##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|                   |  |                                                                                                                                        
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------
|(Box with an X)    |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2001
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|OR                
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|(Empty Ballot Box) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD
FROM  TO            

Commission File No. 0-27694

SCB COMPUTER TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)

|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|Tennessee                                                      |  | 62-1201561                         
|(State or other Jurisdiction of
Incorporation or Organization) |  | (I.R.S.Employer Identification No.)

3800 Forest Hill - Irene Road, Suite 100
Memphis, Tennessee 38125
(Address of Principal Executive Offices)

901-754-6577
(Registrants Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  (Box with an X)
          
No  (Empty Ballot Box)

As of December 14, 2001, there were 24,995,324 outstanding shares of the
registrants common stock.





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TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risks                          
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                     
|EXHIBIT INDEX                 
|AMENDED AND RESTATED CHARTER  
|AMENDED AND RESTATED BYLAWS   



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1.Financial Statements

SCB COMPUTER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)




|                                        |                                                                      |                                            |        |         |        |             |        |           |        |        |  | 
|--------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------ | ----------- | ------ | --------- | ------ | ------ |  | 
|                                        |                                                                      |                                            |        |         |        | October 31, |        | April 30,
|                                        |                                                                      |                                            |        |         |        | 2001        |        | 2001     
|                                        |                                                                      |                                            |        |         |        |             |        |          
|ASSETS                                 
|                                       
|                                       
|                                       
|                                       
|Current assets:                         |                                                                      |                                            |        |         |        |             |        |          
|                                       
|                                       
|                                       
|                                       
|                                        | Cash and cash equivalents                                            |                                            | $      | 264     |        |             | $      | 575       |       
|                                       
|                                       
|                                       
|                                       
|                                        | Accounts receivable,
net of allowance of $313 and $624, respectively |                                            |        | 14,908  |        |             |        | 19,605    |       
|                                       
|                                       
|                                       
|                                       
|                                        | Current portion of leases                                            |                                            |        | 5,171   |        |             |        | 7,312     |       
|                                       
|                                       
|                                       
|                                       
|                                        | Other current assets                                                 |                                            |        | 7,213   |        |             |        | 8,221     |       
|                                        |                                                                      |                                            |        |         |        |             |        |          
|                                        |                                                                      | Total current assets                       |        |         | 27,556 |             |        |           | 35,713 |       
|                                       
|                                       
|                                       
|                                       
|Investment in leasing activities        |                                                                      |                                            | 1,696  |         |        |             | 2,543  |          
|                                       
|                                       
|                                       
|                                       
|Fixed assets:                           |                                                                      |                                            |        |         |        |             |        |          
|                                       
|                                       
|                                       
|                                       
|                                        | Furniture, fixtures and equipment                                    |                                            |        | 30,230  |        |             |        | 32,964    |       
|                                       
|                                       
|                                       
|                                       
|                                        | Accumulated depreciation                                             |                                            |        | (18,806 | )      |             |        | (17,989   | )     
|                                        |                                                                      |                                            |        |         |        |             |        |          
|                                        |                                                                      |                                            | Net    |         |        | 11,424      |        |           |        | 14,975 | 
|                                       
|                                       
|                                       
|                                       
|Goodwill (net)                          |                                                                      |                                            |       |         |        |             | 4,604  |          
|                                       
|                                       
|                                       
|                                       
|Other assets (primarily deferred taxes) |                                                                      |                                            | 8,746  |         |        |             | 8,779  |          
|                                        |                                                                      |                                            |        |         |        |             |        |          
|                                        |                                                                      | Total assets                               |        | $       | 49,422 |             |        | $         | 66,614 |       
|                                        |                                                                      |                                            |        |         |        |             |        |          
|LIABILITIES AND SHAREHOLDERS EQUITY   
|                                       
|                                       
|                                       
|                                       
|Current liabilities:                    |                                                                      |                                            |        |         |        |             |        |          
|                                       
|                                       
|                                       
|                                       
|                                        | Accounts payable-trade                                               |                                            | $      | 1,812   |        |             | $      | 948       |       
|                                       
|                                       
|                                       
|                                       
|                                        | Accrued expenses                                                     |                                            |        | 6,655   |        |             |        | 9,993     |       
|                                       
|                                       
|                                       
|                                       
|                                        | Current portion of long-term debt                                    |                                            |        | 6,719   |        |             |        | 11,484    |       
|                                       
|                                       
|                                       
|                                       
|                                        | Current portion of non-recourse debt                                 |                                            |        | 4,458   |        |             |        | 5,912     |       
|                                       
|                                       
|                                       
|                                       
|                                        | Deferred revenue                                                     |                                            |        | 1,055   |        |             |        | 959       |       
|                                        |                                                                      |                                            |        |         |        |             |        |          
|                                        |                                                                      | Total current liabilities                  |        |         | 20,699 |             |        |           | 29,296 |       
|                                       
|                                       
|                                       
|                                       
|Long-term debt                          |                                                                      |                                            | 11,417 |         |        |             | 20,085 |          
|                                       
|                                       
|                                       
|                                       
|Non-recourse debt                       |                                                                      |                                            | 2,552  |         |        |             | 3,813  |          
|                                       
|                                       
|                                       
|                                       
|Other liabilities                       |                                                                      |                                            | 200    |         |        |             |       |          
|                                       
|                                       
|                                       
|                                       
|Shareholders equity                    |                                                                      |                                            | 14,554 |         |        |             | 13,420 |          
|                                        |                                                                      |                                            |        |         |        |             |        |          
|                                        |                                                                      | Total liabilities and shareholders equity |        | $       | 49,422 |             |        | $         | 66,614 |       
|                                        |                                                                      |                                            |        |         |        |             |        |          

See accompanying notes to condensed consolidated financial statements.

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SCB COMPUTER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
(UNAUDITED)




|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|-------------------------------------------------- |  | ------------ | ------ | ----------- |  | ---- | ------- | ---- |  | - | ------ |  |  | - | ------- | -
|                                                   |  | Three Months |        | Six Months 
|                                                   |  | Ended        |        | Ended      
|                                                   |  | October 31,  |        | October 31,
|                                                   |  |              |        |            
|                                                   |  | 2001         |        | 2000        |  | 2001 |         | 2000
|                                                   |  |              |        |             |  |      |         |     
|Revenue                                            |  | $            | 27,693 |             |  | $    | 33,065  |      |  | $ | 56,319 |  |  | $ | 69,010  |  
|                                                  
|                                                  
|                                                  
|                                                  
|Cost of services                                   |  |              | 20,529 |             |  |      | 23,511  |      |  |   | 41,518 |  |  |   | 49,219  |  
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Gross profit                                       |  |              | 7,164  |             |  |      | 9,554   |      |  |   | 14,801 |  |  |   | 19,791  |  
|                                                  
|                                                  
|                                                  
|                                                  
|Selling, general and administrative expenses       |  |              | 5,792  |             |  |      | 9,854   |      |  |   | 12,221 |  |  |   | 19,459  |  
|                                                  
|                                                  
|                                                  
|                                                  
|Impairment and other charges                       |  |              |       |             |  |      | 38,667  |      |  |   |       |  |  |   | 38,667  |  
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Income (loss) from operations                      |  |              | 1,372  |             |  |      | (38,967 | )    |  |   | 2,580  |  |  |   | (38,335 | )
|                                                  
|                                                  
|                                                  
|                                                  
|Other income (expense)                             |  |              | (86    | )           |  |      | (18     | )    |  |   | 332    |  |  |   | 1,351   |  
|                                                  
|                                                  
|                                                  
|                                                  
|Net interest expense                               |  |              | 453    |             |  |      | 1,061   |      |  |   | 1,037  |  |  |   | 2,082   |  
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Income (loss) before income taxes                  |  |              | 833    |             |  |      | (40,046 | )    |  |   | 1,875  |  |  |   | (39,066 | )
|                                                  
|                                                  
|                                                  
|                                                  
|Income tax expense (benefit)                       |  |              | 329    |             |  |      | (6,262  | )    |  |   | 741    |  |  |   | (5,875  | )
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Net income (loss)                                  |  | $            | 504    |             |  | $    | (33,784 | )    |  | $ | 1,134  |  |  | $ | (33,191 | )
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Net income (loss) per share  basic                |  | $            | 0.02   |             |  | $    | (1.35   | )    |  | $ | 0.05   |  |  | $ | (1.33   | )
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Net income (loss) per share  diluted              |  | $            | 0.02   |             |  | $    | (1.35   | )    |  | $ | 0.05   |  |  | $ | (1.33   | )
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Weighted average number of common
shares  basic   |  |              | 24,985 |             |  |      | 25,045  |      |  |   | 24,985 |  |  |   | 25,045  |  
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Weighted average number of common
shares  diluted |  |              | 25,190 |             |  |      | 25,045  |      |  |   | 25,148 |  |  |   | 25,045  |  
|                                                   |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  

See accompanying notes to condensed consolidated financial statements.

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##### Table of Contents



SCB COMPUTER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)




|                                                     |                                                                                          |                                        |      |                  |        |      |        |         |        |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------- | ---- | ---------------- | ------ | ---- | ------ | ------- | ------ | -
|                                                     |                                                                                          |                                        |      | Six Months Ended
|                                                     |                                                                                          |                                        |      | October 31,     
|                                                     |                                                                                          |                                        |      |                 
|                                                     |                                                                                          |                                        |      | 2001             |        | 2000
|                                                     |                                                                                          |                                        |      |                  |        |     
|Operating Activities                                 |                                                                                          |                                        |      |                  |        |      |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income (loss)                                                                        |                                        | $    | 1,134            |        |      | $      | (33,191 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |                                        |      |                  |        |      |        |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Provision for bad debts                                                                  |                                        |      | 89               |        |      |        | 563     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation                                                                             |                                        |      | 4,536            |        |      |        | 4,741   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Amortization                                                                             |                                        |      |                 |        |      |        | 1,331   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deferred income taxes                                                                    |                                        |      | 740              |        |      |        | (6,969  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Impairment and other charges                                                             |                                        |      |                 |        |      |        | 38,667  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gain on sale of subsidiary                                                               |                                        |      | (246             | )      |      |        | (1,366  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Changes in operating assets and liabilities:                                             |                                        |      |                  |        |      |        |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                          | Accounts receivable                    |      |                  | 2,096  |      |        |         | 2,939  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                          | Refundable income taxes                |      |                  | (176   | )    |        |         | 2,772  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                          | Other assets                           |      |                  | (320   | )    |        |         | (2,496 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                          | Accounts payable  trade               |      |                  | 955    |      |        |         | (1,239 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                          | Accrued expenses and other liabilities |      |                  | (3,449 | )    |        |         | (3,562 | )
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|                                                     | Net cash provided by operating activities                                                |                                        |      | 5,359            |        |      |        | 2,190   |       
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|Investing Activities                                 |                                                                                          |                                        |      |                  |        |      |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of fixed assets                                                                |                                        |      | (106             | )      |      |        | (1,093  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments received from leasing activities                                                |                                        |      | 1,164            |        |      |        | 5,979   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of businesses, net of liabilities paid at closing                                   |                                        |      | 9,420            |        |      |        | 9,028   |       
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|                                                     | Net cash provided by investing activities                                                |                                        |      | 10,478           |        |      |        | 13,914  |       
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|Financing Activities                                 |                                                                                          |                                        |      |                  |        |      |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings on long-term debt                                                             |                                        |      | 10,000           |        |      |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments on long-term debt                                                               |                                        |      | (29,416          | )      |      |        | (10,507 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments on non-recourse debt                                                            |                                        |      | (2,716           | )      |      |        | (5,081  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net borrowings (repayments) under line of credit                                         |                                        |      | 5,984            |        |      |        | (2,215  | )     
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|                                                     | Net cash used in financing activities                                                    |                                        |      | (16,148          | )      |      |        | (17,803 | )     
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                        | (311 | )                |        |      | (1,699 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                          |                                        | 575  |                  |        |      | 1,813  |        
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|Cash and cash equivalents at end of period           |                                                                                          | $                                      | 264  |                  |        | $    | 114    |        
|                                                     |                                                                                          |                                        |      |                  |        |      |        |        
|Supplemental Disclosures of Cash Flow                |                                                                                          |                                        |      |                  |        |      |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Interest paid                                                                            |                                        | $    | 1,417            |        |      | $      | 1,828   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Income taxes paid                                                                        |                                        | $    | 176              |        |      | $      |        |       

See accompanying notes to condensed consolidated financial statements.

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SCB COMPUTER TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

OCTOBER 31, 2001




1  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of SCB
Computer Technology, Inc. (the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (which consist of normal recurring
adjustments) considered necessary for the fair presentation of the financial
position of the Company as of October 31, 2001, and the results of operations
and cash flows for the six-month periods ended October 31, 2001 and October 31,
2000. Operating results for the period ended October 31, 2001 are not
necessarily indicative of the results that may be expected for the fiscal year
ending April 30, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys Annual
Report on Form 10-K for the fiscal year ended April 30, 2001 filed with the
Securities and Exchange Commission.

2  EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators used to
calculate net income (loss) per share in the condensed consolidated statements
of operations (in thousands):

|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ----------- |  | ---- | ------- | ---- |  | - | ------ |  |  | - | ------- | -
|                                                                                                      |  | Three Months |        | Six Months 
|                                                                                                      |  | Ended        |        | Ended      
|                                                                                                      |  | October 31,  |        | October 31,
|                                                                                                      |  |              |        |            
|                                                                                                      |  | 2001         |        | 2000        |  | 2001 |         | 2000
|                                                                                                      |  |              |        |             |  |      |         |     
|Net income (loss)                                                                                     |  | $            | 504    |             |  | $    | (33,784 | )    |  | $ | 1,134  |  |  | $ | (33,191 | )
|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Denominator for basic earnings per
share  weighted average shares                                    |  |              | 24,985 |             |  |      | 25,045  |      |  |   | 24,985 |  |  |   | 25,045  |  
|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Effect of dilutive securities-stock options                                                           |  |              | 205    |             |  |      |        |      |  |   | 163    |  |  |   |        |  
|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Denominator for diluted earnings per
share  adjusted weighted average
shares and assumed conversions |  |              | 25,190 |             |  |      | 25,045  |      |  |   | 25,148 |  |  |   | 25,045  |  
|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Net income (loss) per share  basic                                                                   |  | $            | 0.02   |             |  | $    | (1.35   | )    |  | $ | 0.05   |  |  | $ | (1.33   | )
|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  
|Net income (loss) per share  diluted                                                                 |  | $            | 0.02   |             |  | $    | (1.35   | )    |  | $ | 0.05   |  |  | $ | (1.33   | )
|                                                                                                      |  |              |        |             |  |      |         |      |  |   |        |  |  |   |         |  

3  BUSINESS DISPOSITION

On June 20, 2001, Partners Resources Inc., a wholly-owned subsidiary of the
Company, sold substantially all the assets of its Enterprise Resource Planning
(ERP) business unit to OneNeck IT Services, Corporation, a company formed by
a management group of the ERP unit, for $10.5 million in cash. The assets sold
consisted primarily of the equipment, real estate leases, trade accounts
receivable, contract interests, intellectual property, business books and
records, and goodwill of the ERP business. The purchase price was negotiated at
arms length between the parties, taking into account the historical operating
results and existing customer relationships of the ERP business. The Company
used $8.5 million of the proceeds from the sale to reduce its bank debt. There was no significant gain or loss
recognized on the transaction. During fiscal 2001,

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the ERP business unit contributed $20.5 million of revenues and $1.4 million of operating income.
For the six months ended October 31, 2001 and 2000, revenues of approximately
$1.7 million and $11.6 million, respectively, and income (loss) from operations
of approximately $0.1 million and $(1.0) million, respectively, were generated
from the ERP business unit.

4  LONG-TERM DEBT

On July 27, 2001, the Company obtained a five-year, $27.5 million credit
facility with a financial institution that consists of a $17.5 million
revolving loan which bears interest at prime plus 1.25% and a $10.0 million
term loan (the primary term loan) which bears interest at prime plus 2.75%.
The Company used $15.8 million from the new credit facility to retire its
short-term debt with one lender and used $1.0 million to refinance its
short-term debt with another lender into a three-year, $4.0 million term loan
(the secondary term loan). The credit facility contains various financial
covenants based on monthly operating results and capital expenditures. The
availability under the revolver is limited to 85% of billed accounts
receivable plus 70% of unbilled accounts receivable.

During the first year, the revolver will bear interest at prime plus a margin
(1.25%) and the primary term loan will bear interest at prime plus a margin
(2.75%). At April 30, 2002, if the Company has achieved certain financial
covenants, the aforementioned margins will be reduced to 1.0% and 2.25% on the
revolver and primary term loan, respectively. The primary term loan will be
amortized at $350,000 plus interest per month. At April 30, 2002, the required
primary term loan principal amortization will be reduced to $275,000 per month
if certain financial covenants are met. At October 31, 2001, $6.0 million and
$8.9 million were outstanding on the revolver and the primary term loan,
respectively.

The secondary term loan bears interest at prime plus a margin (2.0%). The
Company repays the loan at a rate of $70,000 plus interest per month.
Additionally, since the Company achieved certain financial covenants during the
first six months of fiscal 2002, the primary lender advanced the Company
$780,000 to repay part of the secondary term loan. Additionally, another
$500,000 will be paid on this term loan from the receipt of the Companys
pending income tax refund. At October 31, 2001, $3.0 million was outstanding
on the secondary term loan.

5  SEGMENT INFORMATION

The Companys two business segments are (1) Core Operations  information
technology management, which consists of professional services, consulting and
outsourcing and (2) Non-core Operations  consisting of hardware and specialty
software sales, computer leasing and enterprise resource planning (ERP) (sold
effective June 20, 2001). Accordingly, the Company is presenting the following
segment information related to the two business segments as follows (in
thousands):

|                                                      |              |   |                    |       |                         |   |                  |    |  |   |        |       | 
|----------------------------------------------------- | ------------ | - | ------------------ | ----- | ----------------------- | - | ---------------- | -- |  | - | ------ | ----- | 
|                                                      |              |   | Three Months Ended
|                                                      |              |   | October 31, 2001  
|                                                      |              |   |                   
|                                                      |              |   | Core Operations    |       | Non-core Operations (a) |   | Total Operations
|                                                      |              |   |                    |       |                         |   |                 
|Revenue                                               |              | $ | 26,515             |       |                         | $ | 1,178            |    |  | $ | 27,693 |      
|                                                     
|                                                     
|                                                     
|                                                     
|Cost of services                                      |              |   | 19,380             |       |                         |   | 1,149            |    |  |   | 20,529 |      
|                                                      |              |   |                    |       |                         |   |                  |    |  |   |        |      
|                                                      | Gross profit |   |                    | 7,135 |                         |   |                  | 29 |  |   |        | 7,164 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Selling, recruiting and field administrative expenses |              |   | 2,936              |       |                         |   | 58               |    |  |   | 2,994  |      
|                                                     
|                                                     
|                                                     
|                                                     
|Corporate administrative expenses                     |              |   |                   |       |                         |   |                 |    |  |   | 2,798  |      
|                                                      |              |   |                    |       |                         |   |                  |    |  |   |        |      
|Income (loss) from operations                         |              | $ | 4,199              |       |                         | $ | (29              | )  |  | $ | 1,372  |      
|                                                      |              |   |                    |       |                         |   |                  |    |  |   |        |      

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|                                             |  |                    |         |                         |  |                  |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------- | ----------------------- |  | ---------------- | ------- | - |  | - | ------- | -
|                                             |  | Three Months Ended
|                                             |  | October 31, 2000  
|                                             |  |                   
|                                             |  | Core Operations    |         | Non-core Operations (a) |  | Total Operations
|                                             |  |                    |         |                         |  |                 
|Revenue                                      |  | $                  | 26,138  |                         |  | $                | 6,927   |   |  | $ | 33,065  |  
|                                            
|                                            
|                                            
|                                            
|Cost of services                             |  |                    | 18,805  |                         |  |                  | 4,706   |   |  |   | 23,511  |  
|                                             |  |                    |         |                         |  |                  |         |   |  |   |         |  
|Gross profit                                 |  |                    | 7,333   |                         |  |                  | 2,221   |   |  |   | 9,554   |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                    | 2,549   |                         |  |                  | 4,289   |   |  |   | 6,838   |  
|                                            
|                                            
|                                            
|                                            
|Corporate expenses                           |  |                    |        |                         |  |                  |        |   |  |   | 3,016   |  
|                                            
|                                            
|                                            
|                                            
|Impairment and other charges                 |  |                    | 29,747  |                         |  |                  | 8,920   |   |  |   | 38,667  |  
|                                             |  |                    |         |                         |  |                  |         |   |  |   |         |  
|Income (loss) from operations                |  | $                  | (24,963 | )                       |  | $                | (10,988 | ) |  | $ | (38,967 | )
|                                             |  |                    |         |                         |  |                  |         |   |  |   |         |  

|                                                      |              |   |                  |        |                         |   |                  |     |  |   |        |        | 
|----------------------------------------------------- | ------------ | - | ---------------- | ------ | ----------------------- | - | ---------------- | --- |  | - | ------ | ------ | 
|                                                      |              |   | Six Months Ended
|                                                      |              |   | October 31, 2001
|                                                      |              |   |                 
|                                                      |              |   | Core Operations  |        | Non-core Operations (b) |   | Total Operations
|                                                      |              |   |                  |        |                         |   |                 
|Revenue                                               |              | $ | 52,286           |        |                         | $ | 4,033            |     |  | $ | 56,319 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Cost of services                                      |              |   | 38,168           |        |                         |   | 3,350            |     |  |   | 41,518 |       
|                                                      |              |   |                  |        |                         |   |                  |     |  |   |        |       
|                                                      | Gross profit |   |                  | 14,118 |                         |   |                  | 683 |  |   |        | 14,801 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Selling, recruiting and field administrative expenses |              |   | 5,957            |        |                         |   | 673              |     |  |   | 6,630  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Corporate administrative expenses                     |              |   |                 |        |                         |   |                 |     |  |   | 5,591  |       
|                                                      |              |   |                  |        |                         |   |                  |     |  |   |        |       
|Income from operations                                |              | $ | 8,161            |        |                         | $ | 10               |     |  | $ | 2,580  |       
|                                                      |              |   |                  |        |                         |   |                  |     |  |   |        |       

|                                             |  |                  |         |                         |  |                  |         |   |  |   |         |  
|-------------------------------------------- |  | ---------------- | ------- | ----------------------- |  | ---------------- | ------- | - |  | - | ------- | -
|                                             |  | Six Months Ended
|                                             |  | October 31, 2000
|                                             |  |                  |         |                         |  |                 
|                                             |  | Core Operations  |         | Non-core Operations (b) |  | Total Operations
|                                             |  |                  |         |                         |  |                 
|Revenue                                      |  | $                | 51,837  |                         |  | $                | 17,173  |   |  | $ | 69,010  |  
|                                            
|                                            
|                                            
|                                            
|Cost of services                             |  |                  | 38,190  |                         |  |                  | 11,029  |   |  |   | 49,219  |  
|                                             |  |                  |         |                         |  |                  |         |   |  |   |         |  
|Gross profit                                 |  |                  | 13,647  |                         |  |                  | 6,144   |   |  |   | 19,791  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                  | 5,212   |                         |  |                  | 7,738   |   |  |   | 12,950  |  
|                                            
|                                            
|                                            
|                                            
|Corporate expenses                           |  |                  |        |                         |  |                  |        |   |  |   | 6,509   |  
|                                            
|                                            
|                                            
|                                            
|Impairment and other charges                 |  |                  | 29,747  |                         |  |                  | 8,920   |   |  |   | 38,667  |  
|                                             |  |                  |         |                         |  |                  |         |   |  |   |         |  
|Income (loss) from operations                |  | $                | (21,312 | )                       |  | $                | (10,514 | ) |  | $ | (38,335 | )
|                                             |  |                  |         |                         |  |                  |         |   |  |   |         |  



---

|(a) |  | Fiscal quarter ended October 31, 2000 non-core operations includes
revenues of approximately $4.6 million and loss from operations of
approximately $1.5 million of the ERP business unit which was sold
effective June 20, 2001.                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The six-month period ended October 31, 2001 and October 31, 2000 non-core
operations includes revenues of approximately $1.7 million and $11.6
million, respectively, and income (loss) from operations of approximately
$0.1 million and $(1.0) million, respectively, of the ERP business unit
which was sold effective June 20, 2001.

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The following sets forth the assets and liabilities of the non-core operations
(in thousands):

|                                 |  |             |       |      |  |   |        | 
|-------------------------------- |  | ----------- | ----- | ---- |  | - | ------ | 
|                                 |  | As of      
|                                 |  | October 31,
|                                 |  |            
|                                 |  | 2001        |       | 2000
|                                 |  |             |       |     
|Investment in leasing activities |  | $           | 6,867 |      |  | $ | 19,186 | 
|                                
|                                
|                                
|                                
|Other assets                     |  |             | 22    |      |  |   | 796    | 
|                                 |  |             |       |      |  |   |        | 
|Total assets                     |  | $           | 6,889 |      |  | $ | 19,982 | 
|                                 |  |             |       |      |  |   |        | 
|Non-recourse debt                |  | $           | 7,010 |      |  | $ | 15,351 | 
|                                
|                                
|                                
|                                
|Other liabilities                |  |             | 163   |      |  |   | 782    | 
|                                
|                                
|                                
|                                
|Equity (deficit)                 |  |             | (284  | )    |  |   | 3,849  | 
|                                 |  |             |       |      |  |   |        | 
|Total liabilities and equity     |  | $           | 6,889 |      |  | $ | 19,982 | 
|                                 |  |             |       |      |  |   |        | 

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Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations




Forward-Looking Statements

Certain matters discussed in this report, including the exhibits hereto, may
constitute forward-looking statements within the meaning of the federal
securities laws. Forward-looking statements are those that express managements
view of future performance and trends, and usually are preceded with expects,
anticipates, believes, hopes, estimates, plans or similar phrasing.
Forward-looking statements include statements regarding projected operating
revenues and costs, liquidity, capital expenditures, and availability of
capital resources. Such statements are based on managements beliefs,
assumptions and expectations, which in turn are based on information currently
available to management. Information contained in these forward-looking
statements is inherently uncertain, and the Companys actual performance and
results may differ materially due to a number of factors, most of which are
beyond the Companys ability to predict or control. These factors include, but
are not limited to, the Companys business relationships with significant
clients; the potential early termination of the Companys IT service contracts
without penalty; the potential for the Companys clients to reduce or increase
their IT services outsourcing; the Companys potential liability to its clients
in connection with the provision of IT services; the Companys ability to
attract, develop and retain qualified IT employees; changes in the utilization
and productivity rates of the Companys IT employees; the Companys dependence
on key management personnel; the types and mix of IT services that the Company
performs during any particular period; changes in the Companys gross margins
due to a variety of factors, including increased wage and benefit costs that
are not offset by billed rate increases; the Companys ability to finance,
sustain and manage growth; the Companys ability to develop or acquire
additional IT service offerings; the Companys ability to effectively identify,
integrate and manage acquired businesses; competition; the outcome of
litigation involving the Company, particularly the settlement of the
shareholder lawsuit
described in Part II, Item 1 of this report; the results of the
investigation being conducted by the
Securities and Exchange Commission; into the Companys past
accounting and financial reporting practices; the trading status of the Companys common
stock; the Companys decision to focus on its core competencies of IT
professional staffing, outsourcing and consulting; and general economic
conditions. The Company disclaims any intent and undertakes no obligation to
publicly release any revision to or update of any forward-looking statement
contained in this report to reflect events or circumstances occurring after the
date hereof, the occurrence of unanticipated events or circumstances, or
otherwise.

Results of Operations

The following should be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys annual report on Form
10-K for the fiscal year ended April 30, 2001.

Overview

The business changed its strategic direction dramatically in fiscal 2001. Prior
to fiscal 2001, the Companys growth was driven largely through acquisitions,
diversification, and attempts at cross-selling services. In fiscal 2001, the
Company focused its resources on its core competencies of providing IT
professional staffing, outsourcing, and consulting services (the core
operations) and divested a number of its previously acquired business units
that are now considered to be non-core. The Companys non-core operations
consist primarily of divested business units of Enterprise Resource Planning (ERP),
computer hardware and specialty software sales, and computer equipment leasing
(the non-core operations). The Company now derives substantially all of its
revenue from its core operations. In the first six months of fiscal 2002,
professional staffing represented 73%, outsourcing accounted for 13%, and
consulting represented 14% of the Companys revenue from core operations.

The decrease in the Companys revenue from $69.0 million in the first six
months of fiscal 2001 to $56.3 million in the first six months of fiscal 2002
is a function of several factors. These factors include (1) the Companys shift
in strategic direction to focus on its core operations and to de-emphasize its
non-core operations; (2) the Companys sale of its Proven Technology and Global Services business units in fiscal 2001, which resulted in
a $1.7 million decrease in revenue; (3) the Companys sale of its ERP business unit in the
first quarter of fiscal 2002, which resulted in a $9.9 million decrease in
revenue; (4) a $1.0 million decrease in revenue from
other non-core operations; and (5) the general softness in the IT services
market.

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The Company has historically derived a significant portion of its revenue from
a relatively limited number of clients. The Company currently performs services
for over 150 clients consisting of state and local governments, Fortune 500
companies, and other large commercial organizations. In the first six months of
fiscal 2002 and 2001, approximately 56% and 43%, respectively, of the Companys
revenue was attributable to state and local governmental and quasi-governmental
entities (such as public utilities), with the balance being attributable to
commercial enterprises. In the first six months of fiscal 2002 and 2001, the
Companys top five clients  in terms of revenue to the Company  accounted for
approximately 54% and 57% of the Companys revenue from core operations,
respectively. From time to time the Company has substantial accounts receivable
from its top five clients, but the Company has not experienced any significant
payment problems from these clients. A material decrease in services provided
to any of the largest clients of the Company or a significant payment problem
from these clients could have an adverse impact on the Companys financial
condition and results of operations.

The Companys fiscal year extends from May 1 through the following April 30.
The Company generally recognizes revenue as services are performed.

RESULTS OF OPERATIONS

COMPARISON OF SECOND QUARTER OF FISCAL 2002 TO SECOND QUARTER OF FISCAL 2001

Revenue and Operating Profit. The Companys operating results consist of its
core operations and non-core operations. Revenue from the Companys combined
core operations and non-core operations decreased to $27.7 million in the
second quarter of fiscal 2002 from $33.1 million in the second quarter of
fiscal 2001. The combined net income was $0.5 million or $0.02 per share in the
second quarter of fiscal 2002, compared to a net loss of $33.8 million or $1.35
per share in the second quarter of fiscal 2001.

Revenue from core operations increased to $26.5 million in the second quarter
of fiscal 2002 from $26.1 million in the second quarter of fiscal 2001.
Consulting revenue increased $0.6 million for the quarter. Professional
staffing revenue increased $0.3 million for the quarter due to an increase in
average billing rate. Outsourcing revenue decreased $0.5 million for the
quarter. Operating profit from core operations increased to $4.2 million in the
second quarter of fiscal 2002 from a loss of $25.0 million in the second
quarter of fiscal 2001.

Revenue from non-core operations (including sold business units) decreased to
$1.2 million in the second quarter of fiscal 2002 from $6.9 million in the
second quarter of fiscal 2001 based on the strategic decisions discussed above.
Computer hardware sales revenue decreased $0.4 million for the quarter. Revenue
in the ERP unit, which was sold effective as of June 1, 2001 resulted in a $4.6
million decrease in the second quarter of fiscal 2002. Operating loss from
non-core operations improved to $29,000 in fiscal 2002 from $11.0 million in
the second quarter of fiscal 2001.

Corporate Costs. Corporate costs decreased to $2.8 million in the second
quarter of fiscal 2002 from $3.0 million in the second quarter of fiscal 2001
as a result of managements cost reduction efforts.

Interest Costs. Interest expense decreased to $0.5 million in the second
quarter of fiscal 2002 from $1.1 million in the second quarter of fiscal 2001
primarily due to the reduction in the Companys bank debt and changes in
interest rates.

Tax Rate. The effective tax rates for second quarters of fiscal 2002 and 2001
was 39.5% (the historical effective tax rate) and 15.6% (the historical
effective tax rate less a valuation reserve of approximately $6.0 million),
respectively.

10



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##### Table of Contents



COMPARISON OF SIX MONTHS ENDED OCTOBER 31, 2001 TO OCTOBER 31, 2000

Revenue and Operating Profit. Revenue from the Companys combined core
operations and non-core operations decreased to $56.3 million in the first six
months of fiscal 2002 from $69.0 million in the first six months of fiscal
2001. The combined net income was $1.1 million or $0.05 per share in the first
six months of fiscal 2002, compared to a net loss of $33.2 million or $1.33 per
share in the first six months of fiscal 2001.

Revenue from core operations increased to $52.3 million in the first six months
of fiscal 2002 from $51.8 million in the first six months of fiscal 2001.
Consulting revenue increased $0.7 million for the six months. Professional
staffing revenue increased $0.5 million for the six months due to an increase
in average billing rate. Outsourcing revenue decreased $0.7 million for the six
months. Operating profit (loss) from core operations increased to $8.2 million
in the first six months of fiscal 2002 from $(21.3) million in the first six
months of fiscal 2001 primarily due to increased performance in professional
staffing.

Revenue from non-core operations (including sold business units) decreased to
$4.0 million in the first six months of fiscal 2002 from $17.2 million in the
first six months of fiscal 2001 based on the strategic decisions discussed
above. Computer hardware sales revenue decreased $1.7 million for the six
months. Revenue in the ERP unit, which was sold effective as of June 1, 2001,
was $1.7 million in the first six months of fiscal 2002, a $9.9 million
decrease from $11.6 million in the first six months of fiscal 2001. Operating
income (loss) from non-core operations improved to $10,000 in fiscal 2002 from
a loss of $10.5 million in the first six months of fiscal 2001.

Corporate Costs. Corporate costs decreased to $5.6 million in the first six
months of fiscal 2002 from $6.5 million in the first six months of fiscal 2001
as a result of managements cost reduction efforts.

Interest Costs. Interest expense decreased to $1.0 million in the first six
months of fiscal 2002 from $2.1 million in the first six months of fiscal 2001
primarily due to the reduction in the Companys bank debt and changes in
interest rates.

Tax Rate. The effective tax rate for first six months of fiscal 2002 and 2001
was 39.5% (the historical effective tax rate) and 15.0% (the historical
effective tax rate less a valuation reserve of approximately $6.0 million),
respectively.

RELIANCE UPON SIGNIFICANT CUSTOMERS

For the first six months of fiscal 2002, the Companys five largest customers
accounted for 54% of core revenue, a decrease from 57% for the first six months
of fiscal 2001. In the outsourcing business units one customer accounted for
95% of core outsourcing revenue for the first six months of fiscal 2001, and
decreased to 88% of core outsourcing revenue for the first six months of fiscal
2002. In the first six months of fiscal 2002 the following customers accounted
for 10% or more of the Companys core revenue: the State of Tennessee (16%),
State of Kentucky (13%), and Honeywell Inc. (11%).

LIQUIDITY AND CAPITAL RESOURCES

On July 27, 2001, the Company obtained a five-year, $27.5 million credit
facility with a financial institution that consists of a $17.5 million
revolving loan which bears interest at prime plus 1.25% and a $10.0 million
term loan (the primary term loan) which bears interest at prime plus 2.75%.
The Company used $15.8 million from the new credit facility to retire its
short-term debt with one lender and used $1.0 million to refinance its
short-term debt with another lender into a three-year, $4.0 million term loan
(the secondary term loan). The credit facility contains various financial
covenants based on monthly operating results and capital expenditures. The
availability under the revolver will be limited to 85% of billed accounts
receivable plus 70% of unbilled accounts receivable.

During the first year, the revolver will bear interest at prime plus a margin
(1.25%) and the primary term loan will bear interest at prime plus a margin
(2.75%). At April 30, 2002, if the Company has achieved certain financial
covenants, the

11



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##### Table of Contents



aforementioned margins will be reduced to 1.0% and 2.25% on the
revolver and primary term loan, respectively. The primary term loan will be
amortized at $350,000 plus interest per month. At April 30, 2002, the required
primary term loan principal amortization will be reduced to $275,000 per month
if certain financial covenants are met. At October 31, 2001, $6.0 million and
$8.9 million were outstanding on the revolver and the primary term loan,
respectively.

The secondary term loan bears interest at prime plus a margin (2.0%). The
Company repays the loan at a rate of $70,000 plus interest per month.
Additionally, since the Company achieved certain financial covenants during the
first six months of fiscal 2002, the primary lender advanced the Company
$780,000 to repay part of the secondary term loan. Additionally, another
$500,000 will be paid on this term loan from the receipt of the Companys
pending income tax refund. At October 31, 2001, $3.0 million was outstanding on
the secondary term loan.

The Company has $7.0 million in non-recourse debt that is paid through the
Companys $6.9 million investment in leasing activities. $4.5 million of the
non-recourse debt is classified as current and will be paid by $5.2 million
from current portion of leases.

Working Capital. In addition to the above credit facility, the Company funds
its operations from cash generated by operations. The Companys operating
activities provided net cash of approximately $5.4 million and $2.2 million for
the first six months of fiscal 2002 and 2001, respectively. The increase in
fiscal 2002 was mainly attributable to improved operating performance.

At October 31, 2001, the Company had working capital of approximately $6.9
million, a $17.5 million increase from the $10.6 million working capital
deficit at October 31, 2000. During the first six months of fiscal 2002 and
2001, the Company repaid $16.1 million and $17.8 million, respectively, in
debt.

The Company had approximately $0.3 million in available cash and $3.2 million
availability under its revolving loan at October 31, 2001. The Company believes
its cash flow from operations and borrowings under its credit facility will be
sufficient to meet the Companys needs for at least the next twelve months.

Capital. The Companys capital expenditures primarily relate to computer
equipment purchases for use by the Companys professionals or to use in
outsourcing contracts. In the first six months of fiscal 2002, the Company had
approximately $0.1 million in capital expenditures, down from approximately
$1.1 million in capital expenditures in the first six months of fiscal 2001.
The Company does not expect substantial capital expenditures during the
remainder of fiscal 2002.

On May 2, 2000, the Company sold its TMR business unit for $10.0 million
(including $0.3 million in assumed liabilities). The Company received $8.7
million in cash, plus $1.0 million was deposited in escrow. Of the proceeds,
$7.0 million were used to retire a short-term loan, and $1.0 million were used
to permanently reduce the credit facility. The remaining cash was used for
working capital. $0.9 of the $1.0 million escrow was released in April 2001 and
was used to permanently reduce the credit facility. The remaining $0.1 million
escrow was released in the first quarter of fiscal 2002 and was used for
current operations.

On June 20, 2001, Partners Resources Inc., a wholly-owned subsidiary of the
Company, sold substantially all the assets of its Enterprise Resource Planning
(ERP) business unit to OneNeck IT Services, Corporation, a company formed by
a management group of the ERP unit, for $10.5 million in cash. The Company used
$8.5 million of the proceeds from the sale to reduce its bank debt. There was
no significant gain or loss recognized on the transaction.

12



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##### Table of Contents



Item 3.Quantitative and Qualitative Disclosures about Market Risks




The Companys primary market risks include fluctuations in interest rates and
variability in interest rate spread relationships (i.e., prime or LIBOR
spreads). Substantially all of the Companys $18.1 million in outstanding recourse debt
at October 31, 2001, relates to credit facilities with commercial lenders.
Interest on the outstanding balances is charged based on a variable rate
related to the prime rate. The rate is incremented for margins in the form of
fluctuations in interest rates. The effect of a hypothetical one percentage
point increase across all maturities of variable rate debt would result in an
increase of approximately $181,000 in pre-tax net income assuming no further
changes in the amount of borrowings subject to variable rate interest from
amounts outstanding at October 31, 2001. The Company does not have any
derivative financial instruments outstanding.

13



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##### Table of Contents



PART II  OTHER INFORMATION




Item 1.Legal Proceedings




As previously disclosed, a consolidated lawsuit was filed on behalf of the
Companys shareholders in April 2000 against the Company, certain of its
current and former directors and officers, and the Companys former independent
auditor. The lawsuit, filed in the United States District Court for the
Western District of Tennessee, Memphis Division, arose from the Companys
restatement of its consolidated financial statements for fiscal 1998 and 1999
and the first three quarters of fiscal 2000. The district court, upon the
defendants motions, dismissed the lawsuit with prejudice in February 2001, and
the lead plaintiffs appealed the dismissal order to the United States Court of
Appeals for the Sixth Circuit in March 2001. In order to avoid the risks,
costs, and distraction of burdensome, protracted litigation, including the
pending Sixth Circuit appeal, the Company and the individual defendants, after
extensive negotiations, have reached an agreement with the lead plaintiffs to
settle the lawsuit. The district court preliminarily approved the settlement
and certified the lawsuit as a class-action for settlement purposes on December
7, 2001. Under the terms of the settlement, the Company agreed to pay $2.1
million into a settlement fund to be administered under the supervision of the
district court for the benefit of the plaintiff class. The settlement payment
will be made by the Companys insurer. The plaintiff class consists generally
of all persons who purchased the Companys common stock during the period from
November 19, 1997, through and including April 14, 2000. The consummation of
the settlement is subject to certain conditions, including the approval of the
fairness of the settlement by the district court after a final settlement
hearing, which is scheduled for March 15, 2002. For a more detailed
description of the terms and conditions of the settlement, a copy of the
court-approved notice of settlement can be obtained by telephoning the claims
administrator at (415) 461-0410 or by accessing its website at
www.gilardi.com/activecases. In reaching the settlement, the Company and the
other settling defendants have denied and continue to deny each and every claim
of alleged violations of law made by the plaintiffs in the lawsuit.

As previously disclosed, the Securities and Exchange Commission (the SEC) is
conducting an investigation of the Companys accounting and financial reporting
practices in connection with the restatement of its consolidated financial
statements for fiscal 1998 and 1999 and the first three quarters of fiscal
2000. Throughout the investigation, SCB has cooperated fully with the SEC by
voluntarily providing documents and records, by making its current employees
available for interviews or depositions, and by encouraging its former
employees to cooperate in the SECs investigation. The staff of the SEC
recently advised the Company that it has preliminarily decided to recommend
that the SEC authorize a civil injunctive action against the Company alleging
violations of the Securities Exchange Act of 1934 and rules thereunder. A
civil injunctive action could have material adverse consequences on the
Companys business, particularly with governmental entities. The SEC staff has
invited the Company to make a Wells submission describing the reasons why no
such action should be brought or any other matters that should be considered
before the staff makes a recommendation to the SEC. The Company intends to
make a Wells submission and to initiate discussions with the SEC staff with a
view to resolving the investigation on a basis that would be acceptable to the
Company and would avoid or mitigate any potential injury to its business.
There can be no assurance, however, that the Company will succeed in these
efforts.

Item 4.Submission of Matters to a Vote of Security Holders




On September 20, 2001, the Company held its 2001 Annual Meeting of
Shareholders at which shareholders of the Company
considered and voted on the following three matters: The shareholders approved the amendment of the Companys charter to classify the
Board of Directors into three classes of directors who, after a transitional period, would serve for staggered terms of
three years each, with one class constituting approximately one-third
of the Board of Directors being elected at each successive annual
meeting of shareholders. The results of the shareholder vote were as
follows:

|           |  |         |           |         |  |  |         | 
|---------- |  | ------- | --------- | ------- |  |  | ------- | 
|Votes     
|          
|For        |  | Against |           | Abstain
|           |  |         |           |        
|12,730,578 |  |         | 2,640,696 |         |  |  | 146,500 | 

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The shareholders elected the following five persons to
serve as directors of the Company in the classes and for the initial
terms indicated below. The results of the shareholders vote were as
follows:

|                  |  |           |  |         |  |            |  |                   |  |  |  |  |  |  |  | 
|----------------- |  | --------- |  | ------- |  | ---------- |  | ----------------- |  |  |  |  |  |  |  | 
|                  |  |           |  |         |  | Votes     
|                  |  | Class     |  | Term    |  | For        |  | WithheldAuthority
|                  |  |           |  |         |  |            |  |                  
|                 
|                 
|                 
|                 
|George
E. Cate    |  | Class I   |  | 1 Year  |  | 20,575,176 |  | 336,054          
|                 
|                 
|                 
|                 
|James E. Harwood  |  | Class I   |  | 1 Year  |  | 20,238,435 |  | 672,975          
|Jack R. Blair     |  | Class II  |  | 2 Years |  | 20,236,632 |  | 674,578          
|                 
|                 
|                 
|                 
|T. Scott Cobb     |  | Class III |  | 3 Years |  | 20,697,340 |  | 213,870          
|                 
|                 
|                 
|                 
|Robert G. McEniry |  | Class III |  | 3 Years |  | 20,575,706 |  | 335,504          

The shareholders ratified the appointment of BDO Seidman,
LLP as the Companys independent accountants for the fiscal year
ending April 30, 2002. The results of the shareholder vote were
as follows:

|           |  |         |        |         |  |  |       | 
|---------- |  | ------- | ------ | ------- |  |  | ----- | 
|Votes     
|          
|For        |  | Against |        | Abstain
|           |  |         |        |        
|20,875,764 |  |         | 31,472 |         |  |  | 3,974 | 

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Item 6.Exhibits and Reports on Form 8-K




(a)  Exhibits

The exhibits listed in the Exhibit Index following the signature page
hereof are filed as part of this report or are incorporated herein by
reference.

(b)  Reports on Form 8-K

On September 27, 2001, the Company filed with the Securities and Exchange
Commission (the SEC) a current report on Form 8-K announcing that the SEC had
converted its informal inquiry of SCBs past accounting and financial practices into
a formal investigation.

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SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  |                                                                 
|----------------------- |  | ----------------------------------------------------------------
|                        |  | SCB COMPUTER TECHNOLOGY, INC.                                   
|                       
|Date: December 14, 2001 |  | By:  /s/ Michael J. BolingMichael J. Boling                     
|                       
|                        |  | Executive Vice President, Chief Financial
Officer, and Treasurer

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EXHIBIT INDEX




|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.1           |  | Amended and Restated Charter
of the Company (incorporated herein by reference to Exhibit 3 to
the Company's quarterly report on Form 10-Q for the fiscal
quarter ended October 31, 1998), as amended by (1) Articles
of Merger of SCB Software Services, Inc., a Tennessee corporation,
with and into the Company, filed with the office of the Secretary of
State for the State of Tennessee on June 28, 2001,
(2) Articles of Merger of Proven Technology, Inc., a Tennessee
Corporation, with and into the Company, filed with the office of the
Secretary of State for the State of Tennessee on June 28, 2001,
and (3) Articles of Amendment to Amended and Restated Charter of
the Company, filed with the office of the Secretary of State for the
State of Tennessee on September 21, 2001.
|3.2           |  | Amended and Restated Bylaws
of the Company effective as of December 5, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|11            |  | Computation of Earnings Per Share (included in Note 2 of the Notes to Condensed Consolidated Financial Statements (unaudited) in Item 1 of Part I of this report).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

18