 and $1,691 for the years ended December 31, 1997, 1996 and 1995,
respectively. Estimated claims incurred but not reported were $550, and $300 as
of December 31, 1997 and 1996, respectively, and are included in other accrued
liabilities in the accompanying consolidated balance sheets.

9. LEASES

The Company leases its headquarters, regional offices, equipment and
certain automobiles under noncancelable, long-term operating leases.

Rent expense for the years ended December 31, 1997, 1996 and 1995 amounted
to approximately $1,399, $1,084, and $1,059, respectively. The future minimum
lease payments required under these operating leases for the years ending
December 31, are as follows:

<TABLE>
<S> <C>
1998........................................................ $1,362
1999........................................................ 1,332
2000........................................................ 1,362
2001........................................................ 1,358
2002........................................................ 1,152
Thereafter.................................................. 529
------
$7,095
======
</TABLE>

10. STOCK OPTIONS

CBSI maintains a Stock Option Plan (the Plan). Under the Plan, eligible
employees and directors may be granted either Incentive Stock Options (ISOs) or
Non-Incentive Stock Options (NISOs) at the discretion of the Compensation
Committee of the Board of Directors. There are 3,247,454 shares of Common Stock
authorized for grant under the Plan. Options under the Plan are granted at fair
value on the date of grant. The options vest over periods determined by the
Compensation Committee of the Company's Board of Directors. As a result of the
merger with Synergy, as discussed in Note 3, outstanding Synergy stock options
totalling 646,462 as of November 20, 1997 were converted into 418,210 options of
CBSI based on the exchange rate provided in the Merger Agreement. These options
retained their original terms and vesting periods. During 1997, Synergy
recognized approximately $236 of compensation expense related to these stock
options.

The Plan agreements provide for the option holder to exercise the options
in exchange for cash, or a promissory note payable to the Company over a period
of at least five years for NISOs and at least two years

30
<PAGE> 33
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for ISOs. These notes are full recourse and bear interest at the prime rate of
interest determined at the date of exercise. Interest on the loans is payable
every six months.

The Company has elected to provide the pro forma disclosures, as permitted
under the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("SFAS No. 123")". Accordingly, no
additional compensation expense has been recognized for the Plan within the
accompanying consolidated statements of income. Had compensation expense for the
Plan been determined based on the fair value at the grant date for awards in
1997, 1996 and 1995 consistent with the provisions of SFAS No. 123, the
Company's pro forma net income and pro forma net income per common share would
have been reduced to the amounts indicated below:

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income --
As reported............................................... $7,501 $5,175 $1,705
SFAS No. 123 pro forma.................................... 6,494 4,576 1,600
Pro forma diluted earnings per share --
As reported............................................... $ 0.35 $ 0.30 $ 0.12
SFAS No. 123 pro forma.................................... $ 0.30 $ 0.30 $ 0.11
</TABLE>

A summary of option activity, restated to give effect to the merger with
Synergy, follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ WEIGHTED AVERAGE
WEIGHTED AVERAGE OPTIONS FAIR VALUE OF
SHARES EXERCISE PRICE EXERCISABLE OPTIONS GRANTED
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995.................... 1,527,276 $ 1.85 190,264
=======
Options granted........... 610,488 4.10 $0.56
=====
Options exercised......... (1,010,186) 2.11
----------
BALANCE, DECEMBER 31,
1996.................... 1,127,578 2.83 215,834
=======
Options granted........... 1,609,292 10.28 $5.34
=====
Options exercised......... (527,670) 1.84
Options cancelled......... (66,690) 10.50
----------
BALANCE, DECEMBER 31,
1997.................... 2,142,510 $ 8.43 188,312
========== ====== =======
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
the 1997, 1996 and 1995 grants: risk-free rate of interest of 6.7%, 7.0% and
6.2%, respectively; dividend yield of 0%; and expected lives of 3 to 4 years. A
volatility factor of .67 was used in 1997.

11. BENEFIT PLAN

CBSI maintains the Complete Business Solutions, Inc. Incentive Savings Plan
and Trust (the 401(k) plan). All employees of CBSI are eligible to participate
in the 401(k) plan once they have completed one year of service and have
attained age 21.

The 401(k) plan is a defined contribution plan, qualified as a profit
sharing plan under Section 401(k) of the Internal Revenue Code. The 401(k) plan
allows eligible employees to contribute up to 18% of their compensation with
CBSI matching a percentage of the contributions. For the years ended December
31, 1997, 1996 and 1995, CBSI matched 40% of the employees' contribution up to a
maximum of 2.4% of the employees' compensation.

31
<PAGE> 34
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Matching contributions made by the Company amounted to approximately $489,
$406 and $301 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company may also make an additional contribution, at its
discretion, to the 401(k) plan. No such additional contributions have been made
to date.

Synergy maintained a defined contribution 401(k) plan for substantially all
of its employees during the years ended December 31, 1997, 1996 and 1995. Under
the plan, eligible employees could elect to contribute up to 15% of their base
compensation. Synergy contributed an additional 25% of the employees'
contributions up to 1% of the employees' aggregate base compensation. Synergy
contributions to this plan amounted to $34, $26 and $16 for the years ended
December 31, 1997, 1996 and 1995, respectively. Effective January 1, 1998,
Synergy employees became eligible to participate in CBSI's 401(k) plan.

CBSI maintains various employee retention programs, including bonus and
deferred compensation. The expense related to these programs is recognized as
the compensation is earned.

12. INCOME TAXES

Prior to CBSI's initial public offering and the date of the merger with
Synergy, the shareholders of the respective companies had elected, under the
provisions of Subchapter S of the United States Internal Revenue Code, to have
income and related tax benefits of the company included in the taxable income of
the shareholders. As a result, no provision for U.S. federal or state income
taxes has been included in the consolidated statements of income prior to CBSI's
initial public offering and the date of the merger with Synergy.

Upon termination of the Subchapter S elections, future income of the
Company is subject to federal and state income taxes at the corporate level.
Accordingly, the application of the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," resulted in the
recognition of deferred tax assets and liabilities, and a corresponding charge
to the provision for income taxes of approximately $920 during 1997.

Subsequent to the terminations, the Company has provided federal and state
income taxes in the consolidated statements of income based on the effective tax
rate for fiscal year 1997. The unaudited pro forma net income in the
consolidated statements of income reflects applicable pro forma adjustments to
the provision for income taxes to reflect net income as if the Subchapter S
elections had been revoked prior to January 1, 1996.

CBS Mauritius is incorporated in Mauritius and is not subject to income
taxes. CBS India is an Indian corporation subject to income taxes and receives
certain exemptions from Indian income taxes under free trade zone and software
exporters provisions of Indian tax law. CBS-India's tax provision has been
included in the condensed consolidated statements of income as part of the
provision for income taxes. The Company considers all undistributed earnings of
its foreign subsidiaries to be permanently invested. Therefore, no United States
income taxes have been provided on these earnings.

32
<PAGE> 35
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision (benefit) for income taxes consists of:

<TABLE>
<CAPTION>
1997
<S> <C>
Federal:
Current................................................... $ 6,014
Deferred.................................................. (2,104)
-------
3,910
-------
State:
Current................................................... 204
Deferred.................................................. --
-------
204
-------
Total provision........................................ $ 4,114
=======
</TABLE>

The items accounting for the difference between income taxes computed at
the federal statutory rate and the provision for income taxes follow:

<TABLE>
<CAPTION>
1997
<S> <C>
Federal statutory rate...................................... 35.0%
Effect of:
Tax rate differences on foreign earnings not subject to
U.S. tax............................................... (6.1)
Other, net................................................ 3.0%
----
31.9%
S Corporation termination................................. 7.8
S Corporation earnings.................................... (4.5)
----
35.2%
====
</TABLE>

The components of net deferred income taxes include the tax effect of
temporary differences arising from deferred revenue, employee benefits, computer
software and other non-deductible accruals.

33
<PAGE> 36
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. GEOGRAPHIC OPERATIONS INFORMATION

The following table summarizes selected financial information of the
Company's operations by geographic location:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues --
United States......................................... $120,951 $91,782 $71,165
India................................................. 13,644 4,994 3,390
Other international................................... 1,027 755 1,196
Intersegment.......................................... (11,847) (4,781) (3,093)
-------- ------- -------
Total.............................................. $123,775 $92,750 $72,658
======== ======= =======
Income From Operations --
United States......................................... $ 6,910 $ 5,034 $ 1,917
India................................................. 3,445 999 678
Other international................................... 87 38 48
-------- ------- -------
Total.............................................. $ 10,442 $ 6,071 $ 2,643
======== ======= =======
Identifiable Assets --
United States......................................... $ 84,331 $26,279 $22,848
India................................................. 6,697 3,966 1,320
Other international................................... 4,704 3,454 496
-------- ------- -------
Total.............................................. $ 95,732 $33,699 $24,664
======== ======= =======
</TABLE>

14. COMMITMENTS, CONTINGENCIES AND POTENTIAL LIABILITY TO CLIENTS

The allegations of NSI's third-party complaint in the Hawaii action and
NSI's counterclaim in the Rhode Island action are substantively identical. NSI
alleges that the Company wrongfully used information gained in connection with
the letter of intent to attempt to gain control of the State of Hawaii project,
interfered with NSI's relationship with the State of Hawaii, employed or
solicited the employment of NSI employees in violation of contract, and
otherwise breached contractual or other obligations to NSI. NSI seeks damages of
approximately $481 from the Company for services and personnel allegedly
provided to it by NSI, damages of $60,000 predicated on a decline in the market
value of NSI's publicly-traded stock, and other unspecified losses. On May 30,
1997, the Circuit Court of the First Circuit for the State of Hawaii granted the
Company's motion to dismiss claims asserting bad faith breach of contract with
prejudice, and conspiracy without prejudice.

34
<PAGE> 37
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that they will have a material adverse effect on its financial condition,
business, or operations, and intends to vigorously contest the claims asserted
in both actions.

The Company is also, from time to time, a party to ordinary, routine
litigation incidental to the Company's business. After discussion with its legal
counsel, the Company does not believe that the ultimate resolution of any other
existing matter will have a material adverse effect on its financial condition,
results of operations or cash flows.

In addition, many of the Company's engagements, including Year 2000
projects, involve projects that are critical to the operations of its clients'
businesses and provide benefits that may be difficult to quantify. The Company
attempts to contractually limit its liability for damages arising from errors,
mistakes, omissions or negligent acts in rendering its services.

15. SUBSEQUENT EVENT -- STOCK DIVIDEND

On February 18, 1998, the Board of Directors declared a two-for-one split
of the Company's common stock, effected in the form of a stock dividend payable
on March 19, 1998 to shareholders of record on March 5, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. All references to number of shares, except
shares authorized, the number of options and to per share information in the
consolidated financial statements and related notes have been adjusted to
reflect the stock split on a retroactive basis.

16. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)

The following quarterly information is unaudited and has been restated to
give effect to the Synergy merger (in thousands, except per share amounts).

<TABLE>
<CAPTION>
1997 QUARTER ENDED
- ---- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenues........................................... $27,130 $29,834 $32,597 $34,214
Gross profit....................................... 7,099 8,133 9,581 9,362
Income from operations............................. 2,004 2,790 3,812 1,836
Net income......................................... 780 2,184 2,898 1,639
Net income per weighted-average share.............. $0.05 $0.10 $0.13 $0.07
Pro forma net income............................... 1,260 2,031 2,773 1,546
Pro forma diluted earnings per share............... $0.07 $0.10 $0.12 $0.06
</TABLE>

<TABLE>
<CAPTION>
1996 QUARTER ENDED
- ---- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenues........................................... $20,864 $22,716 $24,457 $24,713
Gross profit....................................... 5,323 5,723 6,069 5,886
Income from operations............................. 1,378 1,730 1,853 1,110
Net income......................................... 1,158 1,446 1,579 992
Net income per weighted-average share.............. $0.08 $0.09 $0.10 $0.06
Pro forma net income............................... 738 902 999 731
Pro forma diluted earnings per share............... $0.04 $0.05 $0.06 $0.04
</TABLE>

17. PRO FORMA EARNINGS PER COMMON SHARE (UNAUDITED)

Pro Forma Statement of Income Information

The pro forma adjustments for the incremental income tax provision included
in the accompanying consolidated statements of income reflects the additional
provision for Federal and state income taxes at the

35
<PAGE> 38
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

effective income tax rate as if the Company's Subchapter S elections had been
revoked prior to January 1, 1995 and the Company had been taxed as a C
corporation and no foreign tax holidays had been granted during the periods
presented. The differences between the United States Federal statutory rate and
the consolidated effective rate are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax rate........................... 35.0% 34.0% 34.0%
State income taxes, net of Federal tax effect............... 2.0 3.0 3.0
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (7.1) (2.5) (18.1)
Non-deductible merger costs................................. 2.5 -- --
Equity in loss of investee.................................. 0.7 0.7 --
Other....................................................... 1.4 1.0 4.1
---- ---- -----
34.5% 36.2% 23.0%
==== ==== =====
</TABLE>

The Company considers all undistributed earnings of foreign subsidiaries to
be permanently invested. Therefore, no United States income taxes have been
provided on these earnings.

Pro forma weighted average shares outstanding is based on the following:
(i) the weighted average number of shares of Common Stock outstanding; (ii) the
dilutive effect of outstanding Common Stock equivalents; (iii) the stock options
and convertible shares issued during the twelve months immediately preceding the
offering date (using the treasury stock method and the proposed initial public
offering price per share) for all periods presented; and (iv) the sale of a
sufficient number of shares of the Company's common stock necessary to provide
funds to pay the cash portion of the S corporation distribution.

18. SUBSEQUENT EVENT -- MERGER WITH C.W. COSTELLO & ASSOCIATES, INC. (UNAUDITED)

On January 27, 1998 the Company signed an Agreement and Plan of Merger with
c.w. Costello & Associates, inc. (Costello), a privately held Delaware
Corporation and with the holders of the issued and outstanding capital stock of
Costello.

This merger agreement provides for all of the outstanding Costello common
stock to be exchanged for 3,363,090 shares of the Company's common stock. In
negotiating the purchase price, the Company considered the current market value
of its common stock, Costello's reputation as a premier provider of IT services
to large and mid-sized corporations, the minimal overlap of Costello and the
Company's clients, the broad range of IT services provided by Costello,
Costello's 750 IT professionals and the opportunity to improve Costello's
margins.

The merger with Costello will be accounted for by the pooling of interests
method of accounting.

36
<PAGE> 39
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The unaudited pro forma consolidated balance sheet shown below as of
December 31, 1997 gives effect to the merger with Costello as if it had occurred
on that date.

<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL C.W. COSTELLO
COMPLETE BUSINESS & PRO FORMA
SOLUTIONS, INC. ASSOCIATES, INC. CONSOLIDATED
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $57,234 $ 224 $ 57,458
Accounts receivable, net............................. 25,175 13,399 38,574
Deferred taxes....................................... 2,131 -- 2,131
Prepaid expenses and other........................... 1,168 638 1,806
Receivables from related parties -- current.......... -- 236 236
------- ------- --------
Total current assets............................ 85,708 14,497 100,205
------- ------- --------
Property and equipment, net............................ 6,456 1,915 8,371
Goodwill, net.......................................... 2,809 -- 2,809
Other assets........................................... 759 -- 759
Receivables from related parties -- net of current
portion.............................................. -- 240 240
------- ------- --------
Total assets.................................... $95,732 $16,652 $112,384
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll and related costs.................... $ 7,945 $ 7,685 $ 15,630
Accounts payable..................................... 3,766 604 4,370
Note payable......................................... -- 3,380 3,380
Distribution payable to shareholders................. 1,325 -- 1,325
Deferred revenue..................................... 874 201 1,075
Other accrued liabilities............................ 3,858 2,635 6,493
------- ------- --------
Total current liabilities....................... 17,768 14,505 32,273
------- ------- --------
Other liabilities...................................... 190 -- 190
Commitments and contingencies
Shareholders' equity:
Preferred stock...................................... -- -- --
Common stock......................................... -- -- --
Additional paid-in capital........................... 74,300 1,028 75,328
Retained earnings.................................... 6,660 1,119 7,779
Stock subscriptions receivable....................... (2,503) -- (2,503)
Cumulative translation adjustment.................... (683) -- (683)
------- ------- --------
Total shareholders' equity...................... 77,774 2,147 79,921
------- ------- --------
Total liabilities and shareholders' equity...... $95,732 $16,652 $112,384
======= ======= ========
</TABLE>

37
<PAGE> 40
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The unaudited pro forma consolidated statements of income shown below for
the years ended December 31, 1997, 1996, and 1995, give effect to the following
transactions as if such transactions had occurred as of the beginning of the
periods;

(i) amortization of goodwill over a period of 20 years as a result of
CBSI's purchase of the 28% minority interest in CBS Mauritius, including
the elimination of the minority interest;

(ii) elimination of interest expense to give effect to the repayment
of CBSI's revolving credit facility and long-term debt;

(iii) merger with Costello, and

(iv) provision for Federal and state income taxes at the effective
income tax rate as if the companies had been taxed as a C corporation and
no foreign tax holidays had been granted during the periods presented. The
tax provision was computed as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax rate........................... 35.0% 34.0% 34.0%
State income taxes, net of Federal tax effect............... 2.0 3.0 3.0
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (8.4) (3.1) (8.8)
Non-deductible merger costs................................. 3.0 -- --
Equity in loss of investee.................................. 0.9 0.5 --
Other....................................................... 2.7 2.9 4.3
----- ----- -----
35.2% 37.3% 32.5%
===== ===== =====
</TABLE>

38
<PAGE> 41
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL MERGER
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS C.W. COSTELLO & PRO FORMA PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. ASSOCIATES, INC. ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $123,775 $ -- $123,775 $70,175 $ -- $193,950
Cost of revenues:
Salaries, wages and
employee benefits... 68,577 -- 68,577 49,279 -- 117,856
Contractual
services............ 13,939 -- 13,939 1,947 -- 15,886
Project travel and
relocation.......... 5,910 -- 5,910 2,128 -- 8,038
Depreciation and
amortization........ 1,174 -- 1,174 -- -- 1,174
-------- ---- -------- ------- ----- --------
Total cost of
revenues.......... 89,600 -- 89,600 53,354 -- 142,954
-------- ---- -------- ------- ----- --------
Gross profit........ 34,175 -- 34,175 16,821 -- 50,996
Selling, general and
administrative
expenses.............. 22,530 24 22,554 17,855 -- 40,409
Merger costs............ 1,203 -- 1,203 -- -- 1,203
-------- ---- -------- ------- ----- --------
Income (loss) from
operations........ 10,442 (24) 10,418 (1,034) -- 9,384
Interest expense
(income), net......... (1,506) (53) (1,559) 786 -- (773)
Equity in loss of
investee.............. 251 -- 251 -- -- 251
-------- ---- -------- ------- ----- --------
Income (loss) before
provision for
income taxes and
minority
interest.......... 11,697 29 11,726 (1,820) -- 9,906
Provision for income
taxes................. 4,114 (89) 4,025 120 (655) 3,490
Minority interest....... 82 (82) -- -- -- --
-------- ---- -------- ------- ----- --------
Net income (loss)... $ 7,501 $200 $ 7,701 $(1,940) $ 655 $ 6,416
======== ==== ======== ======= ===== ========
Diluted earnings per
share................. $ 0.36 $ 0.26
======== ========
Weighted average shares
outstanding........... 21,564 24,727
======== ========
</TABLE>

39
<PAGE> 42
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL MERGER
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS C.W. COSTELLO & PRO FORMA PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. ASSOCIATES, INC. ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $92,750 $ -- $92,750 $42,557 $ -- $135,307
Cost of revenues:
Salaries, wages and
employee benefits.... 58,032 -- 58,032 27,555 -- 85,587
Contractual services... 6,626 -- 6,626 1,028 -- 7,654
Project travel and
relocation........... 3,638 -- 3,638 1,518 -- 5,156
Depreciation and
amortization......... 1,453 -- 1,453 -- -- 1,453
------- ------- ------- ------- ----- --------
Total cost of
revenues........ 69,749 -- 69,749 30,101 -- 99,850
------- ------- ------- ------- ----- --------
Gross profit....... 23,001 -- 23,001 12,456 -- 35,457
Selling, general and
administrative
expenses............... 16,930 147 17,077 11,264 -- 28,341
------- ------- ------- ------- ----- --------
Income from
operations...... 6,071 (147) 5,924 1,192 -- 7,116
Interest expense
(income), net.......... 520 (610) (90) 135 -- 45
Equity in loss of
investee............... 110 -- 110 -- -- 110
------- ------- ------- ------- ----- --------
Income before
provision for
income taxes and
minority
interest........ 5,441 463 5,904 1,057 -- 6,961
Provision for income
taxes.................. 108 2,031 2,139 86 370 2,595
Minority interest........ 158 (158) -- -- -- --
------- ------- ------- ------- ----- --------
Net income......... $ 5,175 $(1,410) $ 3,765 $ 971 $(370) $ 4,366
======= ======= ======= ======= ===== ========
Diluted earnings per
share.................. $ 0.21 $ 0.21
======= ========
Weighted average shares
outstanding............ 18,016 21,009
======= ========
</TABLE>

40
<PAGE> 43
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA C.W. COSTELLO MERGER
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS & PRO FORMA PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. ASSOCIATES, INC. ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $72,658 $ -- $72,658 $25,428 $ -- $98,086
Cost of revenues:
Salaries, wages and
employee benefits.... 49,032 -- 49,032 15,054 -- 64,086
Contractual services... 3,689 -- 3,689 1,020 -- 4,709
Project travel and
relocation........... 3,258 -- 3,258 1,080 -- 4,338
Depreciation and
amortization......... 1,178 -- 1,178 -- -- 1,178
------- ----- ------- ------- ----- -------
Total cost of
revenues........ 57,157 -- 57,157 17,154 -- 74,311
------- ----- ------- ------- ----- -------
Gross profit....... 15,501 -- 15,501 8,274 -- 23,775
Selling, general and
administrative
expenses............... 12,858 147 13,005 6,715 -- 19,720
------- ----- ------- ------- ----- -------
Income from
operations...... 2,643 (147) 2,496 1,559 -- 4,055
Interest expense
(income), net.......... 676 (724) (48) 62 -- 14
------- ----- ------- ------- ----- -------
Income before
provision for
income taxes and
minority
interest........ 1,967 577 2,544 1,497 -- 4,041
Provision for income
taxes.................. 10 653 663 128 524 1,315
Minority interest........ 252 (252) -- -- -- --
------- ----- ------- ------- ----- -------
Net income......... $ 1,705 $ 176 $ 1,881 $ 1,369 $(524) $ 2,726
======= ===== ======= ======= ===== =======
Diluted earnings per
share.................. $ 0.11 $ 0.14
======= =======
Weighted average shares
outstanding............ 17,478 20,083
======= =======
</TABLE>

41
<PAGE> 44

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

None

42
<PAGE> 45

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company as of March 15, 1998 were as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Rajendra B. Vattikuti................ 47 President, Chief Executive Officer and Director
Timothy S. Manney.................... 39 Executive Vice President of Finance and Administration,
Treasurer and Director
Daniel S. Rankin..................... 43 Vice President of Technical Services
Gena M. Lodolo....................... 49 Vice President of Sales
Nanjappa S. Venugopal................ 45 Director of Human Resources
Douglas S. Land...................... 40 Director
Frank D. Stella...................... 79 Director
John A. Stanley...................... 60 Director
</TABLE>

Rajendra B. Vattikuti, founded the Company and has been its President and
Chief Executive Officer since February 1985.

Timothy S. Manney has served as Executive Vice President of Finance and
Administration and Treasurer and as a Director since November 1993. From
February 1990 to November 1993, Mr. Manney held various positions with the
Company, most recently as Chief Financial Officer. Mr. Manney joined CBSI in
1990.

Daniel S. Rankin has served as Vice President of Technical Services since
September 1994. From September 1990 to September 1994, Mr. Rankin served as
Director of Insurance Services for Medstat, Inc. Mr. Rankin joined CBSI in 1994.

Gena Lodolo has served as Vice President of Sales since June 1997. From
April 1995 to June 1997, Ms. Lodolo was an independent marketing consultant to
manufacturing companies. From January 1986 to April 1995, Ms. Lodolo held
various sales related positions at Data General Corporation, including positions
as Sales Director, Reseller Division and District Manager, Midwest Division. Ms.
Lodolo joined the Company in 1997.

Nanjappa S. Venugopal has served as Director of Human Resources since
October 1996. Mr. Venugopal also served as the business unit manager for the
manufacturing sector of the Company from September 1991 to September 1996. Mr.
Venugopal joined the Company in 1991.

Douglas S. Land has served as a Director since November 1993 and as an
advisor to the Company since 1988. Mr. Land is the founder and President of
Economic Analysis Group, Ltd., a Washington DC-based consulting firm that has
been providing financial and economic consulting services since 1983. Mr. Land
is also the President and founder of The Chesapeake Group, a financial advisory
firm that has been providing consulting services to start-up and middle-market
firms since 1985. From January 1992 to February 1993, Mr. Land was an Executive
Vice President of Hambro Resource Development Incorporated, an affiliate of
Hambros Bank London, which provides investment and merchant banking services.
Mr. Land holds a Bachelor of Science degree in Economics, a Master of Business
Administration degree in Finance and a Master of Arts degree in International
Relations from the University of Pennsylvania.

Frank D. Stella has served as a Director since November 1993. Mr. Stella
has served as President of F.D. Stella Products Company, a food service and
dining equipment company, since 1946. Mr. Stella was appointed to the Commission
for White House Fellows by President Ronald W. Reagan in 1983 and has served as
Chairman of the Income Tax Board of Review, City of Detroit, since 1965. Mr.
Stella is also a board member of VFS, Inc., an insurance holding company, and a
former board member of the Federal Home Loan Bank of Indianapolis. He is also on
the boards of several medical and charitable organizations. Mr. Stella holds a
degree from the College of Commerce and Finance at the University of Detroit.

43
<PAGE> 46

John A. Stanley has served as a Director since June 1997. Mr. Stanley has
served as President of European Operations of Lexmark International since March
1991. Previously, he was employed by IBM for 22 years. Mr. Stanley is a graduate
of FitzWilliam College, University of Cambridge, England with a Master of Arts
degree, and holds a degree in Personnel Management from The London School of
Economics.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and each of the other executive
officers whose salary and bonus compensation for the fiscal year ended December
31, 1997 exceeded $100,000 (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS(#)(5) COMPENSATION(2)
<S> <C> <C> <C> <C> <C> <C>
Rajendra B. Vattikuti......... 1997 $350,000 $350,000 $16,788(1) -- $3,800
President and 1996 411,000 288,000 14,729(2) -- 3,800
Chief Executive Officer
Timothy S. Manney............. 1997 180,000 108,000 -- -- 3,800
Executive Vice President of 1996 150,000 50,000 2,746(4) -- 3,800
Finance and Administration,
Treasurer
Daniel S. Rankin.............. 1997 180,000 50,000 -- -- 2,980
Vice President of Technical 1996 160,000 35,000 -- -- 3,800
Services
Gena M. Lodolo................ 1997 78,750 62,473 -- 50,000 --
Vice President of Sales 1996 -- -- -- -- --
Nanjappa S. Venugopal......... 1997 125,000 40,000 -- -- 692
Director of Human Resources 1996 100,000 35,000 -- 59,422 3,240
</TABLE>

- -------------------------
(1) Includes $4,688 representing the imputed value of certain health and life
insurance benefits provided by the Company to Mr. Vattikuti and $12,100
representing the personal use of corporate cars.

(2) Includes $3,576 representing the imputed value of certain health and life
insurance benefits provided by the Company to Mr. Vattikuti and $11,153
representing the personal use of corporate cars. It does not include
benefits from certain non-interest bearing loans outstanding during 1996.

(3) Represents amount of contribution by the Company on behalf of such
individual to the Company's 401(k) Plan.

(4) Represents the imputed value of certain health and life insurance benefits
provided by the Company.

(5) Adjusted for March 19, 1998 2 for 1 stock dividend.

44
<PAGE> 47

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO TERM(1)
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME OPTION GRANTED FISCAL YEAR PRICE(2) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gena M. Lodolo(3)(4)........ 50,000 10% $9.19 9/12/06 $253,335 $623,977
</TABLE>

- -------------------------
(1) The potential realizable value is calculated based on the terms of the
option at the time of grant (nine years). Assumed stock price appreciation
of 5% and 10% is based on the fair value at the time of grant.

(2) The exercise price equals the fair market value of the Common Stock as of
the grant date as determined by the Board of Directors.

(3) Ms. Lodolo's options are exercisable in four equal annual installments
commencing on June 3, 1998.

(4) Share numbers and the exercise prices of Stock Options are adjusted to
reflect the March 19, 1988 2 for 1 stock dividend.

The following table sets forth certain information with respect to the
stock options held at December 31, 1996 by the Named Executive Officers below
who exercised options during 1997:

AGGREGATED OPTION EXERCISES IN 1997 AND 1997 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR END(#) YEAR END($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Daniel S. Rankin........ 70,000 $841,400 78,556 148,556 $1,708,637 $3,231,093
Nanjappa S. Venugopal... 19,806 198,951 -- 39,616 -- 861,648
Gena M. Lodolo.......... -- -- -- 50,000 -- 628,000
</TABLE>

- -------------------------
(1) Calculated based on December 31, 1997 stock price of $21.75 as adjusted for
March 19, 1998 2 for 1 stock dividend.

(2) All share numbers adjusted to reflect the March 19, 1998 2 for 1 stock
dividend.

45
<PAGE> 48

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table set forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 13, 1998 (i) for each person
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock; (ii) each director of the Company; (iii) each of the Named
Executive Officers; and (iv) by all executive officers and directors as a group.
Except as noted, all persons listed below have sole voting and investment power
with respect to their shares of Common Stock, subject to community property laws
where applicable.

<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
--------------------
NUMBER OF
NAME SHARES(8) PERCENT
<S> <C> <C>
Rajendra B. Vattikuti(1)(9)................................. 9,984,550 37%
Putnum Investments Inc.(2).................................. 2,300,200 9%
Charles Costello(7)......................................... 1,405,484 5%
Timothy S. Manney(1)........................................ 449,004 2%
Douglas S. Land(3).......................................... 356,860 1%
Daniel S. Rankin(1)(4)...................................... 227,114 1%
Frank D. Stella(5).......................................... 51,596 *
Nanjappa S. Venugopal(1).................................... 19,806 *
John A. Stanley(6).......................................... 11,300 *
Gena Lodolo(1).............................................. -- *
All directors and executive officers as a group (8
persons).................................................. 11,100,230 41%
</TABLE>

- -------------------------
* Less than 1%.

(1) The address of Mr. Vattikuti, Mr. Manney, Mr. Rankin, Mr. Venugopal and Ms.
Lodolo is c/o Complete Business Solutions, Inc., 32605 West Twelve Mile
Road, Suite #250, Farmington Hills, MI 48334.

(2) The address of Putnam Investments, Inc. is One Post Square, Boston, MA
02109.

(3) The address of Mr. Land is c/o the Chesapeake Group, 515 Madison Avenue,
21st Floor, New York, NY, 10022. Does not include 28,522 shares transferred
to certain family members. Mr. Land disclaims beneficial ownership of such
shares.

(4) Includes 207,114 shares subject to options immediately exercisable.

(5) The address of Mr. Stella is c/o F. D. Stella Products Company, 7000
Fenkell, Detroit, MI 48238. Includes 25,846 shares subject to options
immediately exercisable.

(6) The address of Mr. Stanley is c/o Lexmark International, Immeuble Jean
Monnet, 11 Place des Vosques, Paris La Defense, France 92061.

(7) The address of Mr. Costello is 5583 Golf Pointe Dr., Sarasota, FL 34243.
Includes 113,834 shares owned by his spouse.

(8) Adjusted for the March 19, 1998 2 for 1 stock dividend.

(9) Does not include 40,580 shares owned by his spouse. Mr. Vattikuti disclaims
beneficial ownership of such shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (IN THOUSANDS)

During 1996, CBS India loaned approximately $100 to Vanaja Gangavarupu, the
mother-in-law of Rajendra Vattikuti. This loan was short-term, payable on demand
and noninterest bearing. This loan and accrued interest were repaid during 1997.

The Company incurred approximately $478 and $182 for the years ended
December 31, 1997 and 1996, respectively, for consulting services provided by
The Chesapeake Group, an entity affiliated with Douglas Land. No consulting
services were provided to the Company by The Chesapeake Group during 1995.

46
<PAGE> 49

In August 1997, in connection with the Company's secondary offering,
Rajendra Vattikuti paid the Company approximately $300 as required under Section
16(b) of the Exchange Act of 1934. This amount has been included in additional
paid-in capital in the accompanying consolidated balance sheets.

During 1997, Timothy Manney repaid $181 of a promissory note which was
issued in 1996 in conjunction with the exercise of Nonqualified Stock Options.

During 1997, Mr. Land repaid $126 of a promissory note which was issued in
1996 in conjunction with the exercise of Nonqualified Stock Options.

During 1997, Nanjappa Venugopal exercised a portion of his stock options
and the Company issued 19,806 shares of Common Stock for an aggregate purchase
price of $83. Pursuant to the terms of the Incentive Stock Option Agreement
between Mr. Venugopal and the Company, the Company loaned Mr. Venugopal $83 to
purchase shares. The promissory note executed by Mr. Venugopal provides that the
loan matures in October 1999 and bears interest at the rate of 6% per annum,
payable semi-annually.

Subsequent to March 5, 1997, the Company made partial distributions to
certain shareholders of $10,600 as part of the termination of the Company's S
corporation status.

47
<PAGE> 50

PART IV

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

(a) Documents filed as a part of the report:

1. Consolidated Financial Statements

The following consolidated financial statements of the Company and
its subsidiaries are filed herewith:

<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report................................ 20
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 22
Consolidated Statements of Income for each of the years
ended December 31, 1997, 1996 and 1995.................... 23
Consolidated Statements of Shareholders' Equity for each of
the years ended December 31, 1997, 1996 and 1995.......... 24
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1997, 1996 and 1995.................... 25
Notes to Consolidated Financial Statements.................. 26
</TABLE>

2. Financial Statement Schedules

None

3. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
3.1* Restated Articles of Incorporation of the Company, as
amended.
3.2* Bylaws of the Company.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Restated
Articles of Incorporation and Restated Bylaws of the Company
defining rights of the holders of Common Stock of the
Company.
4.2* Specimen Stock Certificate.
10.1* Employment Agreement dated December 12, 1996 between the
Company and Rajendra B. Vattikuti.
10.2* Employment Agreement dated December 12, 1996 between the
Company and Timothy S. Manney.
10.3* Lease dated October 22, 1992 and its seven amendments dated
October 1, 1993, June 14, 1994, June 28, 1994, September 30,
1994, October 14, 1994, August 10, 1995 and August 6, 1996,
between the Company and Orchard Ridge Office Park Limited
Partnership.
10.3(a)** Lease amendments Nos. 8 and 9 dated June 11, 1997, and June
20, 1997, respectively, between the Company and Orchard
Ridge Office Park Limited Partnership.
10.5* 1996 Stock Option Plan.
10.5(a) Amended 1996 Stock Option Plan.
10.6* Form of Incentive Stock Option Agreement.
10.7* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Daniel S. Rankin.
10.8* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Douglas S. Land.
10.9* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Timothy S. Manney.
10.10* U.S. License Agreement dated November 3, 1995 between the
Company and Andersen Consulting LLP, as amended.
</TABLE>

48
<PAGE> 51

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.11* Acquisition Agreement, dated as of July 19, 1996 between the
Company, JF Electra (Mauritius) Limited, CBS Complete
Business Solutions (Mauritius) Limited and Raj Vattikuti
(without Exhibits).
10.13** Loan Agreement dated June 18, 1997 between the Company and
NBD Bank.
10.14* Promissory Note dated December 30, 1996 and Exercise and
Loan Notice and Stock Pledge dated December 30, 1996, each
executed by Douglas S. Land.
10.15* Promissory Note dated December 30, 1996 and Exercise and
Loan Notice and Stock Pledge dated December 30, 1996, each
executed by Timothy S. Manney.
10.16* Incentive Stock Option Agreement dated September 12, 1996
between the Company and Nanjappa S. Venugopal.
10.17(a)* Nonqualified Stock Option Agreement dated March 3, 1997
between the Company and Frank Stella regarding October 27,
1995 grant date.
10.17(b)* Nonqualified Stock Option Agreement dated March 3, 1997
between the Company and Frank Stella regarding September 12,
1996 grant date.
10.18** Lease Agreement, dated June 17, 1997 between Complete
Business Solutions (India) Private Limited and the President
of India through the Development Commissioner, Madras Export
Processing Zone.
10.19 Complete Business Solutions Employee Stock Purchase Plan.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Coopers and Lybrand, L.L.P.
27.1 Financial Data Schedule.
</TABLE>

- -------------------------
* Incorporated herein by reference to exhibit of the same number in the Form
S-1 Registration Statement of the Registrant (Registration No. 333-18413)
dated as of December 20, 1996, as amended.

** Incorporated herein by reference to Exhibit of the same number in the Form
S-1 Registration Statement of the Registrant (Registration No. 333-32739
dated as of August 4, 1997.)

(b) Reports on Form 8-K During the Last Quarter of the Fiscal Year ended
December 31, 1997

One

49
<PAGE> 52

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1937, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

COMPLETE BUSINESS SOLUTIONS, INC.

By: /s/ RAJENDRA B. VATTIKUTI

------------------------------------
Rajendra B. Vattikuti
President, Chief Executive Officer
and Director

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

<TABLE>
<C> <S> <C>
/s/ TIMOTHY S. MANNEY Executive Vice President of Finance and March 30, 1998
- ------------------------------------------ Administration, Treasurer and Director
Timothy S. Manney Principal Financial and Accounting
Officer

/s/ FRANK D. STELLA Director March 30, 1998
- ------------------------------------------
Frank D. Stella

/s/ DOUGLAS S. LAND Director March 30, 1998
- ------------------------------------------
Douglas S. Land

/s/ JOHN A. STANLEY Director March 30, 1998
- ------------------------------------------
John A. Stanley
</TABLE>

<PAGE> 1
EXHIBIT-10.5(A)

As Amended March 23, 1998

COMPLETE BUSINESS SOLUTIONS, INC.

STOCK OPTION PLAN

1. ESTABLISHMENT OF PLAN

The Complete Business Solutions, Inc. Stock Option Plan (the "Plan")
was formulated by Complete Business Solutions, Inc. (the "Company") to
encourage employees of the Company and its subsidiaries to acquire common stock
in the Company through Incentive Stock Options (as hereinafter defined) and to
permit the Company to offer Nonqualified Options (as hereinafter defined) to
persons including without limitation directors, consultants and employees of
the Company. It is believed that the Plan will encourage such employees and
other persons to have a greater financial investment in the Company through
ownership of its common stock, will further stimulate their efforts on the
Company's behalf, will tend to maintain and strengthen their desire to remain
with the Company, and generally will be in the best interests of the Company and
its shareholders.

The following is a statement of the Plan, as adopted by the Board of
Directors on July 10, 1996 approved by the shareholders on September 10, 1996,
and amended by the Board of Directors on March 23, 1998.

2. TYPES OF OPTIONS

Options granted under the Plan may be two types: (a) "Incentive Stock
Options" designed to comply with the requirements of Section 422 of the
"Internal Revenue Code of 1986, as amended (the "Code") and (b) other options
("Nonqualified Options"). Eligible Employees (as defined in Section 14) under
the Plan may be granted either Incentive Stock Options, Nonqualified Options, or
both but the nature of each option shall be clearly designated at the time of
the grant. Persons who are not Employees of the Company on the date of grant
may only be granted Nonqualified Options. To the extent that any option
designated as an "Incentive Stock Option" under the Code, on the date of grant,
shall fail, for any reason whatsoever, to qualify for treatment as an
"Incentive Stock Option" under the Code, such option shall not lapse or
terminate, but shall become a Nonqualified Option for purposes of the Plan and
the Code.

3. AMOUNT OF STOCK SUBJECT TO THE PLAN

The total number of shares of common stock of the Company which may be
sold pursuant to options granted under the Plan from its date of inception and
pursuant to previously granted nonqualified options shall not exceed 7,247,454.
The shares sold under the Plan may be either authorized and unissued stock or
treasury stock. In the event that any options granted under the Plan shall
terminate or expire for any reason without having been exercised in full, the
shares not purchased under the options shall be available again for the purposes
of the Plan.

1
<PAGE> 2

4. ADMINISTRATION

Except as herein otherwise provided, the Plan shall be administered by
the Board of Directors (the "Board") or under the supervision and on behalf of
the Board of Directors of the Company by a Committee (the "Committee") composed
of two or more directors who shall be appointed and may be removed by a
majority vote of the Board of Directors. Subject to the express provisions of
the Plan, the Board or the Committee shall have authority in its discretion to
determine the Employees to receive Incentive Stock Options and Employees or
other persons to receive Nonqualified Options, the times when they shall
receive them, the option price and term of each option, the period during which
each option may be exercised, and the number of shares to be subject to each
option.

Subject to the express provisions of the Plan, the Board or the
Committee shall also have authority to construe the respective option
agreements and the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the fair market value of any stock subject
to the Plan, to determine the terms and provisions of the respective option
agreements (which need not be uniform) and to make all other determinations
necessary or advisable for administering the Plan. The Board or the Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any option agreement, in the manner and to the extent that it
shall deem necessary to carry it into effect, and it shall be the sole and
final judge of such correction. The determination of the Board or the
Committee on the matters referred to in this paragraph shall be conclusive and
binding on the Company and the persons to whom options are granted.

An option granted to a director, an option agreement, other contract or
other transaction under the Plan between the Company and a director, or any
other action taken by the Board or the Committee under the Plan in which a
director is otherwise interested is not void or voidable solely because of such
interest, or solely because any such director is present at the meeting of the
Board or the Committee which authorizes or approves any such option, option
agreement, contract, transaction or action, or solely because his vote is
counted for such purpose, if any of the following conditions is satisfied:

(a) the option, option agreement, contract, transaction or other action
is fair and reasonable to the Company when it is authorized, approved or
ratified;

(b) the material facts as to any such director's relationship or
interest as to the option, option agreement, contract, transaction or action
are disclosed or known to the Board or the Committee and the Board or the
Committee authorizes, approves or ratifies the option, option agreement,
contract, transaction or action by a vote sufficient for the purpose without
counting the vote of any such director; or

2
<PAGE> 3

(c) the material facts as to any such director's relationship or
interest and as to the option, option agreement, contract, transaction or
action are disclosed or known to the shareholders and they authorize, approve or
ratify the option or transaction.

5. ELIGIBILITY

Only Employees shall be eligible to receive Incentive Stock Options
under the Plan Employees and other persons shall be eligible to receive
Nonqualified Options under the Plan. An Employee or other person who has been
granted an option under the Plan or any other stock option plan of the Company
may be granted additional options.

No Incentive Stock Option shall be granted under the Plan to any
individual who, immediately before such option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or its parent or subsidiary corporations, with
the application of the constructive attribution rules of Section 424 of the
Code. However, the foregoing restriction on granting of Incentive Stock
Options shall not apply if at the time the option is granted the option price
is at least 110% of the fair market value of the stock subject to the option
and such option by its terms is not exercisable after the expiration of five
years from the date such option is granted. The aggregate fair market value of
the stock (determined at the time the option is granted) with respect to which
Incentive Stock Options granted to an individual first become exercisable in any
calendar year (under all plans of the Company or any of its parent or
subsidiary corporations) shall not exceed $100,000.

6. OPTION PRICES AND PAYMENT

The purchase price of each share of common stock provided under each
Incentive Stock Option granted pursuant to the Plan shall be a price not less
than the greater of the par value of the stock or the fair market value of the
stock on the date of the granting of the Incentive Stock Option as is determined
in good faith by the Board or the Committee. The purchase price of common stock
issuable upon exercise of options granted under the Plan shall be paid in full
in cash on the date of exercise, or upon such other terms and conditions or such
other consideration as the Board or the Committee shall deem appropriate.

The proceeds of the sale of stock, subject to the options, are to be
added to the general funds of the Company and used for its corporate purposes.

7. PERIOD OF OPTION AND CERTAIN LIMITATIONS ON THE RIGHT TO EXERCISE

The period of time which the Employee must remain in the continuous
employ of the Company or a parent or subsidiary of the Company and the period
of time other optionees must wait from the date the options are granted before
they can exercise any part of the option shall be determined by the Board or
the Committee and shall be contained in the stock option agreement between each
such holder and the Company. In no event, may an Employee or other optionee
exercise any option granted under the Plan after that date which is more than
ten (10) years from

<PAGE> 4
the date of the grant or after such earlier date as may be provided herein. At
the time of the exercise of the option, the holder of the option (or the
purchaser acting under Section 11 below) may be required to represent to the
Company that (1) at that time of exercise it is such holder's present intention
to acquire the shares for investment and not with a view to distributing the
shares and (2) neither the option nor any shares acquired upon exercise of the
option will be sold or otherwise transferred unless such transaction is
registered under the Securities Act of 1933 and any applicable state securities
laws or an exemption from such registration is available.

8. NONTRANSFERABILITY OF OPTIONS

No option granted under the Plan shall be transferable, otherwise than
by Will or by the laws of descent and distribution, nor shall any option be
pledged or hypothecated in any way (whether by operation of law or otherwise).
An option may be exercised during the lifetime of its holder only by such
holder. Any attempt to circumvent this Section shall cause the option and the
rights and privileges conferred by the option to become automatically null and
void.

9. RESTRICTIONS ON SALE OF SHARES

Shares issued pursuant to the exercise of an Incentive Stock Option
under the Plan may not be disposed of by the Employee until the expiration of
12 months after the transfer of such shares to the Employee and 24 months from
the date of grant.

10. TERMINATION OF EMPLOYMENT

Upon the termination of the employment of the holder of an option for
reasons other than death or disability, the rights of such holder shall be
those contained in his stock option agreement. Incentive Stock Options granted
under the Plan shall not be affected by any change of employment if the
holder continues to be an Employee. Option agreements may contain such
provisions as the Board or the Committee shall approve regarding the effect of
leaves of absence guaranteed by statute or contract. Nothing in the Plan or in
any option granted under it shall confer any right to continue in the employ of
the Company or any of its subsidiaries or interfere in any way with the right of
the Company or any of its subsidiaries to terminate any employment at any time.

11. DEATH OR DISABILITY OF HOLDER OF OPTION

In the event of the death or disability of a holder of an option under
the Plan, the option theretofore granted to him may be exercised after his death
or disability by his estate or his legal representative if the option would have
otherwise been exercisable by him and, in the case of Incentive Stock Options,
if he was employed by the Company at the time of death or disability and the
Incentive Stock Option is exercised within three months after the termination of
employment because of death or one year after the termination of employment
because of disability. Notwithstanding the foregoing, all options must be
exercised during the option term and also subject to all the conditions of the
Plan.

4
<PAGE> 5

12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.

Notwithstanding any other provision of the Plan, in the event of any
change in the outstanding common stock of the Company by reason of a stock
dividend, stock split, recapitalization, merger, consolidation, split-up,
split-off, spin-off, combination, or exchange of shares, and the like, the
aggregate number and class of shares available under the Plan and the number and
class of shares subject to each outstanding option and the option prices shall
be appropriately adjusted by the Board or the Committee whose determination
shall be conclusive and in accordance with each Option Agreement. In the event
of any merger, consolidation, or sale or transfer by the Company of
substantially all its assets, the date of termination of any options outstanding
under the Plan and the date on or after which such options, or any portion of
such options not then exercisable, may be exercised, shall be advanced to a date
to be fixed by the Board or the Committee, which date shall not be more than 15
days prior to such merger, consolidation or sale or transfer; provided that the
Company or the shareholders of the Company, immediately after the transaction:
(1) will not own more than 50% of the voting power of the corporation surviving
the transaction; or (2) if the Company and the other corporation both survive
the transaction, will not own more than 50% of the voting power of the Company
and more than 50% of the corporation or business acquired.

13. AMENDMENT AND TERMINATION

Unless the Plan theretofore shall have been terminated as hereinafter
provided, the Plan shall terminate on December 31, 2006 and no option under it
shall be granted thereafter. The Board of Directors of the Company at any time
prior to that date may terminate the Plan, or make such changes in it and
additions to it as the Board of Directors of the Company shall deem advisable;
provided that, to the extent required by Section 422 of the Code, any such
amendments shall be approved by the shareholders within 12 months of their
adoption by the Board of Directors in order to be effective. No termination or
amendment of the Plan may, without the consent of the holder of an option then
existing, terminate his option or materially and adversely affect his rights
under the option.

14. DEFINITION OF EMPLOYEE

For purposes of the Plan, the term "Employee" means regular employees
of the Company and its parents or subsidiaries, who are executive, managerial
or other salaried employees, including officers, whether or not directors of the
Company.

<PAGE> 1
EXHIBIT 10.19

COMPLETE BUSINESS SOLUTIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSE OF PLAN

The 1997 Employee Stock Purchase Plan of Complete Business Solutions, Inc.
(the "Plan") as adopted by the Board of Directors is intended to provide a
method whereby employees of Complete Business Solutions, Inc. and any subsidiary
corporation thereof (the "Company" or "CBSI") will have the opportunity to
purchase shares of CBSI, no par value, common stock (the "Common Stock") at a
price that is less than fair market value on the date of purchase. This Plan is
voluntary and intended to qualify as an Employee Stock Purchase Plan within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").

2. DEFINITIONS

(a) Employee means any person who is customarily employed for 20 hours per
week by CBSI or any CBSI subsidiary and who shall have completed 90 days of
service to CBSI or any CBSI subsidiary.

(b) Monetary Compensation means regular straight-time earnings, payments
for overtime, shift differentials, bonuses, cost of living allowances and sales
commissions, all prior to deduction of taxes.

(d) Board means the Board of Directors of CBSI.

(e) Offering Commencement Date means the date as of which an Offering
shall commence, as determined pursuant to the Plan and specified in each
Offering.

(f) Offering Termination Date means the date as of which an Offering shall
terminate, as determined pursuant to the Plan and specified in each Offering.

(g) Purchase Price means the price per Share at which Stock may be
purchased under the Plan, which shall not be less than 85% of the lower of the
fair market value of a Share on the Offering Commencement Date or the Offering
Termination Date as published in The Wall Street Journal.

(h) Plan Administrator means the Director of Benefits and Personnel of the
Company.

3. ELIGIBILITY

(a) Any Employee who is employed by the Company, or any subsidiary, on the
date his or her participation in the Plan is to become effective shall be
eligible to participate in the Plan.

(b) Not withstanding any provision of the Plan to the contrary, no Employee
shall be granted an option under the Plan:

(i) if, immediately after the grant of the option, such Employee would
own stock, and or outstanding options to purchase stock, possessing 5% or
more of the total combined voting power or value of all classes of stock of
the Company or of any subsidiary of the Company; or

(ii) if such Employee would have rights, under all employee stock
purchase plans of CBSI and its subsidiaries, to purchase more than $25,000
of CBSI Common Stock based on the fair market value of CBSI Common Stock.

4. OFFERING DATES

The Plan will be implemented by making consecutive offerings every six
months commencing in January 1998 and continuing until 500,000 shares have been
issued under the Plan.
<PAGE> 2

5. PAYROLL DEDUCTIONS

(a) Each Employee shall become a participant pursuant to the terms of an
Offering by filing an election to participate in that Offering and by completing
a payroll deduction authorization within such time as may be specified in such
Offering. The election shall authorize a specified dollar amount of each payroll
deduction that the Employee wishes to apply to the purchase of Stock in the
Offering. Such payroll deduction shall be no less than 1% and no more than 10%
of the Employee's Monetary Compensation. Payroll deductions shall commence with
the first regular payroll period coinciding with or ending on the Commencement
Date of the Offering, or at such other time as may be specified in such Offering
and shall end on the earlier of the last regular payroll period coinciding with
or ending before the Expiration Date or, if earlier, upon the termination of the
Participant's employment with the Company.

(b) A participant may not make any changes to his or her participation
during any Offering and, specifically, a participant may not during an Offering,
alter the amount of his or her payroll deductions for such offering. An employee
may make a change in his or her payroll deduction for a subsequent Offering by
filing a new Authorization with the Plan Administrator prior to the Offering
Commencement Date of such Offering.

6. GRANTING OF OPTION

(a) For each Offering, a participating employee shall be deemed to have
been granted an option (the "Option") to purchase, on the applicable Offering
Termination Date, the number of shares of Common Stock determined as follows: a
minimum of 85% of the market value of a share of Common Stock on the applicable
Offering Commencement Date or Offering Termination Date, whichever is lower,
shall be divided into the amount in such employee's payroll deduction account on
such date. The market value of Common Stock shall be determined as provided in
subparagraph (b) below.

(b) The purchase price of a share of Common Stock purchased with payroll
deductions made during each Offering (the "Option Exercise Price") shall be a
minimum of 85% of the lower of the closing price of the Common Stock on the
Nasdaq National Market, as published in The Wall Street Journal, on the Offering
Commencement Date or the Offering Termination Date, whichever is lower,
applicable to such Offering (or the next regular business date on which shares
of Common Stock shall be traded in the event that no shares of Common Stock
shall have been traded on the Offering Commencement Date or the Offering
Termination Date, as applicable).

7. EXERCISE OF OPTION

With respect to each Offering during the term of the Plan:

(a) unless a participant provides written notice of withdrawal to the
Company as hereinafter provided, his or her Option will be deemed to have
been exercised automatically on the Offering Termination Date applicable to
such Offering, for the purpose of the number of full shares of Common Stock
which the accumulated payroll deductions in his or her account at that time
will purchase at the applicable Purchase Price;

(b) by written notice to the Plan Administrator at any time prior to
the Offering Termination Date applicable to any such Offering, a
Participant may elect to withdraw all the accumulated payroll deduction in
his or her account at such time;

(c) fractional shares will not be issued under the Plan and any
accumulated payroll deductions which would have been used to purchase
fractional shares shall be carried over and applied to any subsequent
Offering or Offerings unless withdrawn by the Employee.

2
<PAGE> 3

8. DELIVERY

(a) As promptly as is practicable after the Offering Termination Date of
each Offering, the Company will deliver to each participant, certificates
representing the shares of Common Stock purchased under the Plan.

(b) Unless otherwise specified by the Board at or prior to the Commencement
Date of any Offering, the Minimum Holding Period with respect to shares
purchased under such Offering shall be two (2) years from the Commencement Date
of that Offering and one year from the date the certificates representing the
shares of Common Stock are issued.

9. WITHDRAWAL

(a) As provided in Paragraph 7(b), a participant may withdraw payroll
deductions credited to his or her account under any Offering at any time prior
to the applicable Offering Termination Date by giving within notice of
withdrawal to the Plan Administrator. All of the Participant's payroll
deductions credited to his or account will be paid to the Participant promptly
after receipt of such notice of withdrawal and no further payroll deductions
will be made from his or her Monetary Compensation during such Offering.

(b) A Participant's withdrawal from an Offering will not have any effect
upon his or her eligibility to participate in any succeeding Offering or in any
similar plan which may hereafter be adopted by the Company; provided, however,

(i) that any Participant that withdraws from an Offering in accordance
with Paragraph 7(b) may not participate in another Offering for six months
following such withdrawal.

(c ) Upon termination of the Participant's employment for any reason,
including retirement but excluding death or disability while employed by the
Company or a subsidiary, the payroll deductions credited to his or her account
will be returned to the Participant or, in the case of his or her death
subsequent to the termination of employment, to the persons entitled thereto
under Paragraph 13.

(d) Upon termination of the Participant's employment because of disability
or death, the Participant or his or her beneficiary shall have the right to
elect, by written notice given to the Plan Administrator prior to the expiration
of the period of 30 days commencing with the date of the disability or death of
the participant, either

(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or

(ii) to exercise the Participant's option to purchase an amount of
Common Stock on the Offering Termination Date next following the date of
the participant's disability or death. Such purchase shall be for the
number of full shares of Common Stock that can be purchased with the
accumulated payroll deductions in the participant's account at the date of
the participant's disability or death. Any excess in such account will be
returned to the participant or said beneficiary.

In the event that no written notice of election is duly received by the
Plan Administrator, the Participant or beneficiary shall automatically be deemed
to have elected to withdraw the payroll deductions credited to the participant's
account at the date of the participant's disability or death and the same will
be paid promptly to the Participant or beneficiary.

10. INTEREST

No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any Participant.

11. STOCK

(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan is 500,000 shares. If the total number of
shares for which Options are exercised on any Offering Termination Date in
accordance with paragraph 7, exceed the number of shares of Common Stock which
3
<PAGE> 4

remain available for issue under the Plan, the Company shall make a pro rata
allocation of the shares available for delivery and distribution in as nearly a
uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to the account of each
participant under the Plan shall be returned to him or her as promptly as
possible. The Company may purchase shares on the open market in order to have
shares available for purchase by participants in each Offering.

(b) The Participant has no interest in the Common Stock covered by his or
her Option and has no right to any dividend or distribution until such Option
has been exercised.

(c) Common Stock to be delivered to a participant under the Plan will be
registered in the name of the Participant, or, in the names of the Participant
and one other person as may be designated by the Participant in writing prior to
the Offering Termination Date, as joint tenants with rights of survivorship.

(d) A Participant will possess all the rights and privileges of a
stockholder will respect to all the Shares held in his or her account under the
Plan, including the right to vote such shares, and will receive all dividends,
distributions, and stockholder communications with respect to such Shares.
Except as provided in Section 8(a), however, Shares shall remain in the Account
until the expiration of the Minimum Holding Period with respect to such Shares
as determined by the Board at or prior to the Commencement Date of the Offering.

12. ADMINISTRATION

The Plan shall be administered by the Compensation Committee appointed by
the Board (the "Committee"). The Officer of the Company charged with day-to-day
administration of the Plan shall, for matters involving the Plan, be an
ex-officio member of the Committee. The Committee shall interpret the provisions
of the Plan and adopt any rules or regulations for administering the Plan,
subject to the final jurisdiction of the Board. Any rule or regulation adopted
by the Committee shall remain in full force and effect unless or until altered,
amended, or repealed by the Committee or the Board.

13. DESIGNATION OF BENEFICIARY

A Participant may file a written designation of a beneficiary who is to
receive any shares of Common Stock and/or cash in the event of the death of the
Participant prior to the delivery of such shares or cash to the Participant.
Such designation of beneficiary may be changed by the Participant at any time by
written notice to the Plan Administrator. Upon the death of the Participant and
receipt by the Company of proof of identity and existence of the Participant's
death, the Company shall deliver such stock and/or cash to such beneficiary. In
the event of the death of a Participant and in the absence of validly designated
or living beneficiary, the Company in its sole discretion, may deliver such
stock and/or cash to the spouse or to any one or more dependents of the
Participant as the Company may designate. No beneficiary shall prior to the
death of the Participant, acquire any interest in the stock or cash credited to
the Participant under the Plan.

14. TRANSFERABILITY

Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of an Option or to receive stock under the
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
by the Participant otherwise than by will or laws of descent and distribution.
Any such attempted assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Paragraph 7(b).

15. USE OF FUNDS

All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose and the Company is not
obligated to segregate such payroll deductions.

4
<PAGE> 5

16. EFFECT OF CHANGES IN COMMON STOCK

In the event of any changes in the Company's outstanding Common Stock by
reason of stock dividend, subdivision, combination and exchange of shares,
recapitalizations or mergers in which the Company is the surviving corporation,
the aggregate number and class of shares available under this Plan and the
Purchase Price per share shall be appropriately adjusted by the Board whose
determination shall be conclusive. Any such adjustments may provide for the
elimination of any fractional share which would otherwise become subject to any
Options.

17. AMENDMENT OR TERMINATION

The Board may terminate or amend the Plan at any time. No termination will
affect Options previously granted. No amendment may change any Option previously
granted which would adversely affect the rights of any participant. No amendment
to the Plan may be made that would (a) materially increase the benefits accruing
to participants under the Plan, (b) materially increase the number of shares
which may be issued under the Plan, or (c) materially modify the requirements as
to eligibility for participation under the Plan without the approval of a
majority of the stockholders of the Company within (12) twelve months of such
amendment.

18. NOTICES

All notices or other communications by a Participant to the Company in
connection with the Plan shall be deemed to have been duly given when received
by the Plan Administrator.

19. MERGER OR CONSOLIDATION

In the event of a merger or consolidation of the Company with one or more
corporations as result of which the Company is not the surviving corporation, or
upon the sale of substantially all of the property or stock of the Company to
another corporation, the Committee or the Board may, in its sole discretion and
in connection with such transaction, cancel each outstanding option and refund
all sums previously collected from Participants under the canceled outstanding
options, or in its sole discretion, cause each Participant with outstanding
options to have his or her options exercised immediately prior to such
transaction and thereby have the balance of his or her account applied to the
purchase of whole shares at the Purchase Price. The balance of the account not
so applied will be refunded to the Participant. In the event of a merger in
which the Company is the surviving entity, each Participant is entitled to
receive, for each Share as to which such Participant's outstanding rights to
purchase would be exercised, as nearly as reasonably may be determined by the
Committee or the Board, in its sole discretion, the securities or property that
a holder of one share was entitled to receive upon the merger.

20. APPROVAL OF STOCKHOLDERS

The Plan has been adopted by the Board of Directors of the Company, but is
subject to the approval of the stockholders of the Company within twelve months
of the date of adoption of the Plan by the Board of Directors. Notwithstanding
any other provision of the Plan, no Option shall be exercised unless and until
the stockholders of the Company approve the Plan.

21. REGISTRATION AND QUALIFICATION OF THE PLAN

No Option shall be exercised under the Plan until such time as the Company
has qualified or registered the shares which are subject to the options under
the applicable Federal Securities Laws to the extent required by such laws.

22. NO EMPLOYMENT RIGHT

Neither this Plan nor any action taken hereunder shall be construed as
giving any right to any individual to be retained as an officer or employee of
the Company.

5
<PAGE> 6

23. TAX WITHHOLDING

The Company shall have the right to deduct from all payments hereunder any
federal, state, local, or employment taxes that it deems are required by law to
be withheld with respect to such payments.

<PAGE> 1
EXHIBIT 21.1

List of Subsidiaries of Complete Business Solutions, Inc.

Name of Subsidiary Jurisdiction of Incorporation

CBS Complete Business Solutions Mauritius
(Mauritius) Limited

Complete Business Solutions India
(India) Private Limited

Complete Business Solutions Singapore
(Singapore) Private Limited

Synergy Software, Inc. Michigan

C.W. Costello & Associates, Inc. Michigan

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-36701.

ARTHUR ANDERSEN LLP

March 27, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement
of Complete Business Solutions, Inc. on Form S-4 (File No. 333-36701) of our
report dated October 25, 1997 on our audits of the financial statements of
Synergy Software, Inc. as of December 31, 1996 and 1995, and for the years ended
December 31, 1996 and 1995, which report is included in this Form 10-K.

Coopers & Lybrand L.L.P.
Chicago, Illinois
March 27, 1998

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