COMPLETE BUSINESS SOLUTIONS INC, S-3, 1999-01-15

COMPLETE BUSINESS SOLUTIONS INC
S-3, 1999-01-15
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

COMPLETE BUSINESS SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
MICHIGAN 38-2606945
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
32605 WEST TWELVE MILE ROAD RAJENDRA B. VATTIKUTI
FARMINGTON HILLS, MICHIGAN 48334 32605 WEST TWELVE MILE ROAD
(248) 488-2088 FARMINGTON HILLS, MICHIGAN 48334
(Address, including zip code, and telephone (248) 488-2088
number, (Name, address, including zip code, and
including area code, of registrant's telephone number,
principal executive offices) including area code, of agent for service)
</TABLE>

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COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
ARTHUR DUDLEY II DOUGLAS R. NEWKIRK
BUTZEL LONG SACHNOFF & WEAVER, LTD.
150 WEST JEFFERSON 30 S. WACKER
DETROIT, MICHIGAN 48226 CHICAGO, ILLINOIS 60606
</TABLE>

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

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock
(no par value per share).... 4,600,000 $31.5625 $145,187,500 $40,362
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</TABLE>

(1) Includes 600,000 shares that are subject to an over-allotment option granted
to the underwriters.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the
average of the high and low sales prices of the common stock on the Nasdaq
National Market on January 13, 1999.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.

SUBJECT TO COMPLETION -- January 15, 1999
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PROSPECTUS
, 1999

CBSI COMPLETE BUSINESS
4,000,000 SHARES OF COMMON STOCK
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THE COMPANY:

- We are a leading provider of
information technology services
offering clients flexible global
delivery capabilities.

- Complete Business Solutions, Inc.
32605 West Twelve Mile Road
Farmington Hills, MI 48334
(248) 488-2088

- NASDAQ SYMBOL: CBSI

THE OFFERING:

- - The Company is offering 1,485,000 of
the shares and existing shareholders
are offering 2,515,000 of the shares.

- - The underwriters have an option to
purchase an additional 600,000 shares
from the Company and certain selling
shareholders to cover over-allotments.

- - There is an existing trading market for
these shares. The reported last sales
price on January 13, 1999 was
$32 11/16 per share.

- - We plan to use the proceeds from this
offering for expansion of existing operations
and general corporate purposes. We will
not receive any proceeds from the shares
sold by the selling shareholders.

- - Closing: , 1999.

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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Company:
Proceeds to selling shareholders:
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
</TABLE>

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Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
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DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
LEGG MASON WOOD WALKER
INCORPORATED
WARBURG DILLON READ LLC
<PAGE> 3

LOGO
TABLE OF CONTENTS

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PAGE
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
Use of Proceeds................................. 13
Price Range of Common Stock and Dividend
Policy........................................ 13
Selected Financial Data......................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business........................................ 21
</TABLE>

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PAGE
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Management...................................... 30
Selling Shareholders............................ 32
Underwriting.................................... 33
Incorporation of Certain Documents by
Reference..................................... 34
Additional Information.......................... 35
Legal Matters................................... 35
Experts......................................... 36
Index to Financial Statements................... F-1
</TABLE>
<PAGE> 4

PROSPECTUS SUMMARY

This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this prospectus carefully. Unless otherwise indicated, the information in this
prospectus: (1) gives effect to the acquisitions of Synergy Software, Inc., c.w.
Costello & Associates, inc., and Claremont Technology Group, Inc. on November
20, 1997, January 27, 1998, and July 24, 1998, respectively, which were
accounted for using the pooling of interests method; (2) gives effect to the
two-for-one stock split that was affected on March 19, 1998; and (3) assumes the
over-allotment option is not exercised.

THE COMPANY

- IT consulting;

- Large systems applications development and maintenance;

- Reengineering legacy applications to client/server technology;

- Client/server applications development;

- Packaged software implementation, such as ERP;

- Year 2000 conversion and testing services; and

- Contract programming services.

We apply industry-specific IT consulting services to a wide range of
leading technology platforms and perform these services in a variety of emerging
computing environments. Our emerging technology service offerings include: (1)
data warehousing solutions; (2) electronic commerce solutions; and (3) network
services to support enterprise-wide applications such as sales force automation
and Internet/intranet development. We believe that our broad and expanding range
of services minimizes our dependence on any single technology, enables us to
serve as a single-source provider for our clients' IT applications needs and
provides us with the ability to cross-sell our services to existing clients.

We offer flexible, cost-effective project delivery capabilities by
providing our clients a choice among any combination of the following options:
(1) onsite at the client facility; (2) offsite at one of our eight development
facilities in the U.S. and Canada; or (3) offshore at one of our three
development facilities in India and the Philippines. We have been developing our
extensive offshore infrastructure since 1992 and believe that it is one of the
largest in the industry. Our ability to deliver services globally is enhanced by
our local branch management and recruiting infrastructure, consisting of a
geographically dispersed network of 25 branch offices and 135 sales and account
managers. Our local branch infrastructure allows us to demonstrate our
commitment to each market and enhances our ability to attract locally based
clients and consultants.

with our clients by serving as a virtual extension of their organizations.
Proven, innovative methodologies combined with highly competent IT professionals
enable us to deliver flexible, team-oriented solutions to meet our clients'
expectations.

Our goal is to become the preferred, single-source provider of IT services
to an expanding base of clients by establishing teams that quickly and cost
effectively provide strong industry-specific IT applications solutions. To
achieve this goal, our strategy is to:

- Support each service offering with a program management team to create
new opportunities and leverage existing relationships;

- Capitalize on the marketing and development efforts of six vertically
focused industry solutions groups;

- Expand the breadth and depth of our technical capabilities through a
continued evaluation of emerging technologies and development of
industry solutions;

- Expand our branch infrastructure, both domestically and
internationally, and capitalize on our significant investment in
offsite and offshore development centers;

- Create virtual partnerships with our clients to provide them with a
broad range of IT solutions and create cross-selling opportunities; and

- Seek acquisitions that complement our core skills or expand our
geographic reach and have the potential to increase our overall value.

THE OFFERING

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<S> <C>
Common stock offered:
By the Company.......................... 1,485,000 shares
By the selling shareholders............. 2,515,000 shares
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Total............................. 4,000,000 shares
Common stock to be outstanding after this
offering................................ 36,347,642 shares(a)
Use of proceeds........................... We intend to use the estimated net proceeds of
$44.1 million that we will receive from this
offering for expansion of existing operations,
including U.S. branch and offshore software
development operations, development of new service
lines, possible acquisitions of related businesses;
and general corporate purposes, including working
capital. We will not receive any of the proceeds
from the shares sold by the selling shareholders.
</TABLE>

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(a) The number of shares of common stock outstanding excludes: (1) options
outstanding as of December 31, 1998 to purchase 3,838,272 shares of common
stock at a weighted average exercise price of $16.78 per share; and (2)
748,903 shares of common stock reserved as of December 31, 1998 for issuance
upon exercise of options that may be granted in the future under our 1996
Stock Option Plan.
4
<PAGE> 6

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(A):
Revenues.......................... $73,164 $93,416 $125,378 $182,632 $261,282 $188,185 $272,554
Cost of revenues.................. 52,063 66,761 88,110 126,247 178,780 126,422 180,503
------- ------- -------- -------- -------- -------- --------
Gross profit...................... 21,101 26,655 37,268 56,385 82,502 61,763 92,051
Selling, general and
administrative expenses......... 15,560 20,289 29,729 43,569 64,618 45,654 62,922
Merger costs and other (b)........ -- -- -- 111 1,559 -- 28,250
------- ------- -------- -------- -------- -------- --------
Income from operations............ 5,541 6,366 7,539 12,705 16,325 16,109 879
Other expense (income)............ 200 373 672 934 (842) (267) (2,110)
------- ------- -------- -------- -------- -------- --------
Income before provision for income
taxes and minority interest..... 5,341 5,993 6,867 11,771 17,167 16,376 2,989
Provision for income taxes........ 1,436 1,235 1,490 2,444 7,278 6,015 5,493
Minority interest................. 127 176 252 158 82 82 --
------- ------- -------- -------- -------- -------- --------
Net income (loss)................. $ 3,778 $ 4,582 $ 5,125 $ 9,169 $ 9,807 $ 10,279 $ (2,504)
======= ======= ======== ======== ======== ======== ========
Pro forma incremental income tax provision (benefit)(c).................... $ (764) $ 57 $ (1,417)
-------- -------- --------
Pro forma net income (loss)................................................ $ 10,571 $ 10,222 $ (1,087)
======== ======== ========
Pro forma diluted earnings (loss) per share................................ $ 0.33 $ 0.33 $ (0.03)
======== ======== ========
Diluted weighted average shares outstanding................................ 32,029 30,872 34,172
</TABLE>

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
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ACTUAL AS ADJUSTED(D)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(A):
Cash and cash equivalents................................................................. $ 65,459 $109,587
Working capital........................................................................... 99,274 143,402
Total assets.............................................................................. 178,986 223,114
Total shareholders' equity................................................................ 125,704 169,832
</TABLE>

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(a) See introduction to "Selected Financial Data" for discussion of entities and
periods combined.

(b) For the nine months ended September 30, 1998, consists of approximately
$12.7 million in transaction costs related to the acquisitions of Costello
and Claremont and approximately $15.6 million related primarily to the
write-down of certain assets which Claremont determined, prior to June 30,
1998, were no longer realizable. For the year ended December 31, 1997,
consists of approximately $1.6 million in transaction costs related to the
acquisition of Synergy.

(c) The pro forma adjustments for the incremental income tax provision (benefit)
reflect the additional provision (benefit) for Federal and state income
taxes at the effective income tax rate as if the applicable companies'
Subchapter S elections had been revoked prior to January 1, 1997, and the
companies had been taxed as C corporations.

(d) As adjusted to give effect to the sale by the Company of 1,485,000 shares of
common stock and the receipt of the estimated net proceeds from such sale.
See "Use of Proceeds."
5
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RISK FACTORS

Before you invest in our common stock, you should understand that making
such an investment involves various risks. You should carefully consider these
risk factors as well as all of the other information contained in this
prospectus before you decide to purchase shares of our common stock. You should
also consider these risk factors when you read "forward-looking" statements
elsewhere in this prospectus. You can identify forward-looking statements by the
words "anticipate," "believe," "estimate," "expect" or "intend" and similar
expressions. These forward-looking statements are only predictions. They are
subject to a number of risks and uncertainties, including the risks described in
this section, changes in the United States and world economic and political
conditions, changes in technology and changes in the IT marketplace. In light of
the many risks and uncertainties surrounding us and the IT marketplace, you
should keep in mind that we cannot guarantee that these forward-looking
statements will prove to be true.

FAILURE TO RECRUIT, TRAIN AND RETAIN SKILLED IT PROFESSIONALS COULD INCREASE
COSTS OR LIMIT GROWTH

We need to recruit and retain highly trained professionals in order to
deliver our IT services to our clients. Our continued success depends upon our
ability to attract, develop, motivate and retain highly skilled IT professionals
and project managers with the technical skills and experience necessary to
deliver our services to our clients. The qualified IT professionals we require
are in high demand worldwide and are likely to remain a limited resource for the
foreseeable future. We cannot be certain that we will be able to attract or
retain the IT professionals that we seek.

FAILURE TO PROPERLY MANAGE ACQUISITIONS COULD ADVERSELY AFFECT OUR BUSINESS

We have expanded, and plan to continue to expand, our operations through
the acquisition of additional businesses that complement our core skills and
have the potential to increase our overall value. We may not be able to continue
to identify and acquire businesses with which we are compatible. Acquisitions
involve a number of special risks, including:

- Diversion of management's attention;

- Potential failure to retain key acquired personnel;

- Assumption of unanticipated legal liabilities and other problems;

- Difficulties integrating systems, operations and cultures;

- Amortization of acquired intangible assets; and

- Potential dilution of earnings per share.

Since our initial public offering in March 1997, we have made three major
acquisitions. We may not be able to profitably manage these acquired businesses
or successfully integrate any acquired businesses without substantial expense,
delay or other operational or financial problems. Our reputation is a valuable
asset and performance problems and client dissatisfaction with an acquired firm
could adversely affect our reputation. In addition, we cannot be certain that an
acquired business will achieve anticipated revenues and earnings. Failure to
manage our acquisition strategy successfully could have an adverse effect on our
business.

6
<PAGE> 8

VARIABILITY OF QUARTERLY OPERATING RESULTS

Our revenues and operating results can vary from quarter to quarter
depending on a number of factors, including:

- The timing and number of client projects commenced and completed during
a quarter;

- The number of working days in a quarter;

- Employee hiring, attrition and utilization rates;

- Progress on fixed-price projects during a quarter;

- The consummation of acquisitions;

- The ability of clients to terminate engagements without penalty;

- The size and scope of assignments; and

- General economic conditions.

Because a high percentage of our expenses are fixed, such as personnel and
facilities costs, a variation in revenues may cause a significant variation in
our quarterly operating results and could result in losses. Also, our costs
periodically increase due to the hiring of new employees and the making of
strategic investments in infrastructure in anticipation of future opportunities
for revenue growth.

IMPACT OF GOVERNMENT REGULATION OF IMMIGRATION COULD LIMIT GROWTH

We recruit IT professionals globally to create a workforce that can be
deployed wherever required by our clients. As a result, we must comply with the
immigration laws in the countries in which we operate, particularly the United
States. As of September 30, 1998, approximately 25% of our worldwide workforce
was working under H-1B temporary work permits in the United States. Government
regulation limits the number of new H-1B permits that may be approved in a
fiscal year. If the limit is reached in any year, we may not be able to recruit
enough IT professionals to meet our personnel requirements. This could
materially affect our business. Congress and administrative agencies with
jurisdiction over immigration matters have periodically expressed concern over
the level of legal and illegal immigration into the United States. These
concerns have often resulted in proposals aimed at reducing the number of work
permits that may be issued. Any change making it more difficult for us to hire
foreign nationals, or limiting our ability to retain foreign employees, could
require us to incur additional unexpected labor costs and other expenses.

OUR FIXED-PRICE PROJECTS CONTAIN COST OVERRUN RISKS

We undertake certain projects on a fixed-price basis, as distinguished from
billing on a time-and-materials basis. We realized approximately 16% of our
revenues from fixed-price projects during the nine month period ended September
30, 1998. Significant cost overruns can occur if we fail to:

- Adequately estimate the resources required to complete a project;

- Properly determine the scope of an engagement; or

- Complete our contractual obligation in a manner consistent with the
project plan.

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The potential for cost overruns may be heightened if we act as a
subcontractor on a fixed-price project, because we have a limited ability to
control project variables and to negotiate directly with the ultimate client. We
cannot be certain that any of our existing or future fixed-price projects will
be profitable.

INCREASING SIGNIFICANCE AND RISKS OF NON-U.S. OPERATIONS

Our international consulting and offshore software development operations
accounted for approximately 12% of our total revenues for the nine month period
ended September 30, 1998. Our international operations and international
business activities are subject to the following risks:

- Unexpected changes in regulatory environments;

- Foreign currency fluctuations;

- Tariffs and other trade barriers;

- Difficulty in managing international operations;

- Potential foreign tax consequences, including repatriation of earnings;

- Burden of complying with a wide variety of foreign laws and
regulations;

- Unexpected changes in the local and regional political climate and the
possible reaction to those changes by the international community,
including economic sanctions;

- Risk of increased duties, taxes and governmental royalties; and

- Changes in laws and policies governing operations of foreign-based
companies.

Our international operations greatly depend upon business and technology
transfer laws and related restrictions and upon continued development of
technology infrastructure. We cannot be certain that our international
operations will continue to be profitable or support our growth strategy.

DEMAND FOR YEAR 2000 SERVICES WILL DECREASE

During the nine month period ended September 30, 1998, we realized
approximately 16% of our total revenues from Year 2000 engagements. We expect
the number of Year 2000 engagements and revenues derived from such engagements
to peak prior to calendar year 2000 as companies become Year 2000 compliant. To
maintain our current level of operations, we will need to obtain revenue from
other sources and types of engagements to replace the revenue lost due to the
decline in Year 2000 engagements.

EXPOSURE TO REGULATORY, POLITICAL AND GENERAL ECONOMIC CONDITIONS IN INDIA

A significant element of our business strategy is to expand our offshore
software development centers in Bangalore and Chennai, India. As of September
30, 1998, approximately 25% of our workforce was located in India. We benefit
directly from certain incentives provided by the Indian government to encourage
foreign investment, including tax holidays (temporary exemptions from taxation
on operating income) and liberalized import and export duties. If the Indian
government changes any of these incentives, it could negatively impact the
profitability of our Indian operations.

8
<PAGE> 10

Although wage costs in India are significantly lower than in the United
States and elsewhere for comparably skilled IT professionals, wages in India are
increasing at a faster rate than in the United States. In the past, India has
experienced significant inflation and shortages of foreign exchange, and has
been subject to civil unrest and acts of terrorism. Changes in interest rates,
inflation rates, tax rates and policies, or other social, political, economic or
diplomatic developments affecting India in the future could have an adverse
effect on our business.

WE OPERATE IN HIGHLY COMPETITIVE MARKETS

The IT services industry is highly competitive, undergoing consolidation
and is served by many national, regional and local firms, all of which are
either existing or potential competitors. Our primary competitors include
Cambridge Technology Partners, Inc., IMR Global Corp., Keane, Inc.,
Whittman-Hart, Inc. and participants within a variety of market segments,
including:

- Large accounting firms;

- Implementation firms;

- Software applications firms;

- Service groups of computer equipment companies;

- General management consulting firms; and

- Programming companies and temporary staffing firms.

Many of these competitors have substantially greater resources and greater
name recognition than we do. In addition, there are relatively few barriers to
entry into our markets. We have faced, and we expect to continue to face,
additional competition from new entrants into our markets. In addition, clients
may increase their use of internal IT resources to satisfy their applications
solutions needs instead of engaging us. Each of these competitive factors may
limit our ability to increase prices commensurate with increases in labor costs
which could result in reduced margins. We cannot be certain that we will be able
to compete successfully with existing or new competitors.

OUR CONTRACTS ARE SHORT-TERM AND CONTAIN TERMINATION PROVISIONS

A typical contract with our clients has a term of one-to-three years. A
client may choose not to renew its contract when it terminates. Under our
contracts, clients may unilaterally reduce the use of our services with little
or no notice and without penalty. If we are unable to retain our existing
clients, our business could be adversely affected. An unanticipated termination
of a major project could result in a loss of revenues and could require us to
pay a number of unassigned IT professionals until new engagements can be
obtained. In the alternative, we could also be forced to terminate unassigned IT
professionals.

FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS

As a result of our internal growth and acquisition strategy, we have
experienced a rapid increase in the number of branch locations, the number of
employees and revenues. This rapid growth has placed significant demands on our
managerial, administrative and operational resources. Effective management of
our growth will require us to continue to improve our operational, financial and
other management processes and systems and to quickly and efficiently

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integrate acquired businesses. We cannot be sure that we will continue to grow
or that we will be able to manage our growth.

POSSIBLE WRITE-OFF OF COMPUTER SOFTWARE DEVELOPMENT COSTS COULD ADVERSELY AFFECT
OUR BUSINESS

Prior to its acquisition by CBSI, Claremont wrote off approximately $8.3
million of capitalized software development costs related to the Premost and
Clarety software modules. We have remaining net capitalized software development
costs relating to the Clarety module of $4.6 million as of September 30, 1998.
If remaining capitalized software development costs exceed the potential revenue
that we can derive from the software, we would be required under generally
accepted accounting principles to immediately write-off the excess amount. The
amount of the write-off in any particular period may be as much as the total
amount of capitalized software development costs then carried on our balance
sheet and could have an adverse effect on our business.

LOSS OF KEY EXECUTIVES COULD ADVERSELY AFFECT OUR BUSINESS

The efforts and abilities of Rajendra B. Vattikuti, Timothy S. Manney and
our Executive and Regional Vice Presidents are important to our continued
success. We have employment agreements with Messrs. Vattikuti and Manney with
terms of five and three years, respectively. These agreements contain
noncompetition covenants that extend for a period of one year following
termination of employment and nondisclosure covenants. However, such agreements
do not guarantee that Messrs. Vattikuti and Manney will continue to be employed.
The loss of the services of either of these key executives for any reason could
have an adverse effect on our business. We have tried to reduce some of this
risk by maintaining key-man life insurance on Mr. Vattikuti in the amount of
$2.0 million. In the event of Mr. Vattikuti's death, we would be paid that sum
to offset the financial effect of his death. These insurance proceeds may not be
adequate for that purpose.

LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

Our success depends in part upon certain methodologies we utilize in
providing IT services to our clients. We have not registered copyrights to such
methodologies, which may impair our ability to protect these methodologies. We
rely upon a combination of nondisclosure and other contractual arrangements and
trade secret, copyright and trademark laws to protect our proprietary rights and
the proprietary rights of third parties from whom we license intellectual
property.

We enter into confidentiality agreements with our employees and limit the
distribution of proprietary information. However, we cannot be sure that these
steps will be adequate to deter misappropriation of proprietary information or
that we will be able to detect unauthorized use of and take appropriate steps to
enforce our intellectual property rights.

The laws of certain foreign countries in which our products are, or may be,
developed or sold may not protect our products or intellectual property rights
to the same extent as do the laws of the U.S. This lack of protection may impair
our ability to adequately protect our intellectual property.

Although we do not believe that our products infringe on the rights of
third parties, third parties may nevertheless make infringement claims against
us in the future. Such claims may result in costly litigation or require us to
obtain a license for such intellectual property rights.

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VOLATILITY OF STOCK PRICE

Our common stock was first publicly traded on March 5, 1997 and has traded
from a low of $4 3/8 per share to a high of $41 15/16 per share. The market
price of our common stock is likely to continue to fluctuate substantially due
to a variety of factors, including:

- Quarterly fluctuations in results of operations;

- Adverse circumstances affecting the introduction or market acceptance
of new products and services;

- Announcements of new products and services by competitors;

- Changes in the IT environment;

- Changes in earnings estimates by analysts;

- Changes in accounting principles;

- Sales of common stock by existing holders;

- Announcement and market acceptance of acquisitions;

- Loss of key personnel; and

- Worldwide economic and political conditions.

The market price for our common stock may also be affected by our ability
to meet analysts' expectations. Any failure to meet such expectations, even if
minor, could adversely affect the market price of our common stock. In addition,
the stock market is subject to extreme price and volume fluctuations. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
these companies. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has been
instituted. Any securities class action litigation could result in substantial
costs and a diversion of management's attention and resources.

OUR PRESIDENT'S STOCK OWNERSHIP PROVIDES SUBSTANTIAL CONTROL OVER OUR COMPANY

Immediately after completion of this offering, Mr. Vattikuti will
beneficially own approximately 26.0% of our outstanding shares of common stock.
As a result, Mr. Vattikuti will retain the voting power to exercise significant
control over the election of directors and other matters requiring a vote of
shareholders. Such a concentration of ownership may delay or prevent a change in
control and may impede or preclude transactions in which shareholders might
otherwise receive a premium for their shares over then current market prices.

POTENTIAL LIABILITY TO CLIENTS

Many of our engagements, including Year 2000 projects, involve projects
that are critical to the operation of our clients' businesses and provide
benefits that may be difficult to quantify. We attempt to contractually limit
our liability for damages arising from errors, mistakes, omissions or negligent
acts in rendering our services. We cannot be sure that our attempts to limit
liability will be successful. If we fail to meet a client's expectations in the
execution of our services, it could result in an adverse change to our client's
operations. This could give rise to claims against us or damage our reputation,
which could adversely affect our business.

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<PAGE> 13

PROVISIONS OF OUR ARTICLES OF INCORPORATION AND MICHIGAN LAW COULD DETER
TAKEOVER ATTEMPTS

Our articles of incorporation and bylaws and the Michigan Business
Corporation Act include provisions that may have anti-takeover effects and may
delay or prevent a takeover attempt that shareholders might consider in their
best interests. Our board of directors is divided into three classes and each
director is elected to serve staggered three-year terms. Our articles provide
for issuance of up to 1,000,000 shares of preferred stock, the rights,
preferences, qualifications, limitations and restrictions of which may be fixed
by the board of directors without any vote or action by the shareholders. The
existence of this "blank-check" preferred stock could make it more difficult to
obtain control of our Company.

SIGNIFICANT UNALLOCATED NET PROCEEDS

We have not designated any of the anticipated net proceeds that we will
receive from this offering for a specific use. Therefore, the board of directors
will have broad discretion with respect to the use of the net proceeds of this
offering. See "Use of Proceeds."

ABSENCE OF DIVIDENDS

We do not anticipate paying any cash dividends on our common stock in the
foreseeable future.

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<PAGE> 14

USE OF PROCEEDS

The net proceeds from the sale of the 1,485,000 shares of common stock
offered by us will be approximately $44.1 million (approximately $59.5 million
if the underwriters' over-allotment option is exercised in full) at an assumed
offering price of $32 11/16 per share and after deducting estimated underwriting
fees and offering expenses. We will not receive any proceeds from the sale of
common stock by the selling shareholders.

We expect to use the net proceeds from this offering for:

- Continued expansion of existing U.S. branches and development centers;

- Expansion of our offshore software development operations;

- Development of new service lines;

- Possible acquisitions of related businesses; and

- General corporate purposes, including working capital.

Although we actively seek to acquire related businesses, we currently have
no understandings, commitments or agreements to make any acquisitions. The
amounts actually spent by us may vary significantly and will depend on a number
of factors, including our future revenues and the other factors described under
"Risk Factors." Accordingly, our management has broad discretion in the
allocation of the net proceeds. Pending such uses, the proceeds of this offering
will be invested in short-term, investment grade, interest-bearing securities.
The principal purposes of this offering are to increase our financial
flexibility and provide working capital to fund our growth strategy.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is traded on the Nasdaq National Market under the symbol
CBSI. The following table sets forth, for the periods indicated, the range of
high and low bid prices for our common stock as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
First Quarter (From March 5, 1997)........................ $ 6 $ 4 3/8
Second Quarter............................................ $12 11/16 $ 4 5/16
Third Quarter............................................. $15 7/8 $11 15/16
Fourth Quarter............................................ $21 7/16 $14 1/4
Year Ended December 31, 1998:
First Quarter............................................. $35 7/8 $19 3/8
Second Quarter............................................ $41 15/16 $23 1/2
Third Quarter............................................. $37 3/8 $15 1/8
Fourth Quarter............................................ $33 3/4 $15 3/8
Year Ended December 31, 1999:
First Quarter (through January 13, 1999).................. $33 3/4 $30 1/16
</TABLE>

On January 13, 1999, the reported last sales price of the common stock was
$32 11/16 per share.

Since our initial public offering we have not paid cash dividends on our
common stock. We currently anticipate that all of our earnings will be retained
for the continued development of our business and we do not anticipate paying
any cash dividends in the foreseeable future.

13
<PAGE> 15

SELECTED FINANCIAL DATA

The selected financial data presented below for the five years ended
December 31, 1997, are derived from CBSI's Consolidated Financial Statements and
related Notes thereto. The selected financial data as of and for each of the
interim periods ended September 30, 1998 and 1997, are derived from Unaudited
Condensed Consolidated Financial Statements of CBSI which, in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
results for the interim periods, and all such adjustments are of a normal,
recurring nature. The results of operations for the interim period ended
September 30, 1998, are not necessarily indicative of the results to be expected
for any other interim period or for the full year. The selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated and
Unaudited Condensed Consolidated Financial Statements and related Notes thereto
appearing elsewhere in this prospectus.

On November 20, 1997, January 27, 1998 and July 24, 1998, CBSI closed
merger agreements with Synergy Software, Inc. ("Synergy"), c.w. Costello &
Associates, inc. ("Costello"), and Claremont Technology Group, Inc.
("Claremont"), respectively. The acquisitions were accounted for by the pooling
of interests method and accordingly, the consolidated balance sheets, statements
of income, cash flows and shareholders' equity and all financial information of
CBSI included in this prospectus have been retroactively restated.

CBSI, Synergy and Costello had fiscal years ending December 31 and
Claremont had a fiscal year ending June 30. The statement of income data
presented below for the five years ended December 31, 1997, combine CBSI's,
Synergy's and Costello's results for the years ended December 31, 1997, 1996,
1995, 1994 and 1993, with Claremont's results for the years ended June 30, 1997,
1996, 1995, 1994 and 1993, respectively. The statement of income data for the
nine month period ended September 30, 1997, combine CBSI's, Synergy's and
Costello's results for the nine month period ended September 30, 1997, with
Claremont's results for the nine month period ended March 31, 1997. The
statement of income data for the nine month period ended September 30, 1998,
combine all four companies' results for the nine month period ended September
30, 1998. The balance sheet data as of December 31, 1997, 1996, 1995, 1994 and
1993 combine CBSI's, Synergy's and Costello's balance sheets as of December 31,
1997, 1996, 1995, 1994 and 1993, with Claremont's balance sheet as of June 30,
1997, 1996, 1995, 1994 and 1993, respectively. The balance sheet data as of
September 30, 1998, combine all four companies' balance sheets as of that date.
The balance sheet data as of September 30, 1997 combine CBSI's, Synergy's and
Costello's balance sheets as of September 30, 1997, with Claremont's balance
sheet as of March 31, 1997.

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<PAGE> 16

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -------------------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.......................... $73,164 $93,416 $125,378 $182,632 $261,282 $188,185 $272,554
Cost of revenues.................. 52,063 66,761 88,110 126,247 178,780 126,422 180,503
------- ------- -------- -------- -------- -------- --------
Gross profit...................... 21,101 26,655 37,268 56,385 82,502 61,763 92,051
Selling, general and
administrative expenses......... 15,560 20,289 29,729 43,569 64,618 45,654 62,922
Merger costs and other(a)......... -- -- -- 111 1,559 -- 28,250
------- ------- -------- -------- -------- -------- --------
Income from operations............ 5,541 6,366 7,539 12,705 16,325 16,109 879
Other expense (income)............ 200 373 672 934 (842) (267) (2,110)
------- ------- -------- -------- -------- -------- --------
Income before provision for income
taxes and minority interest..... 5,341 5,993 6,867 11,771 17,167 16,376 2,989
Provision for income taxes........ 1,436 1,235 1,490 2,444 7,278 6,015 5,493
Minority interest................. 127 176 252 158 82 82 --
------- ------- -------- -------- -------- -------- --------
Net income (loss)................. $ 3,778 $ 4,582 $ 5,125 $ 9,169 $ 9,807 $ 10,279 $ (2,504)
======= ======= ======== ======== ======== ======== ========
Pro forma incremental income tax provision (benefit)(b).................... $ (764) $ 57 $ (1,417)
-------- -------- --------
Pro forma net income (loss)................................................ $ 10,571 $ 10,222 $ (1,087)
======== ======== ========
Pro forma diluted earnings (loss) per share................................ $ 0.33 $ 0.33 $ (0.03)
======== ======== ========
Diluted weighted average shares outstanding................................ 32,029 30,872 34,172
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------------------ -------------------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 2,415 $ 3,308 $ 1,603 $ 4,463 $ 72,698 $ 72,351 $ 65,459
Working capital................... 5,354 8,537 12,690 17,906 101,106 103,160 99,274
Total assets...................... 23,429 31,555 40,895 68,281 168,240 163,025 178,986
Revolving credit facility and
long-term debt.................. 4,496 6,717 8,770 17,348 4,958 7,774 --
Total shareholders' equity........ 9,491 13,490 17,738 28,724 125,326 126,904 125,704
</TABLE>

- -------------------------
(a) For the nine months ended September 30, 1998, consists of approximately
$12.7 million in transaction costs related to the acquisitions of Costello
and Claremont and approximately $15.6 million related primarily to the
write-down of certain assets which Claremont determined, prior to June 30,
1998, were no longer realizable. For the year ended December 31, 1997,
consists of approximately $1.6 million in transaction costs related to the
acquisition of Synergy.

(b) The pro forma adjustments for the incremental income tax provision (benefit)
reflect the additional provision (benefit) for Federal and state income
taxes at the effective income tax rate as if the applicable companies'
Subchapter S elections had been revoked prior to January 1, 1997, and the
companies had been taxed as C corporations.

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section should be read in conjunction with our Financial
Statements and related Notes appearing elsewhere in this prospectus. With the
exception of statements regarding historical matters and statements regarding
our current status, certain matters discussed in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are
forward-looking statements that involve substantial risks and uncertainties.
Such forward-looking statements may be identified by the words "anticipate,"
"believe," "estimate," "expect" or "intend" and similar expressions. Our actual
results, performance or achievements could differ materially from these
forward-looking statements. Factors that could cause or contribute to such
material differences include our failure to recruit and retain IT professionals,
risks related to our acquisition strategy, variability of operating results,
government regulation of immigration, potential cost overruns on fixed-price
projects, increasing significance of non-U.S. operations, decreasing demand for
Year 2000 services, exposure to regulatory, political and economic conditions in
India, competition in the IT services industry, and other factors discussed in
"Risk Factors."

OVERVIEW

Complete Business Solutions, Inc. provides IT services worldwide, offering
clients flexible global delivery capabilities. CBSI's strategy is to establish
long-term client relationships and to secure additional engagements with
existing clients by providing quality services and being responsive to client
needs. For each of the past five years and for the nine month period ended
September 30, 1998, over 80% of CBSI's revenues were generated from existing
clients from the previous comparable period.

CBSI offers its clients a broad range of IT services, from advising them on
IT business strategy and strategic technology plans to developing and
implementing appropriate IT applications solutions through its partnership
sourcing approach.

CBSI's service offerings include: (1) IT consulting; (2) large systems
applications development and maintenance; (3) reengineering legacy applications
to client/server technology; (4) client/server applications development; (5)
packaged software implementation; (6) Year 2000 conversion and testing services;
and (7) contract programming services. CBSI's emerging technology service
offerings include: (1) data warehousing solutions; (2) electronic commerce
solutions; and (3) network services to support enterprise-wide applications such
as sales force automation and Internet/intranet development. CBSI 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. Contract programming services are
typically provided as a member of a project team working under the direct
supervision of the client, billed on a time-and-materials basis, and have lower
gross profit margins than other service offerings. CBSI continues to shift its
business away from contract programming services towards higher margin service
offerings.

CBSI recognizes revenues on time-and-materials engagements as the services
are performed. On fixed-price engagements, CBSI recognizes revenues under the
percentage of completion method. For the nine month period ended September 30,
1998, approximately 16% of total revenues were generated from fixed-price
engagements.

CBSI's most significant cost is project personnel cost, which consists
primarily of salaries, wages and benefits for its IT professionals. CBSI strives
to maintain its gross profit margin by

16
<PAGE> 18

controlling project costs and offsetting increases in salaries and benefits with
increases in billing rates. CBSI uses 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 use their technical skills and allow for
maximum billing rates. CBSI has realized higher gross profit margins from its
shift away from contract programming services and from its shift to offshore
projects in India, where the personnel cost of IT professionals is 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, CBSI has made and
continues to make substantial investments in infrastructure, including: (1)
software development centers in the United States, Canada, India and the
Philippines; (2) global recruiting and training centers in the United States and
India; (3) system methodologies; (4) a geographically dispersed branch
management structure; and (5) internal systems.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statement of income data as a percentage of revenues:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 70.3 69.1 68.4 67.2 66.2
----- ----- ----- ----- -----
Gross profit............................... 29.7 30.9 31.6 32.8 33.8
Selling, general and administrative
expenses................................. 23.7 23.8 24.8 24.2 23.1
Merger costs and other..................... -- 0.1 0.6 -- 10.4
----- ----- ----- ----- -----
Income from operations..................... 6.0% 7.0% 6.2% 8.6% 0.3%
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997

Revenues. CBSI's revenues increased 45% to $272.6 million for the nine
month period ended September 30, 1998 from $188.2 million for the comparable
period in 1997. This growth in revenues is primarily attributable to increases
in CBSI's IT professional workforce, increases in average billing rates, further
expansion of CBSI's international operations and additional services provided to
existing clients. CBSI's IT professional workforce increased 36% for the nine
month period ended September 30, 1998 from the comparable period in 1997.
Revenues from international operations, principally offshore development
centers, increased 182% to $31.4 million for the nine month period ended
September 30, 1998 from $11.2 million for the comparable period in 1997.
Revenues from existing clients increased $59.7 million for the nine month period
ended September 30, 1998, over the comparable period in 1997.

Gross Profit. Gross profit consists of revenues less cost of revenues. Cost
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 49% to $92.1 million for the nine
month period ended September 30, 1998 from $61.8 million for the comparable
period in 1997. This increase is primarily attributable to increases in CBSI's
IT professional workforce and average U.S. billing rates, as well as the
continued expansion of CBSI's offshore development centers. Gross profit as a
percentage of revenues increased to 33.8%

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<PAGE> 19

for the nine month period ended September 30, 1998 from 32.8% for the comparable
period in 1997. This increase in gross profit as a percentage of revenues is
primarily attributable to CBSI's continued strategic shift of its business
toward higher margin service offerings and the increasing utilization and
expansion of CBSI's offshore development centers which operate at higher gross
profit and operating margins. For the nine month period ended September 30,
1998, 12% of revenues were generated from contract programming services, as
compared with 18% for the comparable period in 1997.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of costs associated with CBSI's direct
selling and marketing efforts, human resources and recruiting departments,
administration and indirect facility costs. Selling, general and administrative
expenses increased 38% to $62.9 million for the nine month period ended
September 30, 1998 from $45.7 million for the comparable period in 1997. This
increase resulted from the continued expansion of CBSI's direct selling and
marketing effort, further enhancement of the infrastructure, and other general
overhead cost increases necessary to support CBSI's continued revenue growth. As
a percentage of revenues, selling, general and administrative expenses decreased
to 23.1% for the nine month period ended September 30, 1998 from 24.2% for the
comparable period in 1997, as CBSI continued to leverage its existing
infrastructure.

Other Expense (Income). Other expense (income) represents interest earned
on cash equivalents, net of interest expense on borrowings. Other income for the
nine month period ended September 30, 1998 was $2.1 million, as compared to $0.3
million for the comparable period in 1997. This change is primarily due to
reduced interest expense, resulting from the repayment of CBSI's outstanding
debt in 1997, the repayment of Costello's and Claremont's debt in 1998 and
interest earned from the investment of net proceeds from CBSI's and Claremont's
public offerings of common stock in fiscal 1997.

1997 COMPARED TO 1996

Revenues. CBSI's revenues increased 43% to $261.3 million in 1997 from
$182.6 million in 1996. This growth in revenues is primarily attributable to
increases in CBSI's IT professional workforce, increases in average billing
rates, further expansion of CBSI's international operations and additional
services provided to existing clients. Revenues from international operations,
principally offshore development centers, increased 133% to $18.6 million in
1997 from $8.0 million in the previous year. Revenues from existing clients
increased $52.2 million in 1997 from the previous year.

Gross Profit. Gross profit increased 46% to $82.5 million in 1997 compared
to $56.4 million in 1996. This increase in gross profit is primarily
attributable to increases in CBSI's IT professional workforce and average U.S.
billing rates, as well as the continued expansion of CBSI's offshore development
centers. Gross profit as a percentage of revenues was 31.6% in 1997 and 30.9% in
1996. Increases in gross profit as a percentage of revenues resulting from
CBSI's continued strategic shift of its business toward higher margin service
offerings and the increasing utilization and expansion of CBSI's offshore
development centers which operate at higher gross profit and operating margins,
were partially offset by non-recurring deferred compensation arrangements,
bonuses and taxes related to the acquisition of Costello.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 48% to $64.6 million in 1997 from $43.6
million in 1996. This increase resulted from the continued expansion of CBSI's
direct selling and marketing effort, further enhancement of infrastructure, and
other general overhead cost increases necessary to support CBSI's continued

18
<PAGE> 20

revenue growth. Selling, general and administrative expenses represented 24.8%
and 23.8% of revenues in 1997 and 1996, respectively.

Other Expense (Income). Other income for 1997 was $0.8 million, as compared
to other expense of $0.9 million in 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 CBSI's and Claremont's public offerings of common stock in fiscal
1997.

1996 COMPARED TO 1995

Revenues. CBSI's revenues increased 46% to $182.6 million in 1996 from
$125.4 million in 1995. This growth in revenues is primarily attributable to
additional services provided to existing clients and the expansion of CBSI's
client base. Revenues from existing clients in 1996 increased $34.4 million over
revenues from those clients during 1995. Revenues from CBSI's international
operations increased to $8.0 million in 1996 from $5.2 million in 1995.

Gross Profit. Gross profit increased 51% to $56.4 million in 1996 from
$37.3 million in 1995. This increase in gross profit is attributable primarily
to the expansion of CBSI's client base, and the impact of CBSI incurring $3.0
million in excess personnel costs, 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 30.9% in 1996 from 29.7% in 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 1995 results.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 47% to $43.6 million in 1996 from $29.7
million in 1995. This increase resulted from expenses incurred to build and
enhance the infrastructure necessary to support CBSI's continued revenue growth.
As a percentage of revenues, selling, general and administrative expenses
represented 23.8% in 1996 and 23.7% in 1995.

LIQUIDITY AND CAPITAL RESOURCES

CBSI generally funds its operations and working capital needs through
internally generated funds, periodically supplemented by borrowings under CBSI's
revolving credit and long-term debt facilities with commercial banks. CBSI's
cash provided by operating activities was $12.7 million, $2.0 million and $1.4
million for the years ended December 31, 1997, 1996 and 1995, respectively.
During the nine month period ended September 30, 1998, cash provided by
operating activities was $14.9 million, primarily due to improved operating
margins, offset by the payment of costs associated with CBSI's acquisitions of
Costello in January 1998 and Claremont in July 1998.

The principal use of cash for investing activities during the three years
ended December 31, 1997 and the nine month period ended September 30, 1998 was
for the purchase of property and equipment, primarily as part of the development
and enhancement of CBSI's offshore software development centers and the
investment in internally developed computer software.

Historically, borrowings and repayments under CBSI's revolving credit
facilities represented the most significant components of cash provided or used
by financing activities. Under an arrangement with a commercial bank, CBSI may
borrow an amount not to exceed $21.0 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

19
<PAGE> 21

receivable and equipment of CBSI. All outstanding borrowings under the revolving
credit facility as of March 5, 1997 were repaid from proceeds of CBSI's initial
public offering. As of September 30, 1998, there were no borrowings outstanding
under this facility.

Net cash provided by financing activities for the nine month period ended
September 30, 1997 of $73.3 was primarily due to CBSI and Claremont realizing
net proceeds of $88.9 million from the issuances of their common stock in fiscal
1997, principally in their initial public and follow-on offerings.

A significant use of cash by financing activities was the partial
distribution of previously undistributed S corporation earnings following the
terminations of the companies' S corporation status.

The international operations of CBSI, principally the offshore development
centers, accounted for 11.5%, 7.1%, 4.4%, and 4.1% of CBSI's total revenues for
the nine month period ended September 30, 1998 and for the years 1997, 1996 and
1995, respectively. Most of CBSI's revenues are billed in U.S. dollars. CBSI
recognizes transaction gains and losses in the period of occurrence. Foreign
currency fluctuations in 1997, 1996 and 1995 and the nine month period ended
September 30, 1998 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. CBSI 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 CBSI's revenues or income from
operations in 1997, 1996 and 1995, or the nine month period ended September 30,
1998.

CBSI is currently in the process of evaluating its information technology
infrastructure for Year 2000 compliance. CBSI does not expect that the cost to
modify its information technology infrastructure to be Year 2000 compliant will
be material to its financial condition or results of operations. CBSI does not
anticipate any material disruption in its operations as a result of any failure
to be in compliance. CBSI does not currently have any information concerning
Year 2000 compliance status of its suppliers and clients. In the event that any
of CBSI's significant suppliers or clients do not successfully and timely
achieve Year 2000 compliance, CBSI's business or operations may be adversely
affected.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997.
CBSI 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 CBSI's management organizes segments within CBSI 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. CBSI believes adoption
of this statement during 1998 will result in no significant changes to the
financial statements.

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<PAGE> 22

BUSINESS

SUMMARY

Complete Business Solutions, Inc. is a leading provider of information
technology services offering clients flexible delivery capabilities through a
focused partnership sourcing approach. We offer clients a broad range of IT
services, from advising them on IT business strategy and strategic technology
plans to developing and implementing appropriate IT applications solutions. We
are a single-source provider of a broad range of IT services, including: (1) IT
consulting; (2) large systems applications development and maintenance; (3)
reengineering legacy applications to client/server technology; (4) client/server
applications development; (5) packaged software implementation, such as ERP; (6)
year 2000 conversion and testing services; and (7) contract programming
services.

Our flexible delivery capabilities enable our clients to determine their
degree of project involvement and to control the costs and speed of project
delivery, consistent with our team-focused partnership sourcing approach. Under
this approach, we seek to establish a long-term relationship with our clients by
serving as a virtual extension of their organizations. Proven, innovative
methodologies combined with highly competent IT professionals enable us to
deliver flexible, team-oriented solutions to meet our clients' expectations.

- Support each service offering with our program management team to
create new opportunities and leverage existing relationships;

- Capitalize on the marketing and development efforts of six vertically
focused industry solutions groups;

- Expand the breadth and depth of our technical capabilities through a
continued evaluation of emerging technologies and development of
industry solutions;

- Expand our branch infrastructure, both domestically and
internationally, and capitalize on our significant investment in
offsite and offshore development centers;

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<PAGE> 23

- Create virtual partnerships with our clients to provide them with a
broad range of IT solutions and create cross-selling opportunities; and

- Seek acquisitions that complement our core skills or expand our
geographic reach and have the potential to increase our overall value.

THE IT SERVICES INDUSTRY

Heightened competition, deregulation, globalization and rapid technological
advances are forcing organizations to make fundamental changes in their business
processes. These pressures have compelled organizations to improve the quality
of products and services, shorten time to market, reduce costs and strengthen
client relationships. Increasingly, organizations address these issues by using
IT solutions that facilitate the rapid and flexible collection, analysis and
dissemination of information. Accordingly, an organization's ability to
integrate and deploy new information technologies in a cost-effective manner has
become critical to competing successfully in today's rapidly changing business
environment.

During this time of increasing reliance on IT, rapid technological change
is challenging the capabilities of MIS departments within these organizations.
The pace of this change quickly renders existing IT infrastructure obsolete and
makes it more difficult for organizations to maintain the needed internal
expertise to evaluate, develop and integrate new technologies. As a result,
organizations are increasingly turning to third-party IT service providers to
help them develop and support complex IT systems and applications.

Due to the foregoing factors, demand for IT services has grown
significantly. According to industry sources, the worldwide market for IT
services was approximately $302 billion in 1997, and is projected to increase to
$564 billion in 2001, representing a compound annual growth rate of 17%.

While the general industry trend is toward client/server architectures,
many organizations maintain legacy mainframe systems because such systems
provide a superior solution to their specific needs or because of the costs
required to replace such systems. As universities stop teaching mainframe
related skills and programmers cross-train away from these areas, MIS managers
are experiencing increasing difficulty finding affordable, qualified personnel
to support the vast number of legacy systems. For these reasons, the maintenance
and reengineering of legacy systems continues to represent a substantial
opportunity for IT services providers.

THE CBSI ADVANTAGE

The CBSI advantage enables our clients to use IT as a more effective
business tool consistent with their evolving business needs. The key attributes
of the CBSI advantage are that we:

- Offer clients a single-source provider of a broad range of IT services,
from advising them on IT business strategy and strategic technology
plans to developing and implementing appropriate IT applications
solutions. This range includes emerging technology services such as
data warehousing solutions, electronic commerce solutions and network
services.

- Provide flexible project delivery by offering our clients any
combination of the following options: (1) onsite at the client
facility; (2) offsite at one of our eight development facilities in the
U.S. and Canada; or (3) offshore at one of our three development
facilities in India and the Philippines. This flexibility enables our
clients to determine their degree of project involvement and to control
the costs and speed of project delivery.

22
<PAGE> 24

- Offer a local presence by delivering our services to clients through a
geographically dispersed network of 25 branch offices and 135 sales and
account managers. Our local presence allows us to demonstrate our
commitment to each local market and enhances our ability to attract
locally based clients and consultants.

- Recruit and train our consultants globally through our established
domestic and international network. Consultants receive up to two
months of training in software engineering techniques and key
technologies at one of our five U.S. training centers or one of our two
overseas training centers in India. These centers are equipped with a
variety of hardware, software and development tools.

CBSI GROWTH STRATEGY

Our goal is to become the preferred single-source provider of IT services
to an expanding base of clients by establishing teams that quickly and cost
effectively provide industry-based IT applications solutions. To achieve this
goal, our strategy is to:

- Support each service offering with a program management team to create
new opportunities and develop existing accounts. We have 45 sales
people in our branch offices developing new accounts and over 100
account managers maintaining and expanding existing client
relationships by cross selling our broad range of service offerings.
These long-term relationships provide us with a significant advantage
over our competitors in marketing additional services and solutions to
our clients.

- Capitalize on six vertically focused industry solutions groups. These
groups develop solutions based on in-depth knowledge of particular
industries and a detailed understanding of the client's business. They
sell and market a broad range of ERP and other solutions to existing
clients and also obtain new clients within our targeted industries.
Targeted industries include banking and financial services, health
care, manufacturing, public sector, retail and distribution and
utilities and telecommunications.

- Expand the breadth and depth of our technical capabilities through
training existing personnel, recruiting experienced talent and
acquiring complementary businesses. Our continued evaluation of
emerging technologies enables us to add new service offerings and
minimizes our dependence on any single technology.

- Expand our branch infrastructure, both domestically and
internationally, and capitalize on our significant investment in
offsite and offshore development centers, as well as our systems,
methodologies, training programs and marketing efforts. We believe that
our existing development centers can be further leveraged to support a
significantly larger number of consultants.

- Create virtual partnerships with our clients to provide them with IT
solutions so that we become an extension of their organization. This
partnership sourcing model uses a team approach that makes the client
an integral team member. We consider the impact of each project on the
entire application to build a broader solution over time. We quickly
assemble capable teams and use the strategic insights of the client to
produce flexible, supportable business and IT solutions.

- Seek acquisitions that complement our core skills or expand our
geographic reach and have the potential to increase our overall value,
rather than merely increase our revenues. We believe that our branch
management organization allows us to efficiently integrate
acquisitions.

23
<PAGE> 25

CBSI SERVICES

We offer our clients a broad range of IT services, from advising clients on
strategic technology plans to developing and implementing appropriate IT
solutions. We provide services in the following categories:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
CBSI SERVICES DESCRIPTION
--------------------------------------------------------------------------------------------
<S> <C>
IT Consulting - IT business strategy and strategic
technology planning
- Provide technical architecture and network
design and business process reengineering
consulting services
--------------------------------------------------------------------------------------------
Large Systems Applications Development and - Design, develop and maintain large-scale,
Maintenance complex solutions capable of managing
transaction-intensive applications
--------------------------------------------------------------------------------------------
Reengineering Legacy Applications to Client/ - Reengineer from centralized,
Server Technology mainframe-based systems to open, distributed
architectures
--------------------------------------------------------------------------------------------
Client/Server Applications Development - Conceptualize and design systems based on
distributed object-oriented technologies
and methodologies
--------------------------------------------------------------------------------------------
Packaged Software Implementation - Implement packaged software solutions,
including ERP
- Customize software packages to client
specifications
--------------------------------------------------------------------------------------------
Year 2000 Conversion and Testing - Conduct impact assessments and assist
clients with strategic planning for Year
2000 compliance
- Renovate, replace or reengineer existing
applications to be Year 2000 compliant
--------------------------------------------------------------------------------------------
Contract Programming - Develop, maintain and enhance
client/server and mainframe software
applications
- Reengineer software applications across
platforms
--------------------------------------------------------------------------------------------
Data Warehousing Solutions - Design enterprise-wide repositories and
update mechanisms for data culled from
operational systems
- Design, build and implement datamarts that
employ portions of the data warehouses for
specific applications
--------------------------------------------------------------------------------------------
Electronic Commerce Solutions - Develop business-to-business and
consumer-to-business applications
- Couple web-enabled front-end systems
across a network to back-end database
systems
--------------------------------------------------------------------------------------------
Network Services - Provide assessments of existing network
stability and capacity
- Provide network design services to support
new enterprise-wide applications
- Conceptualize and design Internet/intranet
solutions
--------------------------------------------------------------------------------------------
</TABLE>

24
<PAGE> 26

INDUSTRY SOLUTIONS

We have designed and developed proprietary software to solve
industry-specific problems for our clients. These include APECS/Discovery,
Clarety and Business Solutions Framework.

APECS enables K-12 school districts and higher education institutions to
manage their business and student records. Our APECS Product has been
reengineered to a client/server platform and renamed Discovery. We market the
Student Administration module of Discovery jointly with PeopleSoft's finance and
HR/payroll applications.

Clarety is a set of reusable software modules for the public employee
retirement systems (PERS) industry. We are currently implementing Clarety
software for California PERS, Mississippi PERS, Nevada PERS and the Ohio State
Teachers Retirement System.

The Business Solutions Framework consists of infrastructure software used
as a foundation for our e-commerce solutions practice. This Business Solutions
Framework allows us to build e-commerce solutions more efficiently for our
clients and is written in JAVA.

CLIENTS

Approximately 70% of our clients are middle market companies with annual
revenues between $500 million and $4 billion. Using our partnership sourcing
approach, we are quickly becoming an important supplier to these middle market
clients. We have also started to serve emerging companies with revenues from $50
million to $500 million. These emerging companies require the expertise CBSI can
provide and have limited alternative sources, either internal or external, to
meet their IT needs.

During the nine months ended September 30, 1998, we provided services to
approximately 500 clients in the United States, Europe and Asia. Our strategy is
to maximize our client retention rate and to secure additional engagements by
providing quality services and by being responsive to client needs. For each of
the past five years, existing clients from the previous fiscal year generated
more than 80% of our revenues.

25
<PAGE> 27

Certain representative clients in various industries are listed in the
following table:

<TABLE>
<CAPTION>
BANKING AND FINANCIAL SERVICES PUBLIC SECTOR
<S> <C>
Banc One Services Corporation State of California
Chase Manhattan Corporation State of Indiana
Fidelity Investments State of Michigan
Fleet Services Corporation State of Mississippi
Foremost Corporation of America State of Nevada
Putnam Investments State of North Carolina
UNUM Corporation State of Ohio
VISA U.S.A. Inc.
RETAIL AND DISTRIBUTION
HEALTH CARE
Duty Free Shops
Anthem Blue Cross Blue Shield of Connecticut Fred Meyer, Inc.
Baystate Health System The GAP, Inc.
Blue Cross and Blue Shield of Michigan Lands' End, Inc.
Limited Stores
MANUFACTURING Spartan Stores, Inc.

DaimlerChrysler AG UTILITIES AND TELECOMMUNICATIONS
Ford Motor Company
General Motors Corporation American Telephone and Telegraph Company
Herman Miller, Inc. Alltel Information Services, Inc.
Johnson Controls, Inc. Ameritech Corporation
Weyerhaeuser Company PacifiCorp
Willamette Industries, Inc. South Carolina Electric and Gas Company
Southern California Edison
Sprint Corporation
Tucson Electric Power Company
</TABLE>

REPRESENTATIVE ENGAGEMENTS

We have provided IT services to an international banking and financial
services company for the past four years. The client needed to migrate their
legacy applications to a client/server platform using migration tools. We
proposed an application reengineering approach using our global delivery
concept. Based on the success of this multi-million dollar solution, the
relationship transitioned into partnership sourcing. Today, our projects include
applications maintenance, applications support and Year 2000 solutions using our
global delivery capability.

We have provided valuable IT services to an automotive manufacturer for the
past eleven years executing several projects including Year 2000 remediation,
custom development and applications maintenance. Currently, we are delivering IT
consulting and web-based systems development. On a recent project, we performed
business process engineering and implemented a state-of-the-art supply chain
solution by first performing a process analysis and then developing a
three-tier, thin-client component-based solution that is used in 110 countries
with over 4,000 vehicle combinations.

We managed and implemented a new building materials distribution project
for a forest products manufacturer. This custom development project replaced
their legacy systems with a relational database, client/server technology and
business applications. The project was based on a comprehensive requirements
analysis and was designed and developed with significant user involvement.

26
<PAGE> 28

We have been working with a utility company's IT group for the past four
years, providing value-added services for a variety of their requirements. Our
engagements include applications maintenance, applications support, large CIS
system implementation, Year 2000 solutions, financial system implementation and
client/server system development and maintenance. Our engagements make use of
our global delivery approach while maintaining our local presence via our
Charlotte branch.

SALES AND MARKETING

We generate the majority of new sales through our branch management
structure. Our branches focus on all clients within a geographic area. The
manager of each branch office is responsible for managing client relationships,
ensuring the delivery team is performing as expected and identifying new
business opportunities, and is compensated primarily on the financial
performance of the branch. This structure fosters an entrepreneurial atmosphere
within each branch and results in a significant number of client referrals and
opportunities to cross-sell our services.

In many cases, we use a consultant from one of our industry solutions
groups, an expert in the IT needs of the specific industry, to enhance the
initial planning and development phase of a project. They are also able to share
common solutions for an industry with a specific client prospect. Our ability to
provide industry-specific solutions enables our clients to take advantage of our
vertically focused business and IT knowledge.

Our partnership sourcing approach facilitates the sale of services to
clients by making us an extension of their organization and making the client a
member of our service delivery team. When clients view us as part of their team,
they often decide to source their additional IT services needs through us with
little sales effort on our part.

Cross-selling our industry solutions and other services to existing clients
has proven to be a successful way to expand our business and accounts for much
of the extensive recurring revenue volume we have enjoyed over the years. Our
acquisitions have expanded our range of industry solutions and services,
enabling us to be even more successful in this activity.

In addition to our sales group, we have a dedicated marketing department
which is responsible for coordination of all corporate communications, including
the scheduling of press conferences to promote our services and delivery
methodologies. In addition, the marketing group provides information to industry
analysts including the Gartner, Giga and Meta Groups and Forrester.

HUMAN RESOURCES

Our success depends in large part on our ability to attract, develop,
motivate and retain highly skilled IT professionals. Our 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, stock purchase plan, health and dental insurance,
short-term disability insurance, a flexible spending account and tuition
reimbursement. In 1999, we will add preventive medical and more extensive dental
care and vision coverage for our employees. We

27
<PAGE> 29

also grant stock options as part of our recruitment and retention strategy. As
part of our effort for minimizing turnover we emphasize:

- Human resource management;

- Competitive salaries;

- Comprehensive benefits;

- Employee stock options; and

- Deferred compensation.

Our branch offices use intensive programs to recruit consultants throughout
the United States, screen them through a variety of interview and testing
processes and select them for future assignments on our project teams. In
addition, our recruiting activities seek to draw on an international pool of IT
talent. We actively recruit in India, England, Australia, New Zealand, the
Philippines, Mexico and Singapore. Recruiting methods include advertising in
leading newspapers and trade magazines, using the Internet and participating in
career fairs. In addition, we actively involve our employees in referring
individuals and screening candidates for new positions.

Our consultants typically have Bachelor's or Master's degrees in Computer
Science or another technical discipline. As of September 30, 1998, we had 4,382
employees comprised of 3,907 IT professionals, 135 sales and marketing personnel
and 340 general and administrative personnel. As of September 30, 1998, we also
had 239 independent contractors working on client engagements.

We have established five employee training centers located in the United
States and two in India. These training centers employ full-time instructors and
are equipped with hardware, software and development tools. New college
graduates receive two months of full-time classroom instruction in program
analysis and design. Along with technical training, we provide business skills
to enhance team building, diversity awareness and key consulting skills such as
presentations and communications training. We also provide training to prepare
for specific future technical assignments followed by one month of self-study.

Between projects and after business hours, all IT professionals receive
ongoing training on a variety of technology platforms. Our 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, we provide extensive training
in quality processes and cross-cultural communications skills. In addition, we
offer training courses to non-employees for a fee and may hire graduates of
these training programs.

We provide over 200 courses on our computer-based training system, which is
available 24 hours a day, 7 days a week. In addition to technical skills in a
variety of programming languages, we offer courses in business and
administration skills.

COMPETITION

Our industry is highly competitive and served by numerous national,
regional and local firms, all of which are either existing or potential
competitors of ours. Primary competitors include Cambridge Technology Partners,
Inc., IMR Global Corp., Keane, Inc., Whittman-Hart, Inc., and participants from
a variety of market segments, including "Big Five" accounting firms,
implementation firms, applications software firms, service groups of computer
equipment

28
<PAGE> 30

companies, general management consulting firms, programming companies and
temporary staffing firms. We believe 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.

PROPERTIES

Our headquarters consist of approximately 70,000 square foot of leased
office space in Farmington Hills, Michigan. In addition to our headquarters, we
lease office space throughout the world. Additional space may be required as our
business expands geographically, but we believe we will be able to obtain
suitable space as needed.

We have principal offices in the following locations:

<TABLE>
<CAPTION>
NORTH AMERICA INTERNATIONAL
<S> <C> <C>
Basking Ridge, NJ Milwaukee, WI Bangalore, India
Boston, MA Minneapolis, MN Brussels, Belgium
Charlotte, NC Montreal, Canada Chennai, India
Chicago, IL Nashua, NH Hyderabad, India
Cleveland, OH Phoenix, AZ London, United Kingdom
Columbus, OH Pittsburgh, PA Manila, Phillipines
Farmington Hills, MI Portland, OR Singapore
Grand Rapids, MI Providence, RI Sydney, Australia
Hartford, CT Sacramento, CA
Indianapolis, IN Seattle, WA
Lansing, MI Springfield, MA
Los Angeles, CA Tampa, FL
Milpitas, CA
</TABLE>

29
<PAGE> 31

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors and their respective ages and
positions as of December 31, 1998, are as follows:

Rajendra B. Vattikuti, 48, our founder, has served as President and Chief
Executive Officer and as a director of the Company since our formation in
February 1985. From 1983 to 1985, Mr. Vattikuti was Director of M.I.S. for
Yurika Foods Corporation. From 1977 to 1983, he was an M.I.S. Project Leader for
Chrysler Corporation. Mr. Vattikuti holds a Bachelor of Science degree in
Electrical Engineering from the College of Engineering, Guindy (India) and a
Master of Science degree in Electrical and Computer Engineering from Wayne State
University.

Timothy S. Manney, 40, 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 us, most
recently as Chief Financial Officer. From 1980 until 1990, Mr. Manney was an
Audit Manager at Arthur Andersen LLP. He is a member of the Michigan Association
of Certified Public Accountants. Mr. Manney holds a Bachelor of Business
Administration degree from the University of Michigan.

Joseph Benaroya, 47, has served as Executive Vice President, U.S.
Consulting, East since December 1998. From 1997 through December 1998, he served
as Vice President, Global Sales for the PC Division of IBM Corporation. From
1995 through 1997, he served as President and Chief Executive Officer of Acorto,
Inc. From 1978 through 1994, he held various retail and marketing positions at
IBM. Mr. Benaroya holds a Bachelor of Science degree in Computer Science and
Master of Business Administration degree from the University of Minnesota.

Karen Fast, 47, has served as Executive Vice President, U.S. Consulting,
West since our merger with Claremont in July 1998. Previously, she served as
Senior Vice President, U.S. Operations of Claremont since February 1997 and
prior to that, as Senior Vice President, Market Development since April 1994.
From April 1993 to April 1994, she served as Vice President, Portland Practice
of Claremont. From January 1991 to April 1993, she served as the Portland
Manager of the Open Systems Consulting Group, the Systems Integration Practice
of IBM. Ms. Fast holds a Bachelor of Science degree in History from Oregon State
University.

Nanjappa S. Venugopal, 46, has served as Director of Human Resources since
October 1996. Mr. Venugopal also served as the business unit manager for our
manufacturing sector from September 1991 to September 1996. From December 1975
to August 1991, Mr. Venugopal held several technical and managerial positions at
Tata Consultancy Services in the U.S., Asia and Europe. From October 1988 to
August 1991, Mr. Venugopal was regional manager of Tata's New York office. Mr.
Venugopal holds a Bachelor of Mechanical Engineering degree from Bangalore
University and a Master of Aeronautical Engineering degree from the Indian
Institute of Technology.

William Brooks, 65, has served as a director since August 1998. Mr. Brooks
is Chairman of the Board of The Brooks Group International, a human resource and
workforce development firm. He retired as Vice President of Corporate Affairs of
General Motors Corporation in 1997 where he had served for 25 years in various
positions. He is a member of the board of directors of United American
Healthcare Corporation, Louisiana-Pacific Corporation and DTE Energy
Corporation. Mr. Brooks was nominated by President Clinton and served from
February 1996 to January 1998 on the Social Security Advisory Board. Mr. Brooks
was nominated by President

30
<PAGE> 32

Bush and served from July 1989 to November 1990 as the Assistant Secretary of
Labor for the Employment Standards Administration. Mr. Brooks holds a Bachelor
of Arts degree from Long Island University and a Master's Degree in Business
Administration from the University of Oklahoma.

Charles W. Costello, 60, has served as a director since May 1998. Mr.
Costello was the founder and Chief Executive Officer of c.w. Costello &
Associates, inc., from December 1986 until its acquisition by the Company in
January 1998. Mr. Costello holds a Bachelor of Arts degree in Business
Management from Northeastern University.

Douglas S. Land, 41, 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 to start-up and middle-market firms
since 1985. Mr. Land holds a Bachelor of Science degree in Economics and a
Master of Business Administration degree in Finance from the Wharton School and
a Master of Arts degree in International Relations from the University of
Pennsylvania.

Ronald K. Machtley, 50, has served as a director since May 1998. Mr.
Machtley has been the President of Bryant College since 1996. From 1994 to 1995,
Mr. Machtley was a partner in the Washington D.C. law firm of Wilkinson, Barker,
Knauer & Quinn. From 1988 to 1995, Mr. Machtley was a United States Congressmen
from the State of Rhode Island. Mr. Machtley holds a Juris Doctorate from
Suffolk University and is a graduate of the U.S. Naval Academy.

John A. Stanley, 60, 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.

Frank D. Stella, 79, 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.

Jerry L. Stone, 55, has served as a director since August 1998. Mr. Stone
is the former Chairman of the Board of Directors of Claremont. Mr. Stone was
previously the Chairman and Chief Executive Officer of Marketing One, Inc.

31
<PAGE> 33

SELLING SHAREHOLDERS

The following table sets forth, as of December 31, 1998, certain
information regarding the beneficial ownership of outstanding common stock by
each selling shareholder, both before this offering and as adjusted to reflect
the sale of the shares of common stock in this offering. Except as noted, to the
knowledge of the Company, each person listed in the following table has sole
voting and investment power with respect to the shares he or she beneficially
owns.

<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED
TO THIS OFFERING(A) AFTER THIS OFFERING(A)
---------------------- SHARES -----------------------
SELLING SHAREHOLDERS: NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Charles W. Costello................... 1,174,376 3.4% 700,000 474,376 1.3%
Rajendra B. Vattikuti(b).............. 9,960,239 28.6% 500,000 9,460,239 26.0%
Carl F. DePaolis...................... 589,946 1.7% 350,000 239,946 *
Jerry L. Stone........................ 727,528 2.1% 225,000 502,528 1.4%
The Vattikuti Foundation.............. 224,311 * 200,000 24,311 *
Ralph N. Durante...................... 457,568 1.3% 100,000 357,568 1.0%
Douglas S. Land....................... 385,382 1.1% 100,000 285,382 *
Timothy S. Manney..................... 449,004 1.3% 100,000 349,004 1.0%
Dan W. Robert......................... 312,000 * 100,000 212,000 *
Stephen D. Hawley..................... 101,971 * 90,000 11,971 *
Karen Fast............................ 108,467 * 50,000 58,467 *
</TABLE>

- -------------------------
* Less than one percent.

(a) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes voting and investment power with respect to the
shares shown as beneficially owned.

(b) Does not include 40,580 shares owned by his spouse and all the shares owned
by The Vattikuti Foundation. Mr. Vattikuti disclaims beneficial ownership of
such shares.

32
<PAGE> 34

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated February , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, Legg Mason Wood Walker Incorporated and Warburg Dillon Read LLC, a
subsidiary of UBS AG, have severally agreed to purchase from the Company and the
selling shareholders the number of shares set forth opposite their names below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......
Credit Suisse First Boston Corporation....................
Legg Mason Wood Walker Incorporated.......................
Warburg Dillon Read LLC, a subsidiary of UBS AG...........
---------
Total.................................................. 4,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares (other than those covered by the over-
allotment option described below) if they purchase any of the shares.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions.

The Company and certain selling shareholders have granted the underwriters
an option, exercisable for 30 days from the date of the underwriting agreement,
to purchase up to 600,000 additional shares at the public offering price less
the underwriting fees. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to certain conditions, to purchase a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.

The Company and the selling shareholders have agreed to indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect of any of those liabilities.

The Company, each of the selling shareholders and the executive officers
and directors of the Company have agreed that, for a period of one year (or 90
days, in the case of individuals who are not selling shareholders) from the date
of this prospectus, they will not, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation: (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose, of directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock;
or (2) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common

33
<PAGE> 35

stock (regardless of whether any of the transactions described in clause (1) or
(2) is to be settled by the delivery of common stock or such other securities,
in cash or otherwise). In addition, for a one-year period the Company has agreed
not to file any registration statement with respect to, and each of its
executive officers, directors and certain stockholders of the Company (including
the selling shareholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable for common stock without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation.

The representatives have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. The representatives may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their business.

The Chesapeake Group, an entity affiliated with Douglas S. Land, a director
of the Company and a selling shareholder, earned $160,000 for financial advisory
services rendered in connection with the Company's initial public offering in
March 1997, $100,000 in connection with the Company's follow-on public offering
in August 1997 and $300,000 in connection with this offering.

Other than in the United States, no action has been taken by the Company,
the selling shareholders or the underwriters that would permit a public offering
of the shares of common stock included in this offering in any jurisdiction
where action for that purpose is required. The shares included in this offering
may not be offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisement in connection with the offer and
sale of any such shares be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of common stock included in this offering in any jurisdiction where that
would not be permitted or legal.

In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring to these documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the Commission will automatically update and
supercede this information. We incorporate by reference the documents listed
below and any future filings made with the Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell all of
the common stock. This prospectus is part of a Registration Statement that we
filed with the Commission.

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;

2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;

34
<PAGE> 36

the Securities Exchange Act of 1934 until we sell all of the common stock. This
prospectus is part of a Registration Statement that we filed with the
Commission.

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;

2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;

3. The Company's Current Reports on Form 8-K filed January 22, 1998,
April 9, 1998, April 10, 1998, July 27, 1998 and August 12, 1998 and
on Form 8-K/A filed on January 23, 1998 and March 23, 1998; and

4. The description of the common stock, contained in the Company's
Registration Statement on Form 8-A filed pursuant to Section 12 of the
Exchange Act and all amendments thereto and reports filed for the
purpose of updating such description.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Complete Business Solutions, Inc.,
32605 West Twelve Mile Road, Farmington Hills, Michigan 48334-3339, Attention
Investor Relations, Telephone: (248) 488-2088.

ADDITIONAL INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the following locations:

- At the Public Reference Room of the Commission, Room 1024-Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549;

- At the public reference facilities at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 or
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;

- By writing to the Commission, Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549;

- At the offices of the National Association of Securities Dealers, Inc.,
Reports Section, 1735 K Street, N.W., Washington, DC 20006; or

- From the Commission's web site at www.sec.gov.

Some of these locations may charge a prescribed or modest fee for copies.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
shares of common stock offered hereby. As permitted by the Commission, this
prospectus, which constitutes a part of the Registration Statement, does not
contain all the information included in the Registration Statement. Such
additional information may be obtained from the locations described above.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete. You should refer to the contract or
other document for all the details.

35
<PAGE> 37

LEGAL MATTERS

The validity of the issuance of the common stock offered and certain other
legal matters in connection with this offering will be passed upon for the
Company by Butzel Long, Detroit, Michigan. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Sachnoff &
Weaver, Ltd., Chicago, Illinois.

EXPERTS

The Consolidated Financial Statements as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, included in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants as set forth in their report. In their report,
that firm states that with respect to certain acquisitions accounted for as
poolings of interests its opinion is based on the reports of other independent
public accountants, namely Deloitte & Touche LLP with respect to c.w. Costello &
Associates, inc., and KPMG Peat Marwick LLP with respect to Claremont Technology
Group, Inc. The financial statements referred to above have been included herein
in reliance upon the authority of those firms as experts in giving said reports.

36
<PAGE> 38

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Audited Consolidated Financial Statements as of December 31,
1997 and 1996, and for each of the three years in the
period ended December 31, 1997
Report of Independent Public Accountants.................. F-2
Report of Independent Auditors............................ F-3
Report of Independent Accountants......................... F-4
Consolidated Balance Sheets............................... F-5
Consolidated Statements of Income......................... F-6
Consolidated Statements of Shareholders' Equity........... F-7
Consolidated Statements of Cash Flows..................... F-8
Notes to Consolidated Financial Statements................ F-9
Unaudited Condensed Consolidated Financial Statements and
related Notes thereto as of September 30, 1998 and
December 31, 1997 and for the nine month periods ended
September 30, 1998 and 1997............................... F-29
</TABLE>

F-1
<PAGE> 39

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 Claremont Technology Group, Inc. and c.w. Costello & Associates,
inc., companies that Complete Business Solutions, Inc. acquired during 1998, in
transactions accounted for as poolings of interests, as discussed in Note 1.
Such statements are included in the related consolidated financial statements of
Complete Business Solutions, Inc. and reflect total revenues and net income of
53% and 24% in 1997, 49% and 44% in 1996, and 42% and 67% in 1995, respectively,
and 43% and 51% of total assets in 1997 and 1996, respectively, of the
consolidated totals. These statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to
amounts included for Claremont Technology Group, Inc. and c.w. Costello &
Associates, 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 reports of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports 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,
January 14, 1999

F-2
<PAGE> 40

REPORT OF INDEPENDENT AUDITORS

The Board of Directors of
Claremont Technology Group, Inc.
and Subsidiaries:

We have audited the consolidated balance sheets of Claremont Technology
Group, Inc. and subsidiaries as of June 30, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1997 not presented
separately herein. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1997 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

Portland, Oregon
August 14, 1997

F-3
<PAGE> 41

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Shareholders
c.w. Costello & Associates, inc.
Wethersfield, Connecticut

We have audited the balance sheets of c.w. Costello & Associates, inc. (an
"S" Corporation) (the "Company") as of December 31, 1997 and 1996, and the
related statements of operations, shareholders' equity and of cash flows for
each of the three years in the period ended December 31, 1997 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, such financial statements present fairly, in all material
respects, the financial position of c.w. Costello & Associates, inc. (an "S"
Corporation) as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.

As discussed in Note 10 to those financial statements, on January 27, 1998,
the Company merged with Complete Business Solutions, Inc.

DELOITTE & TOUCHE LLP

Hartford, Connecticut
February 9, 1998

F-4
<PAGE> 42

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
(DOLLARS IN THOUSANDS)
(NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 72,698 $ 4,463
Accounts receivable, net............................... 52,814 40,366
Revenue earned in excess of billings, net.............. 6,687 6,106
Deferred taxes......................................... 2,894 --
Refundable income taxes................................ 2,745 --
Prepaid expenses and other............................. 2,551 2,052
-------- -------
Total current assets.............................. 140,389 52,987
-------- -------
Property and equipment, net................................. 14,215 10,437
Computer software, net...................................... 8,826 2,785
Other assets, net........................................... 4,810 2,072
-------- -------
Total assets...................................... $168,240 $68,281
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 6,345 $ 4,921
Accrued payroll and related costs...................... 19,194 10,048
Revolving credit facility.............................. 3,380 14,035
Current portion of long-term debt...................... 993 1,430
Other accrued liabilities.............................. 6,208 2,015
Distribution payable to shareholders................... 1,325 197
Deferred taxes......................................... -- 650
Deferred revenue....................................... 1,838 1,785
-------- -------
Total current liabilities......................... 39,283 35,081
-------- -------
Deferred taxes.............................................. 2,883 775
Other liabilities........................................... 748 2,198
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, 200,000,000 shares
authorized, 33,056,759 and 21,181,509 shares issued
and outstanding as of December 31, 1997 and 1996,
respectively (Note 17)
Additional paid-in capital............................. 108,671 5,189
Retained earnings...................................... 19,822 25,869
Stock subscriptions receivable......................... (2,503) (2,125)
Cumulative translation adjustment...................... (664) (209)
-------- -------
Total shareholders' equity........................ 125,326 28,724
-------- -------
Total liabilities and shareholders' equity........ $168,240 $68,281
======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE> 43

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)
(NOTE 1)
<S> <C> <C> <C>
Revenues.................................................... $261,282 $182,632 $125,378
Cost of revenues:
Salaries, wages and employee benefits.................. 145,947 106,656 75,625
Contractual services................................... 19,951 11,316 6,051
Project travel and relocation.......................... 10,695 6,597 5,209
Depreciation and amortization.......................... 2,187 1,678 1,225
-------- -------- --------
Total cost of revenues............................ 178,780 126,247 88,110
-------- -------- --------
Gross profit...................................... 82,502 56,385 37,268
Selling, general and administrative expenses................ 64,618 43,569 29,729
Merger costs and other...................................... 1,559 111 --
-------- -------- --------
Income from operations............................ 16,325 12,705 7,539
Other expense (income)...................................... (842) 934 672
-------- -------- --------
Income before provision for income taxes and
minority interest............................... 17,167 11,771 6,867
Provision for income taxes.................................. 7,278 2,444 1,490
Minority interest........................................... 82 158 252
-------- -------- --------
Net income........................................ $ 9,807 $ 9,169 $ 5,125
======== ======== ========
Basic earnings per share --
Weighted average shares outstanding....................... 29,126 20,206 19,371
======== ======== ========
Basic earnings per share.................................. $ 0.34 $ 0.45 $ 0.26
======== ======== ========
Diluted earnings per share --
Weighted average shares outstanding....................... 29,126 20,206 19,371
Dilutive effect of stock options.......................... 2,903 4,073 3,666
-------- -------- --------
Diluted weighted average shares outstanding............... 32,029 24,279 23,037
======== ======== ========
Diluted earnings per share................................ $ 0.31 $ 0.38 $ 0.22
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED) (NOTES 17 AND 19)
<S> <C> <C> <C>
Net income as reported...................................... $ 9,807 $ 9,169 $ 5,125
Pro forma incremental income tax provision (benefit)........ (764) 2,175 909
-------- -------- --------
Pro forma net income........................................ $ 10,571 $ 6,994 $ 4,216
======== ======== ========
Basic earnings per share --
Weighted average shares outstanding....................... 29,126 20,206 19,371
======== ======== ========
Pro forma basic earnings per share........................ $ 0.36 $ 0.35 $ 0.22
======== ======== ========
Diluted earnings per share --
Weighted average shares outstanding....................... 29,126 20,206 19,371
Dilutive effect of stock options.......................... 2,903 4,073 3,666
-------- -------- --------
Diluted weighted average shares outstanding............... 32,029 24,279 23,037
======== ======== ========
Pro forma diluted earnings per share...................... $ 0.33 $ 0.29 $ 0.18
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 44

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) (NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1994.... 18,690,061 $ 373 $ 13,266 $ -- $ -- $ 13,639
Net income.................... -- -- 5,125 -- -- 5,125
Distribution to
shareholders................ -- -- (1,007) -- -- (1,007)
Stock dividends and other,
net......................... 194,491 (30) 11 -- -- (19)
Stock options exercised....... 328,699 306 -- -- -- 306
Translation adjustment........ -- -- -- -- (158) (158)
---------- -------- -------- ------- ----- --------
Balance -- December 31, 1995.... 19,213,251 649 17,395 -- (158) 17,886
Net income.................... -- -- 9,169 -- -- 9,169
Translation adjustment........ -- -- -- -- (51) (51)
Distribution to
shareholders................ -- -- (423) -- -- (423)
Capital contribution.......... -- 1,100 -- -- -- 1,100
Stock dividends and other,
net......................... 351,113 104 (272) -- -- (168)
Stock options exercised....... 1,617,145 3,336 -- (2,125) -- 1,211
---------- -------- -------- ------- ----- --------
Balance -- December 31, 1996.... 21,181,509 5,189 25,869 (2,125) (209) 28,724
Net income.................... -- -- 9,807 -- -- 9,807
Translation adjustment........ -- -- -- -- (378) (378)
Stock options and warrants
exercised................... 1,709,668 6,745 -- (685) -- 6,060
Repayment of stock
subscriptions receivable.... -- -- -- 307 -- 307
Conversion of minority
shareholder................. 1,105,264 4,593 -- -- (77) 4,516
Issuances of common stock,
net......................... 9,060,318 88,510 -- -- -- 88,510
Distributions to
shareholders................ -- -- (12,220) -- -- (12,220)
Recapitalizations............. -- 3,634 (3,634) -- -- --
---------- -------- -------- ------- ----- --------
Balance -- December 31, 1997.... 33,056,759 $108,671 $ 19,822 $(2,503) $(664) $125,326
========== ======== ======== ======= ===== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 45

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
(NOTE 1)
<S> <C> <C> <C>
Cash flows from operating activities --
Net income................................................ $ 9,807 $ 9,169 $ 5,125
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 5,960 3,843 2,392
Provision for doubtful accounts........................ 903 483 245
Minority interest...................................... 82 158 252
Provision (benefit) for deferred taxes................. (1,449) 784 (311)
Equity in loss of investee and other................... 279 110 --
Stock option expense................................... 592 107 --
Change in assets and liabilities:
Accounts receivable.................................. (14,016) (17,114) (9,704)
Prepaid expenses and other current assets............ (3,489) (1,154) (254)
Other assets......................................... (63) (1,018) (94)
Accounts payable, accrued payroll and related costs
and other liabilities............................. 14,425 6,170 3,404
Deferred revenue..................................... (300) 446 309
-------- -------- -------
Net cash provided by operating activities....... 12,731 1,984 1,364
-------- -------- -------
Cash flows from investing activities --
Investment in property, equipment and other............... (8,359) (8,276) (3,470)
Investment in computer software........................... (6,901) (2,077) (122)
Payment for purchase of assets, net of cash acquired...... (291) (130) (204)
Investment in affiliate................................... (405) (195) --
Changes in notes receivable............................... (31) 555 (188)
-------- -------- -------
Net cash used in investing activities........... (15,987) (10,123) (3,984)
-------- -------- -------
Cash flows from financing activities --
Net borrowings (payments) on revolving credit facility.... (10,655) 6,855 1,270
Payments on long-term debt................................ (1,735) (1,205) (760)
Proceeds from issuance of long-term debt.................. -- 2,926 1,328
Net proceeds from issuances of common stock............... 88,942 -- --
S corporation distributions and other, net................ (11,759) (671) (1,181)
Net proceeds from exercise of stock options............... 6,745 1,211 306
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 financing activities....... 71,538 11,008 963
-------- -------- -------
Effect of exchange rate changes on cash..................... (47) (9) (48)
-------- -------- -------
Increase (decrease) in cash and cash equivalents............ 68,235 2,860 (1,705)
Cash and cash equivalents at beginning of period............ 4,463 1,603 3,308
-------- -------- -------
Cash and cash equivalents at end of period.................. $ 72,698 $ 4,463 $ 1,603
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 1,049 $ 895 $ 788
Income taxes........................................... $ 6,378 $ 939 $ 1,336
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 46

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) provide information technology (IT) services
worldwide to large and mid-size organizations. The Company offers its clients a
broad range of IT services, from advising clients on IT business strategy and
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.

In July 1998, the Company closed an Agreement and Plan of Merger with
Claremont Technology Group, Inc. (Claremont), a publicly held Oregon
corporation. The merger with Claremont 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. Claremont had a fiscal year end of June 30.
The consolidated statements of income, shareholders' equity and cash flows for
the years ended December 31, 1997, 1996 and 1995, combine CBSI's results for the
years ended December 31, 1997, 1996 and 1995, with Claremont's results for the
years ended June 30, 1997, 1996 and 1995, respectively. The consolidated balance
sheets as of December 31, 1997 and 1996, combine CBSI's balance sheets as of
December 31, 1997 and 1996, with Claremont's balance sheets as of June 30, 1997
and 1996, respectively. All footnote information stated as of and for the years
ended December 31 combines CBSI's information as of and for the years ended
December 31 with Claremont's information as of and for the corresponding years
ended June 30.

In January 1998, the Company closed an Agreement and Plan of Merger with
c.w. Costello & Associates, inc. (Costello), a privately held Delaware
corporation. The merger with Costello 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.

In November 1997, the Company closed an Agreement and Plan of Merger 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) 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.

F-9
<PAGE> 47
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

The fair value of long-term debt was estimated by discounting the future
cash flows using market interest rates and does not differ significantly from
that reflected in the financial statements.

Property and Equipment

Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of future minimum lease payments at the inception
of the lease. Depreciation is provided primarily using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements and
equipment held under capital leases are amortized over the expected life of the
asset or term of the lease, whichever is shorter.

F-10
<PAGE> 48
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Revenue
earned in excess of billings is comprised of revenue recognized on certain
contracts in excess of contractual billings on such contracts. Billings in
excess of earnings are classified as deferred revenue.

Computer Software

The Company performs research to develop software for various business
applications. The costs of such research are charged to expense when incurred.
When the technological feasibility of the product is established, subsequent
costs are capitalized. Capitalized software costs are amortized on a
product-by-product basis. Amortization is recorded on a.) the straight-line
method over the estimated economic life of the product, generally three years to
five years, or b.) the ratio of current gross revenues for each product to the
total of current and anticipated gross revenues for each product, commencing
when such product is available. The establishment of technological feasibility
and the ongoing assessment of the recoverability of these costs requires
considerable judgment by management with respect to certain external factors,
including, but not limited to, anticipated future gross product revenue,
estimated economic product lives and changes in software and hardware
technology. These assumptions are reevaluated and adjusted as necessary at the
end of each accounting period. On an ongoing basis, management reviews the
valuation and amortization of capitalized development costs. As part of this
review, the Company considers the value of future cash flows attributable to the
capitalized development costs in evaluating potential impairment of the asset.
The amortization of software development costs was $860, $917 and $551 for the
years ended December 31, 1997, 1996 and 1995, respectively.

In Claremont's third and fourth quarters of fiscal 1998, management
determined that certain of the Company's computer software products were no
longer realizable and recorded a charge of approximately $8,300.

Accumulated amortization on computer software amounted to $3,032 and $2,172
as of December 31, 1997 and 1996, respectively.

Amounts capitalized were $6,901, $2,643 and $122 for the years ended
December 31, 1997, 1996 and 1995, respectively.

Amounts charged to expense for research and development of computer
software were not material in the periods presented.

F-11
<PAGE> 49
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

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.

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 costs, net proceeds to the Company from this offering were
approximately $38,000.

In July 1996, Claremont completed its initial public offering of 2,171,417
shares of its common stock at a price of $19 3/8 per share. This offering
consisted of 1,357,136 shares of newly issued common stock and 814,281 shares
sold by selling shareholders. After underwriting discounts, commissions and
other issuance costs, net proceeds to Claremont from this offering were
approximately $26,900.

3. MERGERS AND ACQUISITIONS

On November 20, 1997, the Company closed a merger agreement with Synergy.
The merger agreement provided for all of the outstanding Synergy common stock to
be exchanged for approximately 1,391,000 shares of CBSI's common stock. See Note
11.

F-12
<PAGE> 50
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 closed a merger agreement with Costello.
This merger agreement provided for all of the outstanding Costello common stock
to be exchanged for approximately 3,363,000 shares of CBSI's common stock. See
Note 11.

Audited summarized results of operations and other changes in shareholders'
equity of the previously separate entities for the year ended December 31, 1997
are as follows:

<TABLE>
<CAPTION>
COMPLETE BUSINESS
SOLUTIONS, INC.
(INCLUDING C.W. COSTELLO &
SYNERGY) ASSOCIATES, INC.
<S> <C> <C>
Revenues................................................ $123,775 $70,175
======== =======
Gross profit............................................ $ 34,175 $16,821
======== =======
Income (loss) from operations........................... $ 10,442 $(1,034)
======== =======
Net income (loss)....................................... $ 7,501 $(1,940)
======== =======
Other significant changes to shareholders equity --
S Corporation distributions and other................. $ 12,220 $ --
======== =======
</TABLE>

On July 24, 1998, the Company closed a merger agreement with Claremont.
This merger agreement provided for all of the outstanding Claremont common stock
to be exchanged for approximately 7,235,000 shares of CBSI's common stock. See
Note 11.

Unaudited summarized results of operations and other changes in
shareholders' equity of the previously separate entities for the year ended
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
COMPLETE BUSINESS
SOLUTIONS, INC. CLAREMONT
(INCLUDING SYNERGY TECHNOLOGY
AND COSTELLO) GROUP, INC.
<S> <C> <C>
Revenues.................................................. $193,950 $67,332
======== =======
Gross profit.............................................. $ 50,996 $31,506
======== =======
Income from operations.................................... $ 9,408 $ 6,917
======== =======
Net income................................................ $ 5,561 $ 4,246
======== =======
Other significant changes to shareholders' equity
S Corporations distributions and other.................. $ 12,220 $ --
======== =======
</TABLE>

F-13
<PAGE> 51
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounting policies of CBSI, Synergy, Costello and Claremont were
substantially the same. There were no significant intercompany transactions
requiring elimination in any period presented.

4. ACCOUNTS RECEIVABLE AND CREDIT RISK

The allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance -- beginning of period.............................. $ 704 $ 331 $149
Provision................................................... 903 483 245
Charge-offs................................................. (486) (110) (63)
------ ----- ----
Balance -- end of period.................................... $1,121 $ 704 $331
====== ===== ====
</TABLE>

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 and purchased software......................... $20,304 $13,677 3-5 years
Buildings................................................ 1,044 986 31 years
Furniture and fixtures................................... 3,535 2,443 5-7 years
Leasehold improvements................................... 1,009 666 5-7 years
Automobiles.............................................. 429 221 5 years
------- -------
26,321 17,993
Accumulated depreciation................................. (12,106) (7,556)
------- -------
Property and equipment, net.............................. $14,215 $10,437
======= =======
</TABLE>

6. RELATED PARTY TRANSACTIONS

During 1997, 1996 and 1995, Costello made interest bearing loans to an
affiliate of a shareholder for the purchase of real estate, of $98, $25 and $71,
respectively. As of December 31, 1997 and 1996, $261 and $163, respectively, of
these loans were outstanding. In connection with these loans, Costello
guaranteed the related real estate mortgage obligation of approximately $270 as
of December 31, 1997 and 1996. Costello leased this real estate from the
affiliate for various marketing and administrative purposes. During 1997, 1996
and 1995, Costello incurred rent expense of $150, $102 and $36, respectively.
These leases were cancelled during 1998.

Claremont issued promissory notes totaling $514 and $385 to certain
employees during their fiscal years 1996 and 1995, respectively. These notes
were due at varying dates through July 31, 1997 and bear interest at rates
ranging from 4.0% to 7.1%.

F-14
<PAGE> 52
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
were repaid during 1996.

CBSI 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.

CBSI incurred approximately $551 and $295 for the years ended December 31,
1997 and 1996, respectively, for consulting services provided by affiliates of
outside directors. No consulting services were provided by affiliates during
1995.

In August 1997, in connection with CBSI'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.

7. REVOLVING CREDIT FACILITY

Under a credit arrangement with a commercial bank, the Company may borrow
an amount not to exceed $21,000 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.

Costello maintained line of credit arrangements with commercial banks which
included a base borrowing line of $11,000 and a special advance of $1,500 as of
December 31, 1997, and a borrowing line of $5,000 as of December 31, 1996. The
lines were secured by substantially all of the assets of Costello and bore
interest at the bank's prime rate. The balance outstanding under these
arrangements at December 31, 1997 and 1996 was $3,380 and $4,035, respectively.
The weighted average interest rate on the outstanding borrowings was 8.5% and
8.25% at December 31, 1997 and 1996, respectively. The outstanding balance on
these line of credit arrangements were repaid in 1998 and the credit
arrangements were terminated.

During 1995, Claremont entered into a $2 million line of credit with a
bank, which was subsequently increased to $6 million in June 1996, with an
interest rate of 0.25% above the bank's reference rate. This line of credit was
secured by Claremont's furniture, equipment and accounts receivable. At December
31, 1997, there were no amounts outstanding on this line of credit. At December
31, 1996, the balance outstanding under this arrangement was $4,600. The
weighted average interest rate on the outstanding borrowings was 8.75% at
December 31, 1996. This line of credit has expired.

Claremont was a guarantor on a nonrevolving line of credit with a bank,
which provided for borrowings of up to $2 million for purposes of facilitating
the purchase of Company common stock by Claremont executives. As of December 31,
1997, there was $923 of related debt outstanding against the line. Advances
under the line of credit were made directly to the executives with full recourse
and bore interest. All amounts due under this line of credit have been repaid
and the line of credit expired in September 1998.

F-15
<PAGE> 53
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LONG-TERM DEBT

As of December 31, 1997 and 1996, long-term debt consisted of the
following:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to a bank, payable in monthly installments of
$61 including interest at 7.6% through April 1999,
collateralized by certain furniture and equipment......... $1,189 $1,799
Note payable to a bank, payable in monthly installments of
$14 including interest at 7.59% through November 1998,
collateralized by certain furniture and equipment......... 222 334
Note payable to a bank, payable in monthly installments of
$16 including interest at 8.05% through May 1998,
collateralized by certain furniture and equipment......... 167 389
Note payable to a bank, payable in monthly installments of
$15 plus interest at 9.6% through March 1998,
collateralized by equipment. ............................. -- 219
Note payable to a bank, payable in monthly installments of
$14 plus interest at prime plus 0.25% through July 1997,
collateralized by equipment. ............................. -- 97
Note payable to a bank, payable in monthly installments of
$8 plus interest at prime through August 1998,
collateralized by equipment. ............................. -- 159
Note payable to a bank, payable in monthly installments of
$10 plus interest at prime through August 1999,
collateralized by equipment. ............................. -- 316
------ ------
1,578 3,313
Less -- Current portion..................................... (993) (1,430)
------ ------
$ 585 $1,883
====== ======
</TABLE>

Maturities of the principal amounts outstanding at December 31, 1997 are as
follows:

9. SELF-INSURANCE

CBSI, Costello and Claremont are self-insured for health and dental
benefits up to $80, $75 and $25, respectively, per occurrence. Insurance
coverage is carried for risks in excess of this amount. CBSI, Costello and
Claremont, combined, recognized health and dental benefits expense of
approximately $5,855, $4,254 and $2,987 for the years ended December 31, 1997,
1996 and 1995, respectively. Estimated claims incurred but not reported were
$945 and $300 as of December 31, 1997 and 1996, respectively, and are included
in other accrued liabilities in the accompanying consolidated balance sheets.

10. LEASES

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

F-16
<PAGE> 54
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense for the years ended December 31, 1997, 1996 and 1995 amounted
to approximately $3,619, $2,591 and $1,832, respectively. The future minimum
lease payments required under these operating leases for the years ending
December 31, are as follows:

<TABLE>
<S> <C>
1998........................................................ $ 3,433
1999........................................................ 3,234
2000........................................................ 2,805
2001........................................................ 2,401
2002........................................................ 1,645
Thereafter.................................................. 560
-------
$14,078
=======
</TABLE>

11. 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 7,247,454 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
as of November 20, 1997 were converted into approximately 418,000 options of
CBSI. These options retained their original terms and vesting periods. As a
result of the merger with Costello, as discussed in Note 3, outstanding Costello
stock options as of January 27, 1998 were converted into approximately 57,000
options of CBSI. These options retained their original terms and vesting
periods. As a result of the merger with Claremont, as discussed in Note 3,
outstanding Claremont stock options as of July 24, 1998 were converted into
approximately 1,225,000 options of CBSI. These options retained their original
terms and vesting periods.

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 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

F-17
<PAGE> 55
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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............................................... $9,807 $9,169 $5,125
SFAS No. 123 pro forma.................................... $8,451 $8,488 $4,964
Diluted earnings per share --
As reported............................................... $ 0.31 $ 0.38 $ 0.22
SFAS No. 123 pro forma.................................... $ 0.26 $ 0.35 $ 0.22
</TABLE>

A summary of option activity, restated to give effect to the Synergy,
Costello and Claremont mergers, follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ WEIGHTED AVERAGE
WEIGHTED AVERAGE OPTIONS FAIR VALUE OF
SHARES EXERCISE PRICE EXERCISABLE OPTIONS GRANTED
(IN
THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994..................... 2,253 $ 0.76
Options granted............ 2,693 2.18
Options exercised.......... (393) 0.51
Options cancelled.......... (86) 2.00
------
BALANCE, DECEMBER 31,
1995..................... 4,467 1.67 1,511
------ =====
Options granted............ 1,032 4.48 $0.53
=====
Options exercised.......... (1,617) 1.72
Options cancelled.......... (130) 4.32
------
BALANCE, DECEMBER 31,
1996..................... 3,752 2.33 1,504
------ =====
Options granted............ 2,300 13.51 $5.37
=====
Options exercised.......... (1,389) 1.46
Options cancelled.......... (436) 12.82
------
BALANCE, DECEMBER 31,
1997..................... 4,227 $ 7.62 1,114
====== ====== =====
</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 and 1996 grants: risk-free rate of interest of 6.5% and 6.6%,
respectively; dividend yield of 0%; and expected lives of 3 to 5 years. A
volatility factor of 68% was used in 1997.

F-18
<PAGE> 56
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of options outstanding, adjusted to give effect to the Synergy,
Costello and Claremont mergers, at December 31, 1997, follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -----------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, AVERAGE
EXERCISE PRICE 1997 LIFE PRICE 1997 EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 0.01 - 2.23................ 1,469 7.0 $ 1.68 910 $ 1.55
$ 2.24 - 4.58................ 658 8.3 $ 4.02 117 $ 3.59
$ 4.59 - 10.32................ 635 9.0 $ 6.07 74 $ 5.35
$10.33 - 19.34................ 1,414 9.6 $15.07 12 $19.07
$19.35 - 32.24................ 22 9.5 $29.54 1 $28.90
$32.25 - 46.42................ 29 9.2 $42.54 -- $ --
</TABLE>

12. BENEFIT PLANS

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.

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

Synergy, Costello and Claremont maintained defined contribution 401(k)
plans for substantially all of their employees. Under the plans, eligible
employees could elect to contribute a portion of their base compensation.
Synergy contributed an additional 25% of the employees' contributions up to 1%
of the employees' aggregate base compensation. Costello and Claremont
contributions were discretionary. Contributions to these plans amounted to $571,
$524 and $361 for the years ended December 31, 1997, 1996 and 1995,
respectively. As of January 1, 1999 all employees are eligible to participate in
CBSI's 401(k) plan.

In June 1995, Claremont established an Employee Stock Ownership Plan
(CESOP) for all non-union U.S. employees. The CESOP was designed to invest
primarily in common stock of Claremont. Claremont pays all administrative costs
of the CESOP. Claremont makes all contributions to the CESOP, which may be made
in either cash or shares of common stock. The contributions to the CESOP for the
years ended December 31, 1997, 1996 and 1995 consisted of cash of $150, $448 and
$300, respectively. During 1998, the Company filed with the Internal Revenue
Service to terminate the CESOP.

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

F-19
<PAGE> 57
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. STOCK WARRANT

In May 1996, Claremont issued a five-year warrant to purchase approximately
310,000 shares of common stock at an exercise price of $13.32 per share. The
warrant was exercised in October 1996 using a net exercise provision, for a
total of approximately 219,000 shares of common stock. As of December 31, 1997,
the warrant was fully exercised and no shares of the common stock remain
issuable under this warrant.

14. INCOME TAXES

Prior to CBSI's initial public offering and the date of the acquisition of
Synergy, the shareholders of the respective companies had elected, under the
provisions of Subchapter S of the United States Internal Revenue Code
(Subchapter S), to have income and related tax benefits of each company included
in the taxable income of the shareholders. The shareholders of Costello also
elected to be governed under the provisions of Subchapter S through the date of
its acquisition by CBSI in 1998. As a result, no provision for U.S. federal
income taxes and only certain state income taxes have been included in the
consolidated statements of income prior to CBSI's initial public offering and
the date of the acquisitions of Synergy and Costello.

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, 1995. See Note 19.

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 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.

F-20
<PAGE> 58
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes consists of:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
<S> <C> <C> <C>
Current --
Federal................................................... $7,551 $1,232 $1,351
State and local........................................... 685 345 424
Foreign................................................... -- 83 26
------ ------ ------
8,236 1,660 1,801
Deferred --
Federal................................................... (744) 552 (314)
State and local........................................... 433 232 3
Foreign................................................... (647) -- --
------ ------ ------
(958) 784 (311)
------ ------ ------
$7,278 $2,444 $1,490
====== ====== ======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
<S> <C> <C>
Deferred tax assets --
Accrued expenses.......................................... $ 2,841 $ 397
Allowance for doubtful accounts........................... 276 37
State net operating loss carryforward..................... 365 105
Alternative minimum tax credit carryforward............... 120 --
Foreign net operating losses.............................. 647 --
Other..................................................... 207 24
------- -------
Total gross deferred tax assets........................ 4,456 563
Deferred tax liability --
Capitalized software development costs.................... (3,360) (812)
Accounts receivable....................................... (678) (551)
CBS Mauritius............................................. (204) --
Built-in-gains tax........................................ (24) (594)
Other..................................................... (179) (31)
------- -------
Total gross deferred tax liabilities................... (4,445) (1,988)
------- -------
Net deferred tax assets (liabilities)................ $ 11 $(1,425)
======= =======
</TABLE>

F-21
<PAGE> 59
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
<S> <C> <C> <C>
Federal statutory rate...................................... 35% 34% 34%
Effect of --
Tax rate differences on foreign earnings not subject to
U.S. tax............................................... (4) -- --
State income tax, net of Federal benefit.................. 2 3 5
Other, net................................................ 3 3 --
-- --- ---
36% 40% 39%
S Corporation earnings and terminations................... 6 (19) (17)
-- --- ---
42% 21% 22%
== === ===
</TABLE>

15. 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....................................... $254,514 $179,343 $123,323
India............................................... 13,644 4,994 3,390
Other international................................. 4,971 3,076 1,758
Intersegment........................................ (11,847) (4,781) (3,093)
-------- -------- --------
Total............................................ $261,282 $182,632 $125,378
======== ======== ========
Income From Operations --
United States....................................... $ 12,793 $ 11,668 $ 6,813
India............................................... 3,445 999 678
Other international................................. 87 38 48
-------- -------- --------
Total............................................ $ 16,325 $ 12,705 $ 7,539
======== ======== ========
Identifiable Assets --
United States....................................... $156,839 $ 60,831 $ 39,079
India............................................... 6,697 3,996 1,320
Other international................................. 4,704 3,454 496
-------- -------- --------
Total............................................ $168,240 $ 68,281 $ 40,895
======== ======== ========
</TABLE>

16. COMMITMENTS, CONTINGENCIES AND POTENTIAL LIABILITY TO CLIENTS

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

F-22
<PAGE> 60
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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.

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.

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.

17. 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.

On December 30, 1995, Costello declared a two-for-one stock split payable
to shareholders of record as of December 31, 1995. All references to number of
shares, 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.

Costello declared 15% and 10% stock dividends on December 31, 1996 and
1995, respectively.

F-23
<PAGE> 61
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)

The following quarterly information is unaudited and has been restated to
give effect to the acquisitions of Costello and Claremont which were accounted
for using the poolings of interests method.

<TABLE>
<CAPTION>
1997 QUARTER ENDED
- ---- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenues........................................... $55,560 $62,745 $69,880 $73,097
Gross profit....................................... 17,649 20,565 23,549 20,739
Income from operations............................. 4,213 5,300 6,500 312
Net income (loss).................................. 2,257 3,455 4,470 (375)
Net income (loss) per weighted-average share....... $ 0.08 $ 0.11 $ 0.14 $ (0.01)
Pro forma net income............................... 2,572 3,348 4,205 446
Pro forma diluted earnings per share............... $ 0.09 $ 0.11 $ 0.13 $ 0.01
</TABLE>

<TABLE>
<CAPTION>
1996 QUARTER ENDED
- ---- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenues........................................... $38,392 $44,346 $47,930 $51,964
Gross profit....................................... 12,265 14,005 14,429 15,686
Income from operations............................. 2,952 3,989 2,731 3,033
Net income......................................... 2,184 2,759 2,040 2,186
Net income per weighted-average share.............. $ 0.09 $ 0.11 $ 0.08 $ 0.08
Pro forma net income............................... 1,587 2,159 1,464 1,784
Pro forma diluted earnings per share............... $ 0.06 $ 0.08 $ 0.06 $ 0.07
</TABLE>

F-24
<PAGE> 62
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a reconciliation of the quarterly information to that
previously reported:

<TABLE>
<CAPTION>
1997 QUARTER ENDED
---- --------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenue, as previously reported.................... $27,130 $29,834 $32,597 $34,214
Adjustment for pooling of interests................ 28,430 32,911 37,283 38,883
------- ------- ------- -------
Revenue............................................ $55,560 $62,745 $69,880 $73,097
======= ======= ======= =======
Gross profit, as previously reported............... $ 7,099 $ 8,133 $ 9,581 $ 9,362
Adjustment for pooling of interests................ 10,550 12,432 13,968 11,377
------- ------- ------- -------
Gross profit....................................... $17,649 $20,565 $23,549 $20,739
======= ======= ======= =======
Income from operations, as previously reported..... $ 2,004 $ 2,790 $ 3,812 $ 1,836
Adjustment for pooling of interests................ 2,305 2,510 2,688 (1,524)
------- ------- ------- -------
Income from operations............................. $ 4,309 $ 5,300 $ 6,500 $ 312
======= ======= ======= =======
Net income, as previously reported................. $ 780 $ 2,184 $ 2,898 $ 1,639
Adjustment for pooling of interests................ 1,477 1,271 1,572 (2,014)
------- ------- ------- -------
Net income (loss).................................. $ 2,257 $ 3,455 $ 4,470 $ (375)
======= ======= ======= =======
Net income per weighted average share, as
previously reported.............................. $ 0.05 $ 0.10 $ 0.13 $ 0.07
Adjustment for pooling of interests................ 0.03 0.01 0.01 (0.08)
------- ------- ------- -------
Net income (loss) per weighted average share....... $ 0.08 $ 0.11 $ 0.14 $ (0.01)
======= ======= ======= =======
Pro forma net income, as previously reported....... $ 1,163 $ 2,031 $ 2,773 $ 1,546
Adjustment for pooling of interests................ 1,409 1,317 1,432 (1,100)
------- ------- ------- -------
Pro forma net income............................... $ 2,572 $ 3,348 $ 4,205 $ 446
======= ======= ======= =======
Pro forma diluted earnings per share, as previously
reported......................................... $ 0.07 $ 0.10 $ 0.12 $ 0.06
Adjustment for pooling of interests................ 0.02 0.01 0.01 (0.05)
------- ------- ------- -------
Pro forma diluted earnings per share............... $ 0.09 $ 0.11 $ 0.13 $ 0.01
======= ======= ======= =======
</TABLE>

F-25
<PAGE> 63
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1996 QUARTER ENDED
---- --------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenue, as previously reported.................... $20,864 $22,716 $24,457 $24,713
Adjustment for pooling of interests................ 17,528 21,630 23,473 27,251
------- ------- ------- -------
Revenue............................................ $38,392 $44,346 $47,930 $51,964
======= ======= ======= =======
Gross profit, as previously reported............... $ 5,323 $ 5,723 $ 6,069 $ 5,886
Adjustment for pooling of interests................ 6,942 8,282 8,360 9,800
------- ------- ------- -------
Gross profit....................................... $12,265 $14,005 $14,429 $15,686
======= ======= ======= =======
Income from operations, as previously reported..... $ 1,378 $ 1,730 $ 1,853 $ 1,110
Adjustment for pooling of interests................ 1,574 2,259 878 1,923
------- ------- ------- -------
Income from operations............................. $ 2,952 $ 3,989 $ 2,731 $ 3,033
======= ======= ======= =======
Net income, as previously reported................. $ 1,158 $ 1,446 $ 1,579 $ 992
Adjustment for pooling of interests................ 1,026 1,313 461 1,194
------- ------- ------- -------
Net income......................................... $ 2,184 $ 2,759 $ 2,040 $ 2,186
======= ======= ======= =======
Net income per weighted average share, as
previously reported.............................. $ 0.08 $ 0.09 $ 0.10 $ 0.06
Adjustment for pooling of interests................ 0.01 0.02 (0.02) 0.02
------- ------- ------- -------
Net income per weighted average share.............. $ 0.09 $ 0.11 $ 0.08 $ 0.08
======= ======= ======= =======
Pro forma net income, as previously reported....... $ 738 $ 902 $ 999 $ 731
Adjustment for pooling of interests................ 849 1,257 465 1,053
------- ------- ------- -------
Pro forma net income............................... $ 1,587 $ 2,159 $ 1,464 $ 1,784
======= ======= ======= =======
Pro forma diluted earnings per share, as previously
reported......................................... $ 0.04 $ 0.05 $ 0.06 $ 0.04
Adjustment for pooling of interests................ 0.02 0.03 -- 0.03
------- ------- ------- -------
Pro forma diluted earnings per share............... $ 0.06 $ 0.08 $ 0.06 $ 0.07
======= ======= ======= =======
</TABLE>

F-26
<PAGE> 64
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. PRO FORMA STATEMENT OF INCOME INFORMATION (UNAUDITED)

The pro forma adjustments for the incremental income tax provision
(benefit) included in the accompanying consolidated statements of income
applicable reflects the additional provision (benefit) for Federal and state
income taxes at the effective income tax rate as if the companies' Subchapter S
elections had been revoked prior to January 1, 1995 and the companies had been
taxed as C corporations. 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% 34% 34%
State income taxes, net of Federal tax effect............... 4 5 6
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (4) (2) (5)
Non-deductible merger costs................................. 2 -- --
Other....................................................... 1 2 --
-- -- --
38% 39% 35%
== == ==
</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.

F-27
<PAGE> 65

This page intentionally left blank.

F-28
<PAGE> 66

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 65,459 $ 72,698
Accounts receivable, net.................................. 70,732 52,814
Revenues earned in excess of billing, net................. 12,929 6,687
Prepaid expenses and other................................ 3,099 8,190
-------- --------
Total current assets................................... 152,219 140,389
-------- --------
Property and equipment, net................................. 15,485 14,215
Computer software, net...................................... 4,608 8,826
Other assets, net........................................... 6,674 4,810
-------- --------
Total assets........................................... $178,986 $168,240
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,885 $ 6,345
Accrued payroll and related costs......................... 28,903 19,194
Revolving credit facility................................. -- 3,380
Current portion of long term debt......................... -- 993
Other accrued liabilities................................. 9,628 6,208
Distribution payable to shareholders...................... 365 1,325
Deferred revenue.......................................... 2,164 1,838
-------- --------
Total current liabilities.............................. 52,945 39,283
-------- --------
Other liabilities........................................... 337 3,631
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, none issued................................ -- --
Common stock, no par value, 200,000,000 shares authorized,
and 34,720,993 and 33,056,759 shares issued and
outstanding as of September 30, 1998 and December 31,
1997, respectively..................................... -- --
Additional paid-in capital................................ 112,734 108,671
Retained earnings......................................... 21,717 19,822
Stock subscriptions receivable............................ (7,234) (2,503)
Cumulative translation adjustment......................... (1,513) (664)
-------- --------
Total shareholders' equity............................. 125,704 125,326
-------- --------
Total liabilities and shareholders' equity............. $178,986 $168,240
======== ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-29
<PAGE> 67

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $272,554 $188,185
Cost of revenues:
Salaries, wages and employee benefits..................... 140,462 104,478
Contractual services...................................... 26,438 13,641
Project travel and relocation............................. 10,585 6,691
Depreciation and amortization............................. 3,018 1,612
-------- --------
Total cost of revenues............................ 180,503 126,422
-------- --------
Gross profit...................................... 92,051 61,763
Selling, general and administrative expenses................ 62,922 45,654
Merger costs and other...................................... 28,250 --
-------- --------
Income from operations............................ 879 16,109
Interest expense (income)................................... (2,110) (267)
-------- --------
Income before provision for income taxes and
minority interest............................... 2,989 16,376
Provision for income taxes.................................. 5,493 6,015
Minority interest........................................... -- 82
-------- --------
Net income (loss)................................. $ (2,504) $ 10,279
======== ========
Basic earnings (loss) per share --
Weighted average shares outstanding....................... 34,172 28,201
======== ========
Basic earnings (loss) per share........................... $ (0.07) $ 0.36
======== ========
Diluted earnings (loss) per share --
Weighted average shares outstanding....................... 34,172 28,201
Dilutive effect of stock options.......................... -- 2,671
-------- --------
Diluted weighted average shares outstanding............... 34,172 30,872
======== ========
Diluted earnings (loss) per share......................... $ (0.07) $ 0.33
======== ========

Pro Forma Information:
Net income (loss) as reported............................... $ (2,504) $ 10,279
Pro forma incremental income tax provision (benefit)........ (1,417) 57
-------- --------
Pro forma net income (loss)................................. $ (1,087) $ 10,222
======== ========
Earnings (loss) per share --
Pro forma basic earnings (loss) per share................. $ (0.03) $ 0.36
======== ========
Pro forma diluted earnings (loss) per share............... $ (0.03) $ 0.33
======== ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-30
<PAGE> 68

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities --
Net income (loss)......................................... $ (2,504) $ 10,279
Adjustments to reconcile net income (loss) to net cash
provided by
operating activities:
Depreciation and amortization.......................... 6,587 4,453
Provision for doubtful accounts........................ 949 309
Minority interest...................................... -- 82
Writedown of other assets and other.................... 15,649 --
Equity in loss of investee............................. -- 216
Change in assets and liabilities:
Accounts receivable.................................. (21,627) (12,613)
Prepaid expenses and other........................... (1,030) (1,603)
Accounts payable, accrued payroll and related costs
and other liabilities............................... 16,059 4,532
Deferred revenue..................................... 860 86
-------- --------
Net cash provided by operating activities............ 14,943 5,741
-------- --------
Cash flows from investing activities --
Purchases of property and equipment....................... (6,667) (6,029)
Investment in computer software........................... (2,080) (5,135)
-------- --------
Net cash used in investing activities................ (8,747) (11,164)
-------- --------
Cash flows from financing activities --
Net payments on revolving credit facility and long-term
debt................................................... (4,471) (9,874)
Net proceeds from issuance of common stock................ 2,978 93,977
S corporation distribution................................ (1,058) (10,792)
-------- --------
Net cash provided by (used in) financing
activities.......................................... (2,551) 73,311
-------- --------
Effect of exchange rate changes on cash..................... (47) --
-------- --------
Increase in cash and cash equivalents....................... 3,598 67,888
-------- --------
Cash and cash equivalents at beginning of period............ 61,861 4,463
-------- --------
Cash and cash equivalents at end of period.................. $ 65,459 $ 72,351
======== ========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 128 $ 980
Income taxes........................................... $ 8,406 $ 3,847
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-31
<PAGE> 69

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED 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)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1996... 21,181,509 $ 5,189 $ 25,869 $(2,125) $ (209) $ 28,724
Net income..................... -- -- 10,279 -- -- 10,279
Translation adjustment......... -- -- -- -- (38) (38)
Stock options and warrants
exercised.................... 1,113,058 5,606 -- (7) -- 5,599
Repayment of stock
subscriptions receivable..... -- -- -- 274 -- 274
Conversion of minority
shareholder.................. 1,105,264 4,593 -- -- (77) 4,516
Issuances of common stock,
net.......................... 9,060,318 88,510 -- -- -- 88,510
Distributions to
shareholders................. -- -- (10,895) -- -- (10,895)
Recapitalization............... -- 3,634 (3,634) -- -- --
---------- -------- -------- ------- ------- --------
Balance -- September 30,
1997......................... 32,460,149 107,532 21,619 (1,858) (324) 126,969
---------- -------- -------- ------- ------- --------
Net loss....................... -- -- (472) -- -- (472)
Translation adjustment......... -- -- -- -- (340) (340)
Stock options and warrants
exercised.................... 596,610 1,139 -- (678) -- 461
Repayment of stock
subscriptions receivable..... -- -- -- 33 -- 33
Distributions to
shareholders................. -- -- (1,325) -- -- (1,325)
---------- -------- -------- ------- ------- --------
Balance -- December 31, 1997... 33,056,759 108,671 19,822 (2,503) (664) 125,326
---------- -------- -------- ------- ------- --------
Net loss....................... -- -- (2,504) -- -- (2,504)
Translation adjustment......... -- -- -- -- (678) (678)
Stock options exercised and
other........................ 1,457,119 4,685 -- (4,734) -- (49)
Repayment of stock
subscriptions receivable..... -- -- -- 3 -- 3
Issuances of common stock,
net.......................... 21,769 389 -- -- -- 389
Distributions to
shareholders................. -- (133) -- -- -- (133)
Recapitalization............... -- (3,351) 3,351 -- -- --
Adjustment for pooling of
interests (Note 2)........... 185,346 2,473 1,048 -- (171) 3,350
---------- -------- -------- ------- ------- --------
Balance -- September 30,
1998......................... 34,720,993 $112,734 $ 21,717 $(7,234) $(1,513) $125,704
========== ======== ======== ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-32
<PAGE> 70

COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been
prepared by management, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments necessary for a fair presentation of the financial position of
Complete Business Solutions, Inc. and subsidiaries (CBSI) as of September 30,
1998, the results of its operations and cash flows for the nine month periods
ended September 30, 1998 and 1997, and all such adjustments are of a normal,
recurring nature. These financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto appearing elsewhere
in this prospectus.

The results of operations for the nine month periods ended September 30,
1998 are not necessarily indicative of the results to be expected in future
quarters or for the full fiscal year ending December 31, 1998.

2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION

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

In July 1998, a subsidiary of CBSI closed an Agreement and Plan of Merger
with Claremont Technology Group, Inc. (Claremont), a publicly traded Oregon
corporation. The merger agreement provided that all of the outstanding Claremont
common stock be exchanged for approximately 7,235,000 shares of CBSI's common
stock. In addition, outstanding Claremont options were converted into
approximately 1,225,000 options of CBSI. These options retained their original
terms and vesting periods. The acquisition of Claremont was accounted for by the
pooling of interests method, and accordingly, the accompanying condensed
consolidated financial statements have been retroactively restated. Claremont
had a fiscal year end of June 30. Unaudited summarized results of operations and
other changes in shareholders' equity of the previously separate entities for
the six month period ended June 30, 1998 are as follows:

<TABLE>
<CAPTION>
COMPLETE BUSINESS CLAREMONT TECHNOLOGY
SOLUTIONS, INC. GROUP, INC.
<S> <C> <C>
Revenues......................................... $127,549 $ 46,317
======== ========
Gross profit..................................... $ 38,979 $ 19,017
======== ========
Income (loss) from operations.................... $ 10,933 $(13,160)
======== ========
Net income (loss)................................ $ 6,282 $(10,056)
======== ========
Other significant changes to shareholders equity
-- S Corporation distributions and other....... $ -- $ --
======== ========
</TABLE>

F-33
<PAGE> 71

In January 1998, a subsidiary of CBSI closed an Agreement and Plan of
Merger with c.w. Costello & Associates, inc. (Costello), a privately held
Delaware corporation. The merger agreement provided for all of the outstanding
Costello common stock to be exchanged for approximately 3,363,000 of CBSI's
common stock. In addition, outstanding Costello options were converted into
approximately 57,000 options of CBSI. These options retained their original
terms and vesting periods. The acquisition of Costello was accounted for by the
pooling of interests method, and accordingly, the accompanying condensed
consolidated financial statements have been retroactively restated. Costello had
a fiscal year end of December 31.

In November 1997, a subsidiary of CBSI closed an Agreement and Plan of
Merger with Synergy Software, Inc. (Synergy), a privately held Illinois
corporation. The merger agreement provided for all of the outstanding Synergy
common stock to be exchanged for approximately 1,391,000 shares of CBSI's common
stock. In addition, outstanding Synergy options were converted into
approximately 418,000 options of CBSI. These options retained their original
terms and vesting periods. The acquisition of Synergy was accounted for by the
pooling of interests method, and accordingly, the accompanying condensed
consolidated balance sheets and statements of income and cash flows have been
retroactively restated. Synergy had a fiscal year end of December 31.

The condensed consolidated statements of income, shareholders' equity and
cash flows for the nine month period ended September 30, 1998 combine CBSI's,
Costello's, Synergy's and Claremont's results for the nine month period ended
September 30, 1998. The condensed consolidated statements of income,
shareholders' equity and cash flows for the nine month period ended September
30, 1997 combine CBSI's, Costello's and Synergy's historical results for the
nine month period ended September 30, 1997 with Claremont's results for the nine
month period ended March 31, 1997. The condensed consolidated balance sheet as
of September 30, 1998 combines all companies' balance sheets as of that date.
The condensed consolidated balance sheet as of December 31, 1997 combines
CBSI's, Costello's and Synergy's balance sheets as of December 31, 1997 with
Claremont's balance sheet as of June 30, 1997. As a result of these pooling of
interests period combinations, an adjustment has been included in the condensed
consolidated statements of shareholders' equity to adjust all components of
shareholders' equity to their respective balances as of September 30, 1998. The
activity for Claremont for the period from July 1, 1997 to December 31, 1997,
has not been reflected in the consolidated statement of income for CBSI.
Unaudited summarized results of operations for the six month period ended
December 31, 1997 for Claremont are as follows:

<TABLE>
<S> <C>
Revenue............................................... $43,975
=======
Gross Profit.......................................... $18,381
=======
Income from operations................................ $ 1,785
=======
Net Income............................................ $ 1,048
=======
</TABLE>

3. STOCK DIVIDEND

On February 18, 1998, the Board of Directors declared a two-for-one split
of CBSI'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

F-34
<PAGE> 72

in the condensed consolidated financial statements and related notes have been
adjusted to reflect the stock split on a retroactive basis.

4. MERGER COSTS AND OTHER

During 1998, CBSI incurred approximately $12.7 million in costs related to
the acquisitions of Claremont and Costello. In addition, prior to the merger,
Claremont incurred approximately $15.6 million to write down certain capitalized
computer software and other long-term assets which it determined, prior to June
30, 1998, were no longer realizable. Of the approximately $28.3 million in
merger and other costs, approximately $13.2 million represented non-cash
charges. At September 30, 1998, approximately $2.0 million of the $15.1 million
cash charges remain in accrued liabilities in the balance sheet.

5. INCOME TAXES

Prior to CBSI's initial public offering and the dates of the mergers with
Synergy and Costello, 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 included in the taxable income of the
shareholders. As a result, no provision for U.S. federal or certain state income
taxes have been included in the condensed consolidated statements of income
prior to CBSI's initial public offering and the dates of the acquisitions of
Synergy and Costello.

Upon termination of the Subchapter S elections, future income of CBSI 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," (SFAS No. 109) resulted in the
recognition of deferred tax assets and liabilities, and a corresponding charge
to the provision for income taxes of approximately $1,400 during the nine month
period ended September 30, 1998, and approximately $920 during the nine month
period ended September 30, 1997.

CBSI has provided federal and state income taxes in the condensed
consolidated statements of income based on the anticipated effective tax rate
for fiscal years 1998 and 1997. The unaudited pro forma net income in the
condensed consolidated statements of income reflect 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, 1997.

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
exemptions from Indian income taxes under free trade zone and software exporters
provisions of Indian tax law. CBSI considers all undistributed earnings of its
foreign subsidiaries to be permanently invested. Therefore, no United States
income taxes have been provided on these earnings.

The provision for income taxes differs from the federal rate primarily due
to foreign earnings not subject to U.S. tax, losses for which the tax benefit
was not recognized, non-deductible acquisition costs and state income taxes.

F-35
<PAGE> 73

6. SUPPLEMENTAL QUARTERLY INFORMATION

The following quarterly information for each of the quarters in 1998 is
unaudited and has been restated to give effect to the Claremont merger which was
accounted for using the pooling of interests method.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30
<S> <C> <C> <C>
Revenues.................................................... $83,161 $90,705 $98,688
Gross profit................................................ 27,195 30,801 34,055
Income (loss) from operations............................... (4,148) 1,921 3,106
Net income (loss)........................................... (6,637) 2,863 1,270
Net income (loss) per weighted-average share................ $ (0.20) $ 0.08 $ 0.03
Pro forma net income (loss)................................. (5,220) 2,863 1,270
Pro forma diluted earnings (loss) per share................. $ (0.16) $ 0.08 $ 0.03
</TABLE>

The following is a reconciliation of the quarterly information to that
previously reported:

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
MARCH 31 JUNE 30
<S> <C> <C>
Revenue, as previously reported............................. $60,537 $67,012
Adjustment for pooling of interests......................... 22,624 23,693
------- -------
Revenue..................................................... $83,161 $90,705
======= =======
Gross profit, as previously reported........................ $18,192 $20,787
Adjustment for pooling of interests......................... 9,003 10,014
------- -------
Gross profit................................................ $27,195 $30,801
======= =======
Income from operations, as previously reported.............. $ 2,781 $ 8,152
Adjustment for pooling of interests......................... (6,929) 6,231
------- -------
Income (loss) from operations............................... $(4,148) 1,921
======= =======
Net income, as previously reported.......................... $ 271 $ 6,011
Adjustment for pooling of interests......................... (6,908) (3,148)
------- -------
Net income (loss)........................................... $(6,637) $ 2,863
======= =======
Net income per weighted average share, as previously
reported.................................................. $ 0.01 $ 0.21
Adjustment for pooling of interests......................... (0.21) (0.13)
------- -------
Net income (loss) per weighted average share................ $ (0.20) 0.08
======= =======
Pro forma net income, as previously reported................ $ 1,688 $ 6,011
Adjustment for pooling of interests......................... (6,908) (3,148)
------- -------
Pro forma net income (loss)................................. $(5,220) $ 2,863
======= =======
Pro forma diluted earnings per share, as previously
reported.................................................. $ 0.06 $ 0.21
Adjustment for pooling of interests......................... (0.22) (0.13)
------- -------
Pro forma diluted earnings (loss) per share................. $ (0.16) $ 0.08
======= =======
</TABLE>

F-36
<PAGE> 74

[GEOGRAPHIC SCOPE DIAGRAM]
<PAGE> 75

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999

CBSI Complete Business

4,000,000 SHARES OF COMMON STOCK

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

PROSPECTUS
-------------------------------

DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
LEGG MASON WOOD WALKER
INCORPORATED

WARBURG DILLON READ LLC

- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representation as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the Company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
<PAGE> 76

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses to be incurred in connection with this offering are
as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 40,362
National Association of Securities Dealers, Inc. fee........ 15,018
Nasdaq National Market additional listing fee............... 17,500
Printing expenses and other................................. 300,000
Legal fees and expenses..................................... 150,000
Blue sky fees and expenses.................................. 5,000
Accountants' fees and expenses.............................. 150,000
Insurance................................................... 500,000
Miscellaneous............................................... 322,120
----------
Total.................................................. $1,500,000
==========
</TABLE>

- -------------------------
* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Bylaws require the Company to indemnify any director,
officer, former director or officer of the Company or any person who may have
served at the request of the Company as a director or officer of another
corporation in which the Company owns shares of capital stock, or of which it is
a creditor, against reasonable expenses (including attorneys' fees) actually and
necessarily incurred by such person in connection with the defense of any civil,
criminal or administrative action, suit or proceeding in which such person is
made a party or with which such person is threatened by reason of being or
having been or because of any act as a director or officer of the Company within
the course of such person's duties; or employment, except in relation to matters
as to which such person is adjudged to be liable for negligence or misconduct in
the performance of such person's duties. The Company may also reimburse any
director or officer for the reasonable costs of settlement of any such action,
suit or proceeding, if it is found by a majority of a committee composed of the
directors not involved in the matter in controversy (whether or not a quorum)
that it was in the interests of the Company that such settlement be made and
that the director or officer was not guilty of negligence or misconduct. The
right of indemnification will extend to the estate, personal representative,
guardian and conservator of any deceased or former director or officer or person
who would have been entitled to indemnification. Such rights of indemnification
and reimbursement will not be deemed exclusive of any other rights to which such
director or officer may be entitled under any statute, agreement, vote of
shareholders, or otherwise.

II-1
<PAGE> 77

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1* Form of Underwriting Agreement
2.1(1) Agreement and Plan of Merger dated as of November 20, 1997
among Synergy Software, Inc., Carl DePaolis, SSI Grantor
Retained Annuity Trust II under Agreement dated August 11,
1997, Michael L. Lind, Andrew S. Marzloff, CBSI Acquisition
Corporation and Complete Business Solutions, Inc.
2.2(2) Agreement and Plan of Merger dated as of January 7, 1998
between Costello, CBSI Acquisition Corporation II and
Complete Business Solutions, Inc.
2.3(3) Agreement and Plan of Merger dated April 8, 1998, by and
among the Registrant, CBSI Acquisition Corp. III and
Claremont Technology Group, Inc.
2.4(3) Amendment to Agreement and Plan of Merger dated June 8, 1998
3.1(4) Restated Articles of Incorporation of the Registrant, as
amended
3.2(3) Bylaws of the Registrant as amended and restated May 8, 1998
4.1(4) See Exhibits 3.1 and 3.2 for provisions of the Restated
Articles of Incorporation and Restated Bylaws of the
Registrant defining the rights of the holders of Common
Stock of the Registrant
4.2(4) Specimen of Stock Certificate
5.1 Opinion of Butzel Long, counsel to the Company, as to the
legality of the shares being registered
23.1 Consent of Butzel Long (included as part of Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of KPMG Peat Marwick LLP
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>

- -------------------------
(1) Incorporated herein by reference to exhibit number 10.1 in the Registrant's
Current Report on Form 8-K (Commission File No. 0-22141) dated December 2,
1997.
(2) Incorporated herein by reference to exhibit number 10.1 in the Registrant's
Current Report on Form 8-K (Commission File No. 0-22141) dated January 22,
1998.
(3) Incorporated herein by reference to the exhibit of same number in the
Registrant's Registration Statement on Form S-4 (File No. 333-56355) dated
as of June 9, 1998, as amended.
(4) Incorporated herein by reference to the exhibit of same number in the
Registrant's Registration Statement on Form S-1 (File No. 333-18413) dated
as of December 20, 1996, as amended.
* To be filed by Amendment.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) of 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it
was declared effective; and

II-2
<PAGE> 78

(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described above or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-3
<PAGE> 79

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Farmington Hills, State
of Michigan, on January 15, 1999.

COMPLETE BUSINESS SOLUTIONS, INC.

By: /s/ RAJENDRA B. VATTIKUTI
------------------------------------
Rajendra B. Vattikuti
President, Chief Executive Officer
and Director

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rajendra B. Vattikuti and Timothy Manney, and
each of them individually, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
subsequent registration statements pursuant to Rule 462 of the Securities Act
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ RAJENDRA B. VATTIKUTI President, Chief Executive Officer and January 15, 1999
- --------------------------------------- Director
Rajendra B. Vattikuti

/s/ TIMOTHY S. MANNEY Executive Vice President of Finance and January 15, 1999
- --------------------------------------- Administration, Treasurer and Director
Timothy S. Manney Principal Financial and Accounting
Officer

/s/ FRANK D. STELLA Director January 15, 1999
- ---------------------------------------
Frank D. Stella

/s/ DOUGLAS S. LAND Director January 15, 1999
- ---------------------------------------
Douglas S. Land

/s/ JOHN A. STANLEY Director January 15, 1999
- ---------------------------------------
John A. Stanley
</TABLE>

II-4
<PAGE> 80

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ CHARLES W. COSTELLO Director January 15, 1999
- ---------------------------------------
Charles W. Costello

/s/ WILLIAM BROOKS Director January 15, 1999
- ---------------------------------------
William Brooks

/s/ RONALD K. MACHTLEY Director January 15, 1999
- ---------------------------------------
Ronald K. Machtley

/s/ JERRY L. STONE Director January 15, 1999
- ---------------------------------------
Jerry L. Stone
</TABLE>

II-5
<PAGE> 81

EXHIBIT INDEX

<PAGE> 1
EXHIBIT 5.1

[BUTZEL LONG LETTERHEAD]

Detroit Office
January 15, 1999

Complete Business Solutions, Inc.
32605 West Twelve Mile Road
Farmington Hills, MI 48334-3339

RE: REGISTRATION STATEMENT ON FORM S-3

Ladies and Gentlemen:

We have acted as counsel to Complete Business Solutions, Inc., a
Michigan Corporation (the "Company "), in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of and sale of up to 4,600,000 shares of common
stock, no par value (the "Shares") of the Company. Approximately 1,485,000 of
the Shares will be issued and sold by the Company and the remainder will be sold
by existing shareholders of the Company. We have examined the Registration
Statement and the form of the Underwriting Agreement filed with the Commission
as an exhibit to the Registration Statement (the "Underwriting Agreement"). In
addition, we have reviewed such other documents and have made such further
investigations as we have deemed necessary to enable us to express our opinion.

<PAGE> 2

Complete Business Solutions, Inc.
January 15, 1999
Page 2

For purposes of our opinion, we have examined and relied upon such
documents, records, certificates and other instruments as we have deemed
necessary. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the originals of all documents submitted to us as copies.

We express no opinion as to the applicability of, compliance with or
effect of federal law or the law of any jurisdiction other than the State of
Michigan.

Based upon the foregoing, we are of the opinion that the Shares being
issued by the Company have been duly authorized and, when issued in accordance
with the Underwriting Agreement, will be fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters." In doing so, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the applicable rules.

This opinion is to be used only in connection with the issuance of the
Shares while the Registration Statement is in effect.

Very truly yours,

/s/ Butzel Long

Butzel Long

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
registration statement of our report dated January 14, 1999 included herein and
to all references to our Firm included in this registration statement.

SIGNATURE
/S/ ARTHUR ANDERSEN
-------------------------
ARTHUR ANDERSEN LLP

Detroit, Michigan
January 14, 1999

<PAGE> 1

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the inclusion and incorporation by reference in this
Registration Statement on Form S-3 of Complete Business Solutions, Inc. of our
report dated February 9, 1998 on the balance sheets of c.w. Costello &
Associates, inc. as of December 31, 1997 and 1996, and the related statements of
operations, shareholders' equity and of cash flows for each of the three years
in the period ended December 31, 1997 not presented separately herein and to the
reference to us under the heading "Experts in the prospectus which is part of
this Registration Statement.

/S/ DELOITTE & TOUCHE
-------------------------
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 13, 1999

<PAGE> 1
EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Claremont Technology Group, Inc.:

We consent to the use of our report incorporated herein and to the
reference to our firm under the heading "Experts" in the Prospectus.

/S/ KPMG Peat Marwick LLP

Portland, Oregon
January 14, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 72,698 4,463 1,603
<SECURITIES> 0 0 0
<RECEIVABLES> 59,501 46,472 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 140,389 52,987 0
<PP&E> 26,321 17,993 0
<DEPRECIATION> 12,106 7,556 0
<TOTAL-ASSETS> 168,240 68,281 40,895
<CURRENT-LIABILITIES> 39,283 35,081 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 125,326 28,724 17,738
<TOTAL-LIABILITY-AND-EQUITY> 168,240 68,281 40,895
<SALES> 0 0 0
<TOTAL-REVENUES> 261,282 182,632 125,378
<CGS> 0 0 0
<TOTAL-COSTS> 178,780 126,247 88,110
OTHER-EXPENSES> 66,177 43,680 29,279
<LOSS-PROVISION> (760) 1,092 924
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 16,325 12,705 7,539
<INCOME-TAX> 7,278 2,444 1,490
<INCOME-CONTINUING> 9,807 9,169 5,125
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,807 9,169 5,125
<EPS-PRIMARY> .34 .45 .26
<EPS-DILUTED> .31 .38 .22

</TABLE>