##### Table of Contents






UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




---

FORM 10-K

|                                                     |  |                                                                                          
|---------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|                                                     |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                    
|                                                     |  | For the Fiscal Year Ended December 31, 2000                                              
|                                                    
|                                                     |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                    
|For the Transition Period From
	                  to

Commission File Number 0-22141

COMPLETE BUSINESS SOLUTIONS, INC.

(Exact name of registrant as specified in its
charter)


|                                                                                                          |  |                                            
|--------------------------------------------------------------------------------------------------------- |  | -------------------------------------------
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Michigan(State or Other Jurisdiction of
	Incorporation or Organization)                                   |  | 38-2606945(IRS Employer Identification No.)
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|32605 West Twelve Mile Road
	Farmington Hills, Michigan 48334-3339(Address of principal executive office) |  | 48334-3339(Zip Code)                       

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

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock

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

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

The aggregate market value of
common stock held by non-affiliates of the registrant as of
March 1, 2001 was $216,160,979.

The number of shares outstanding
of the registrants common stock as of March 1, 2001
was 29,201,683.

Documents Incorporated by Reference

Portions of the Proxy Statement
of the Registrant for its 2001 Annual Meeting of Shareholders to
the extent expressly so stated, are incorporated by reference
into Part III of this Report.



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TABLE OF CONTENTS



|                                                |  |  |  |  |  |  |  | 
|----------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                         
|PART II                                        
|consolidated balance sheets                    
|consolidated statements of operations          
|consolidated statements of shareholders equity
|consolidated statements of cash flows          
|notes to consolidated financial statements     
|PART III                                       
|PART IV                                        
|SIGNATURES                                     
|EXHIBIT INDEX                                  
|Subsidiaries of Registrant                     
|Consent of Arthur Andersen LLP                 



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES

FORM 10-K

For the Fiscal Year Ended December 31, 2000

INDEX

|           |  |                                                                                        |  |   
|---------- |  | -------------------------------------------------------------------------------------- |  | --
|          
|          
|          
|          
|Part I     |  |                                                                                        |  |   
|          
|          
|          
|          
|Item 1.    |  | Business                                                                               |  | 1 
|          
|          
|          
|          
|Item 2.    |  | Properties                                                                             |  | 6 
|          
|          
|          
|          
|Item 3.    |  | Legal Proceedings                                                                      |  | 6 
|          
|          
|          
|          
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                    |  | 7 
|          
|          
|          
|          
|Part II    |  |                                                                                        |  |   
|          
|          
|          
|          
|Item 5.    |  | Market for the Registrants Common Equity and Related
	Stockholder Matters             |  | 8 
|          
|          
|          
|          
|Item 6.    |  | Selected Financial Data                                                                |  | 9 
|          
|          
|          
|          
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  | 11
|          
|          
|          
|          
|Item 8.    |  | Financial Statement and Supplementary Data                                             |  | 20
|          
|          
|          
|          
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  | 39
|          
|          
|          
|          
|Part III   |  |                                                                                        |  |   
|          
|          
|          
|          
|Item 10.   |  | Directors and Executive Officers of the Company                                        |  | 40
|          
|          
|          
|          
|Item 11.   |  | Executive Compensation                                                                 |  | 40
|          
|          
|          
|          
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                         |  | 40
|          
|          
|          
|          
|Item 13.   |  | Certain Relationships and Related Transactions                                         |  | 40
|          
|          
|          
|          
|Part IV    |  |                                                                                        |  |   
|          
|          
|          
|          
|Item 14.   |  | Exhibits, Financial Statement Schedules and Reports on
	Form  8-K                      |  | 41
|          
|          
|          
|          
|Signatures |  | 42                                                                                    





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PART I


Item 1.  Business

Summary

On February 5, 2001, Complete Business Solutions, Inc.
announced that it began doing business under the new name
Covansys Corporation and changed its Nasdaq National
Market ticker symbol from CBSI to CVNS. Complete Business
Solutions, Inc. will legally change its name to Covansys
Corporation upon shareholder approval, which is anticipated to
occur at the annual meeting of shareholders. For purposes of
this Form 10-K, Complete Business Solutions, Inc. will be
referred to as either Complete Business Solutions, Inc. or the
Company.

We are a global information technology services company that
brings a competitive advantage to our clients by delivering
innovative, results-oriented information management solutions
with a scalable delivery model. We offer clients a focused range
of IT services specializing in Web-to-Enterprise Integration
(WEIsm), industry-specific solutions and strategic
outsourcing. Our range of experience runs from advising clients
on IT business strategy and strategic technology plans to
developing and implementing appropriate IT applications
solutions.

We apply industry-specific IT consulting services to a wide
range of leading technology platforms and perform these services
in a variety of emerging computing environments. We excel in
providing Web-to-Enterprise Integration (WEIsm) to
link a companys Web-based, front-end, customer-facing
technologies to the rest of the enterprises technologies
in a way that maximizes speed, effectiveness and efficiency
across an organization. Our fast and flexible on-site, off-site,
offshore delivery model lends itself to a full spectrum of
outsourcing services, from applications maintenance and
modernization to full IT outsourcing with our unique global
delivery model. We believe that our range of services minimizes
our dependence on any single technology enabling us to serve as
a single-source provider for our clients IT applications
needs. This also enables us to cross-sell our services to
existing clients.

We offer flexible, cost-effective project delivery capabilities
by providing our clients a choice among any combination of the
following options: (1) onsite at the client facility;
(2) offsite at one of our development facilities in the
U.S.; or (3) offshore at one of our development facilities
in India. We have been developing our extensive offshore
infrastructure since 1992 and believe that it is one of the
largest and best in the industry. Our ability to deliver
services globally is enhanced by our local branch
infrastructure, consisting of a geographically dispersed network
of 25 branch offices and almost 200 sales and account managers.
Our local branch infrastructure allows us to act as a local
partner, which demonstrates our commitment to each market and
enhances our ability to attract locally based clients and
consultants.

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

Our goal is to be the preferred, single-source provider of IT
services to an expanding base of clients. To achieve this goal,
our strategy is to:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Create awareness of our capabilities in Web-to-Enterprise
	Integration (WEIsm), industry-specific solutions and
	strategic outsourcing;                                            
|
| |  | Capitalize on the marketing and development efforts of
	vertically focused industry solutions groups;                                                                              
|
| |  | Expand the breadth and depth of our technical capabilities
	through a continued evaluation of emerging technologies and
	development of industry solutions;                        
|
| |  | Focus our infrastructure, both domestically and internationally,
	to serve local clients and capitalize on our significant
	investment in offsite and offshore development centers;

1



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| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Create virtual partnerships with our clients to provide them
	with a broad range of IT solutions and create cross-selling
	opportunities; and       
|
| |  | Seek mergers and acquisitions that complement our core skills or
	expand our geographic reach and have the potential to increase
	our overall value.

The Advantage

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Offer clients a single-source provider of a broad range of IT
	services, from advising them on IT business strategy and
	strategic technology plans to developing and implementing
	appropriate IT applications solutions. This range includes
	Web-to-Enterprise Integration (WEIsm) Solutions.                                                                                                                                            
|
| |  | Assure clients of the highest quality software services
	by achieving a Level 5 quality rating at our offshore
	development centers in India. We are one of a very few companies
	worldwide to achieve this designation as set by the Software
	Engineering Institutes Capability Maturity Model. Our
	proven software engineering and management processes are
	extremely efficient in managing project costs and delivery for
	customers.
|
| |  | Provide flexible project deliveryby offering our clients
	any combination of the following options: (1) onsite at the
	client facility; (2) offsite at one of our development
	facilities in the U.S.; or (3) offshore at one of our
	development facilities in India. This flexibility enables our
	clients to determine their degree of project involvement and to
	control the costs and speed of project delivery.                      
|
| |  | Offer a local presenceby delivering our services to
	clients through a geographically dispersed network of 25 branch
	offices and almost 200 sales and account managers. Our local
	presence allows us to demonstrate our commitment to each local
	market and enhances our ability to attract locally based clients
	and consultants.                                                                                                      
|
| |  | Recruit and train our consultants globallythrough our
	established domestic and international network. Consultants
	receive up to two months of training in software engineering
	techniques and key technologies at one of our U.S. training
	centers or one of our two overseas training centers in India.
	These centers are equipped with a variety of hardware, software
	and development tools.                                       

Growth Strategy

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Create awareness of our capabilitiesin Web-to-Enterprise
	Integration (WEIsm), industry-specific solutions and
	strategic outsourcing. We launched a branding campaign in mid
	2000 to clarify our unique strengths and capabilities. We
	defined a new company name to characterize our true potential.
	We launched our new name, Covansys Corporation, in early 2001.                                                                                       
|
| |  | Capitalize on vertically focused industry solutions
	groups. These groups develop solutions based on in-depth
	knowledge of particular industries and a detailed understanding
	of the clients business. They sell and market a broad
	range of ERP and other solutions to existing clients and also
	obtain new clients within our targeted industries. Targeted
	industries include health care, public sector,
	telecommunications, and financial services.
|
| |  | Expand the breadth and depth of our technical capabilitiesthrough training existing personnel, recruiting experienced
	talent and acquiring or merging with complementary businesses.
	Our continued evaluation of emerging technologies enables us to
	add new service offerings and minimizes our dependence on any
	single technology.                                                                                                                      

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand the relationships with our clients to provide them
	with the speed, flexibility, and round-the-clock productivity of
	our outsourcing services. Our fast and flexible on-site,
	off-site, offshore delivery model lends itself to a full
	spectrum of outsourcing services  from applications
	maintenance, development, and modernization to full application
	outsourcing.                                                                                           
|
| |  | Focus our infrastructure, both domestically and
	internationally, and capitalize on our significant investment in
	offsite and offshore development centers, as well as our
	systems, tools, methodologies, training programs and marketing
	efforts. We believe that our existing development centers can be
	further leveraged to support a significantly larger number of
	consultants.                                                                                     
|
| |  | Create virtual partnerships with our clientsto provide
	them with IT solutions so that we become an extension of their
	organization. This strategy uses a team approach that makes the
	client an integral team member. We consider the impact of each
	project on the entire application to build a broader solution
	over time. We quickly assemble capable teams and use the
	strategic insights of the client to produce flexible,
	supportable business and IT solutions.
|
| |  | Seek mergers and acquisitions that complement our core
	skills or expand our geographic reach and have the potential to
	increase our overall value, rather than merely increase our
	revenues. We believe that our organization allows us to
	efficiently integrate acquisitions.                                                                                                                                                                                             

Web-to-Enterprise Integration (WEIsm)

The most exciting current and future client work for us involves
Web-to-Enterprise Integration (WEIsm). By tapping
into its double-barreled experience with Old World legacy
systems and the New Economys leading-edge business
applications, we are establishing our leadership in the emerging
e-commerce market. Web to Enterprise Integration
(WEIsm) means linking a companys Web-based
front-end, customer-facing technologies to the rest of the
enterprises technologies in a way that maximizes speed,
effectiveness and efficiency across an organization.

We are well positioned to meet the challenge of making
independently designed application systems and package systems
work together, both within and across enterprises. It offers the
right technological infrastructure and experience in evaluating
and selecting middleware solutions. Our advanced technology
development skills, combined with our offshore capabilities,
offers clients looking for Web-to-Enterprise Integration
(WEIsm) solutions the right mix of pricing,
productivity and resource deployment.

The ability to integrate web applications with core business
systems requires an understanding of the scope and nature of
legacy and enterprise systems, deep traditional application
development, a breadth of knowledge across platforms and across
locations and outstanding technical and architectural skills.

Web-to-Enterprise Integration (WEIsm) requires
looking at the whole picture and the potential for leveraging
such solutions as ERP in order to create an integrated
customer-focused IT strategy. Our goal is to improve efficiency,
expedite key decisions, enrich customer relationships, and make
our clients e-business a profitable business.

The result will be an information strategy that reduces costs
and generates revenue for the client organization.

Industry Solutions

We believe that knowledge of a clients industry is every
bit as important as technology expertise. There is no
one-size-fits-all answer to many of the complex systems that
manage and compute data for our client companies. Our knowledge
and experience contributes to a shorter learning curve on the
path to a customized implementation. Our specialized teams focus
on the changes generated by such issues as e-business,
globalization and deregulation. We provide high-value,
client-driven and timely business solutions.

We have years of experience with a number of industries, such as
health care, public sector, telecommunications, retail,
manufacturing and financial services. In addition, we have
become recognized

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| |   |                                                 
| | - | ------------------------------------------------
| |  | HIPAA Compliance Programs                       
|
| |  | Clarety Public Retirement Administration Package
|
| |  | CCMS/2000 Child Care Management System          

Strategic Outsourcing

Speed, flexibility and round-the-clock productivity are the
hallmarks of our outsourcing services. Our fast and flexible
on-site, off-site, offshore delivery model lends itself to a
full spectrum of outsourcing services. We can deliver
requirements from applications maintenance and modernization to
full IT outsourcing, including data center operations, with our
unique global delivery model.

In order to meet aggressive schedules, we offer our clients one
of the largest U.S.-owned offshore capabilities in the world.
This capability sets us apart from many competitors who can only
offer services based in the U.S. market. Our local
partnership/global delivery philosophy enables us to quickly and
cost-effectively complete projects and deploy key applications.
This allows our customers to focus on their core business while
relying on us to provide complete IT services.

Clients

Approximately 70% of our clients are middle market companies,
with annual revenues between $500 million and
$4 billion, and state governments. Using our strategic
approach, we have become an important supplier to these middle
market clients. In 2000 we provided services to over 600 clients
in North America, Europe and Asia. Our strategy is to maximize
our client retention rate and to secure additional engagements
by providing quality services and by being responsive to client
needs. For each of the past five years, existing clients from
the previous fiscal year generated more than 80% of our revenues.

Certain of our representative clients in various industries are
listed below.

Banking and Financial Services

American Century













Health Care

Blue Cross and Blue Shield







Manufacturing

DaimlerChrysler AG









Public Sector


State of California















Retail and Distribution

Fred Meyer, Inc.







Utilities and Telecommunications

Ameritech Corporation







4



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Sales and Marketing

We had been generating the majority of new sales through our
branch management structure. Our branches focus on all clients
within a geographic area. The manager of each branch office was
responsible for managing client relationships, ensuring the
delivery team performed as expected and identifying new business
opportunities. Compensation was based primarily on the financial
performance of the branch. This structure fostered an
entrepreneurial atmosphere within each branch and resulted in a
significant number of client referrals and opportunities to
cross-sell our services.

In late 2000, we determined that a centrally managed sales and
marketing organization, to target new business opportunities,
would help us grow and identify new clients more effectively. We
recruited an executive to perform this function and assemble the
needed sales account executives within the organization. A
launch of this new strategy occurred in January 2001.

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

Cross-selling our industry solutions and other services to
existing clients has been a successful way to expand our
business. This accounts for much of the extensive recurring
revenue volume we have enjoyed over the years.

Our sales strategy has always focused on making us an extension
of the client organization and making the client a member of our
service delivery team. When clients view us as part of their
team, they often decide to source additional IT services needs
through us with little sales effort on our part.

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

Human Resources

Our success depends in large part on our ability to attract,
develop, motivate and retain highly skilled IT professionals.
Our strategy for achieving career-based employment
includes career planning, thorough initial and ongoing training,
allocation of assignments in accordance with employee skills and
career objectives and a comprehensive benefits package. This
package includes a Company-matched 401(k) plan, stock purchase
plan, health, dental and vision insurance, preventive medical
short-term disability insurance, a flexible spending account and
tuition reimbursement. We also will continue to grant stock
options as part of our recruitment and retention strategy. As
part of our effort for minimizing turnover we emphasize:



| |   |                            
| | - | ---------------------------
| |  | Human resource management; 
|
| |  | Competitive salaries;      
|
| |  | Comprehensive benefits;    
|
| |  | Employee stock options; and
|
| |  | Deferred compensation      

We use intensive programs to recruit consultants throughout the
United States, screen them through a variety of interview and
testing processes and select them for future assignments on our
project teams. In addition, our recruiting activities seek to
draw on an international pool of IT talent. We actively recruit
in a variety of countries including India, England,
Australia, and Singapore. Recruiting methods include

5



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Our consultants typically have Bachelors or Masters
degrees in Computer Science or another technical discipline. As
of December 31, 2000, we had 5,157 employees comprised of
4,472 IT professionals, 203 sales and marketing personnel and
482 general and administrative personnel. As of
December 31, 2000, we also had 225 independent contractors
working on client engagements.

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

Between projects and after business hours, all IT professionals
receive ongoing training on a variety of technology platforms.
Our education and training department helps employees make the
transition from legacy and client/server skills to e-commerce
skills by providing cross-platform training in new technologies.
In addition to comprehensive technical training, we provide
extensive training in quality processes and cross-cultural
communications skills.

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

Item 2.  Properties

We lease approximately 70,000 square feet of office space in
Farmington Hills, Michigan for our headquarters office. In
addition to our headquarters, we lease office space throughout
the world. Currently, our facilities are adequate for our needs;
however, additional space may be required as our business
expands. We believe we will be able to obtain suitable space as
needed.

We have principal offices in the following locations:

|                                                                                                                                                                                                 |  |                                                                                                                                                                                      |  |                                                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------
|                                                                                                                                                                                                 |  |                                                                                                                                                                                     
|North America                                                                                                                                                                                    |  | International                                                                                                                                                                       
|Atlanta, GA
	Basking Ridge, NJ
	Boston, MA
	Chicago, IL
	Cincinnati, OH
	Cleveland, OH
	Columbus, OH
	Denver, CO
	Farmington Hills, MI
	Lansing, MI
	Hartford, CT
	Houston, TX
	Indianapolis, IN |  | Los Angeles, CA
	Milpitas, CA
	Milwaukee, WI
	Montreal, Canada
	Nashua, NH
	New York, NY
	Philadelphia, PA
	Portland, OR
	Providence, RI
	Sacramento, CA
	Springfield, MA
	Tampa, FL |  | Bangalore, India
	Brussels, Belgium
	Chennai, India
	Mumbai, India
	Munich, Germany
	Singapore

Item 3.  Legal Proceedings

We are, from time to time, party to ordinary, routine litigation
incidental to our business. After discussion with our legal
counsel, we do not believe that the ultimate resolution of any
existing matter will have a material adverse effect on our
financial condition, results of operations or cash flows.

In addition, many of our engagements involve projects that are
critical to the operations of our clients businesses and
provide benefits that may be difficult to quantify. We attempt
to contractually limit our liability for damages arising from
errors, mistakes, omissions or negligent acts in rendering our
services.

6



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

No matters were submitted to a vote of our security holders
during the fourth quarter of the year ended December 31,
2000.

7



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PART II


Item 5.  Market for the Registrants Common Equity
and Related Stockholder Matters

During 2000, our common stock was traded on the Nasdaq National
Market under the symbol CBSI. On February 5, 2001, our
symbol was changed to CVNS. The following table sets forth, for
the periods indicated, the range of high and low bid prices for
our common stock as reported on the Nasdaq National Market.

|                              |                |                |   |     |      |  |   |    |      
|----------------------------- | -------------- | -------------- | - | --- | ---- |  | - | -- | -----
|                              |                |               
|                              |                | Price Range of
|                              |                | Common Stock  
|                              |                |               
|                              |                | High           |   | Low
|                             
|                             
|                             
|                             
|Year Ended December 31, 1999: |                |                |   |     |      |  |   |   
|                             
|                             
|                             
|                             
|                              | First Quarter  |                | $ | 34  | 3/4  |  | $ | 15 | 7/8  
|                             
|                             
|                             
|                             
|                              | Second Quarter |                | $ | 27  |      |  | $ | 14 | 7/16 
|                             
|                             
|                             
|                             
|                              | Third Quarter  |                | $ | 21  | 1/16 |  | $ | 13 | 1/8  
|                             
|                             
|                             
|                             
|                              | Fourth Quarter |                | $ | 27  | 5/8  |  | $ | 13 | 3/8  
|                             
|                             
|                             
|                             
|Year Ended December 31, 2000: |                |                |   |     |      |  |   |   
|                             
|                             
|                             
|                             
|                              | First Quarter  |                | $ | 28  |      |  | $ | 16 | 5/8  
|                             
|                             
|                             
|                             
|                              | Second Quarter |                | $ | 24  | 7/8  |  | $ | 15 | 15/16
|                             
|                             
|                             
|                             
|                              | Third Quarter  |                | $ | 20  | 3/4  |  | $ | 11 | 1/4  
|                             
|                             
|                             
|                             
|                              | Fourth Quarter |                | $ | 13  | 3/4  |  | $ | 6  | 1/4  

As of March 1, 2001, there were approximately 800
shareholders of record of our common stock.

Since our initial public offering in March 1997, we have
not paid cash dividends on our common stock. We currently
anticipate that all of our earnings will be retained for the
continued development of our business and we do not anticipate
paying any cash dividends in the foreseeable future.

8



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##### Table of Contents



Item 6.  Selected Financial Data

The selected financial data presented below for the five years
ended December 31, 2000, are derived from our Consolidated
Financial Statements and related Notes thereto. The selected
financial data should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated
Financial Statements and related Notes thereto included in
Item 8 of this Form 10-K.

On September 28, 2000, we sold Synova Inc.
(Synova), our contract programming subsidiary, to a
related party for a gain of $6.1 million, net of income
taxes. The consolidated balance sheets, statements of operations
and statements of cash flows of the Company included in this
Form 10-K have been retroactively restated to reflect
Synova as a discontinued operation. The net operating results of
Synova have been reported, net of income taxes, as Income
(loss) from discontinued operations.

On April 20, 1999, we acquired E-Business Solutions.com,
Inc. (EBS), formerly Impact Innovations Group, Inc.
This acquisition was accounted for by the purchase method of
accounting and accordingly, the operating results of EBS have
been included in the consolidated financial statements since the
date of acquisition.

On January 27, 1998 and July 24, 1998, we merged with
c.w. Costello & Associates, inc. (Costello)
and Claremont Technology Group, Inc. (Claremont),
respectively. These mergers were accounted for by the pooling of
interests method of accounting and accordingly, the consolidated
balance sheets, statements of operations, cash flows and
shareholders equity and all financial information of the
Company included in this Form 10-K have been retroactively
restated.

The Company and Costello had fiscal years ending
December 31 and Claremont had a fiscal year ending
June 30. The statement of operations data presented below
for the years ended December 31, 1997 and 1996, combine the
Companys and Costellos results for the years ended
December 31, 1997 and 1996, with Claremonts results
for the years ended June 30, 1997 and 1996, respectively.
The statement of operations data for the year ended
December 31, 1998, combine all three companies
results for the year ended December 31, 1998. The balance
sheet data as of December 31, 1997 and 1996 combine the
Companys and Costellos balance sheets as of
December 31, 1997 and 1996, with Claremonts balance
sheet as of June 30, 1997 and 1996, respectively. The
balance sheet data as of December 31, 1998, combine all
three companies balance sheets as of that date.

9



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##### Table of Contents



|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |         |  
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ------- |  | ---- | ------ | ------- | - | ---- | ------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                            |                                                                                                             |                                      
|                                            |                                                                                                             | Years Ended December 31,             
|                                            |                                                                                                             |                                      
|                                            |                                                                                                             | 1996                                  |        | 1997    |  | 1998 |        | 1999    |   | 2000
|                                            |                                                                                                             |                                      
|                                            |                                                                                                             | (In thousands, except per share data)
|                                           
|                                           
|                                           
|                                           
|Statement of Income Data:                   |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Revenues                                                                                                    |                                       | $      | 173,832 |  |      | $      | 249,532 |   |      | $       | 361,667 |   |  | $ | 443,541 |   |  | $ | 419,641 |  
|                                           
|                                           
|                                           
|                                           
|                                            | Cost of revenues                                                                                            |                                       |        | 118,697 |  |      |        | 168,880 |   |      |         | 236,499 |   |  |   | 297,171 |   |  |   | 308,299 |  
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Gross profit                                                                                                |                                       |        | 55,135  |  |      |        | 80,652  |   |      |         | 125,168 |   |  |   | 146,370 |   |  |   | 111,342 |  
|                                           
|                                           
|                                           
|                                           
|                                            | Selling, general and administrative expenses                                                                |                                       |        | 42,469  |  |      |        | 62,855  |   |      |         | 83,233  |   |  |   | 98,645  |   |  |   | 143,467 |  
|                                           
|                                           
|                                           
|                                           
|                                            | Restructuring, merger costs and other(a)                                                                    |                                       |        | 111     |  |      |        | 1,559   |   |      |         | 28,250  |   |  |   | 5,367   |   |  |   | 21,507  |  
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Income (loss) from continuing operations                                                                    |                                       |        | 12,555  |  |      |        | 16,238  |   |      |         | 13,685  |   |  |   | 42,358  |   |  |   | (53,632 | )
|                                           
|                                           
|                                           
|                                           
|                                            | Other expense (income)                                                                                      |                                       |        | 934     |  |      |        | (842    | ) |      |         | (2,927  | ) |  |   | (3,737  | ) |  |   | (6,060  | )
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Income (loss) from continuing operations before provision
	(benefit) for income taxes and minority interest |                                       |        | 11,621  |  |      |        | 17,080  |   |      |         | 16,612  |   |  |   | 46,095  |   |  |   | (47,572 | )
|                                           
|                                           
|                                           
|                                           
|                                            | Provision (benefit) for income taxes                                                                        |                                       |        | 2,389   |  |      |        | 7,246   |   |      |         | 9,962   |   |  |   | 16,283  |   |  |   | (11,255 | )
|                                           
|                                           
|                                           
|                                           
|                                            | Minority interest                                                                                           |                                       |        | 158     |  |      |        | 82      |   |      |         |        |   |  |   |        |   |  |   |        |  
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Net income (loss) from continuing operations                                                                |                                       | $      | 9,074   |  |      | $      | 9,752   |   |      | $       | 6,650   |   |  | $ | 29,812  |   |  | $ | (36,317 | )
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Income (loss) from discontinued operations, net of income taxes                                             |                                       |        | 95      |  |      |        | 55      |   |      |         | 41      |   |  |   | (15     | ) |  |   | (1,692  | )
|                                           
|                                           
|                                           
|                                           
|                                            | Gain on sale of discontinued operations, net of income taxes                                                |                                       |        |        |  |      |        |        |   |      |         |        |   |  |   |        |   |  |   | 6,072   |  
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Net income (loss)                                                                                           |                                       |        | 9,169   |  |      |        | 9,807   |   |      |         | 6,691   |   |  |   | 29,797  |   |  |   | (31,937 | )
|                                           
|                                           
|                                           
|                                           
|                                            | Beneficial conversion feature                                                                               |                                       |        |        |  |      |        |        |   |      |         |        |   |  |   |        |   |  |   | (23,651 | )
|                                           
|                                           
|                                           
|                                           
|                                            | Convertible redeemable preferred stock dividends                                                            |                                       |        |        |  |      |        |        |   |      |         |        |   |  |   |        |   |  |   | (2,569  | )
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                            | Net income (loss) available for common shareholders                                                         |                                       | $      | 9,169   |  |      | $      | 9,807   |   |      | $       | 6,691   |   |  | $ | 29,797  |   |  | $ | (58,157 | )
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |         |   |  |   |         |   |  |   |        
|                                           
|                                           
|                                           
|                                           
|Pro forma incremental income tax benefit(b) |                                                                                                             | $                                     | (1,417 | )       |  | $    |       |         |   | $    |        |        
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |        
|                                           
|                                           
|                                           
|                                           
|Pro forma net income (loss)                 |                                                                                                             | $                                     | 8,108  |         |  | $    | 29,797 |         |   | $    | (58,157 | )      
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |        
|                                           
|                                           
|                                           
|                                           
|Pro forma diluted earnings (loss) per share |                                                                                                             | $                                     | 0.22   |         |  | $    | 0.78   |         |   | $    | (1.77   | )      
|                                            |                                                                                                             |                                       |        |         |  |      |        |         |   |      |         |        
|                                           
|                                           
|                                           
|                                           
|Diluted weighted average shares outstanding |                                                                                                             |                                       | 36,211 |         |  |      | 38,212 |         |   |      | 32,892  |        

|                    |                                              |                    |   |        |  |      |   |         |  |      |   |         |  |  |   |         |  |  |   |         | 
|------------------- | -------------------------------------------- | ------------------ | - | ------ |  | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                    |                                              |                   
|                    |                                              | As of December 31,
|                    |                                              |                   
|                    |                                              | 1996               |   | 1997   |  | 1998 |   | 1999    |  | 2000
|                    |                                              |                   
|                    |                                              | (In thousands)    
|                   
|                   
|                   
|                   
|Balance Sheet Data: |                                              |                    |   |        |  |      |   |         |  |      |   |         |  |  |   |         |  |  |   |        
|                   
|                   
|                   
|                   
|                    | Cash and cash equivalents                    |                    | $ | 4,463  |  |      | $ | 72,698  |  |      | $ | 60,732  |  |  | $ | 91,236  |  |  | $ | 140,123 | 
|                   
|                   
|                   
|                   
|                    | Working capital                              |                    |   | 17,906 |  |      |   | 101,106 |  |      |   | 108,857 |  |  |   | 166,051 |  |  |   | 206,900 | 
|                   
|                   
|                   
|                   
|                    | Total assets                                 |                    |   | 68,281 |  |      |   | 168,240 |  |      |   | 191,045 |  |  |   | 277,388 |  |  |   | 330,901 | 
|                   
|                   
|                   
|                   
|                    | Revolving credit facility and long-term debt |                    |   | 17,348 |  |      |   | 4,958   |  |      |   |        |  |  |   |        |  |  |   |        | 
|                   
|                   
|                   
|                   
|                    | Total shareholders equity                   |                    |   | 28,724 |  |      |   | 125,326 |  |      |   | 141,155 |  |  |   | 236,417 |  |  |   | 117,106 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Fiscal year 2000 consists of approximately $18.6 million of
	costs associated with the Companys organizational
	restructuring, including severance and lease terminations, and
	approximately $2.9 million related primarily to the write-down
	of certain assets which the Company determined were no longer
	realizable. Fiscal year 1999 consists of approximately
	$5.4 million of certain non-capitalizable merger and other
	costs, including lease termination and severance, related to the
	acquisition of EBS. Fiscal year 1998 consists of approximately
	$12.7 million in transaction costs related to the mergers
	with Costello and Claremont and approximately $15.6 million
	related primarily to the write-down of certain assets which
	Claremont determined, prior to June 30, 1998, were no
	longer realizable. Fiscal year 1997 consists of approximately
	$1.6 million in transaction costs related to the merger with
	Synergy Software, Inc.



|    |                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | The pro forma adjustment for the incremental income tax benefit
	reflects the additional benefit for Federal and state income
	taxes at the effective income tax rate as if the applicable
	merged companys Subchapter S election had been
	revoked prior to January 1, 1998, and the merged company
	had been taxed as a C corporation.

10



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##### Table of Contents



Item 7.  Managements Discussion and Analysis of
Financial Condition and Results of Operations

The following section should be read in conjunction with our
Consolidated Financial Statements and related Notes appearing in
Item 8 of this Form 10-K. With the exception of
statements regarding historical matters and statements
concerning our current status, certain matters discussed in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking
statements that involve substantial risks and uncertainties.
Such forward-looking statements may be identified by the words
anticipate, believe,
estimate, expect or intend
and similar expressions. Our actual results, performance or
achievements could differ materially from these forward-looking
statements. Factors that could cause or contribute to such
material differences include our failure to recruit and retain
IT professionals, risks related to our merger, acquisition
and strategic investment strategy, variability of our quarterly
operating results, government regulation of immigration,
potential cost overruns on fixed-price projects, increasing
significance of non-U.S. operations, exposure to regulatory,
political and economic conditions in India, competition in the
IT services industry, short-term and termination provisions of
contracts, failure to properly manage growth, economic
conditions unique to clients in specific industries, possible
write-off of computer software costs, limited protection of
intellectual property rights, and potential liability to
clients, each of which are discussed herein under the caption
Factors that may Affect Future Results.

Overview

We provide IT services worldwide, offering clients flexible
global delivery capabilities. Our strategy is to establish
long-term client relationships and to secure additional
engagements with existing clients by providing quality services
and by being responsive to client needs. For each of the past
five years, over 80% of our revenues were generated from
existing clients from the previous fiscal year.

We offer our clients a focused range of IT services specializing
in Web-to-Enterprise Integration (WEIsm),
industry-solutions and strategic outsourcing. Our range of
experience runs from advising clients on IT business strategy
and strategic plans to developing and implementing appropriate
IT applications solutions.

We generally assume responsibility for project management and
may bill the client on either a time-and-materials or
fixed-price basis, although such projects are generally billed
on a time-and-materials basis. We recognize revenues on
time-and-materials engagements as the services are performed. On
fixed-price engagements, we recognize revenues under the
percentage of completion method. For the year ended
December 31, 2000 approximately 20% of total revenues were
generated from fixed-price engagements.

Our most significant cost is project personnel cost, which
consists primarily of salaries, wages and benefits for our IT
professionals. We strive to maintain our gross profit margin by
controlling project costs and offsetting increases in salaries
and benefits with increases in billing rates. We use a human
resource allocation team to ensure that IT professionals are
quickly placed on assignments to minimize nonbillable time and
are placed on assignments that use their technical skills and
allow for maximum billing rates. We have realized higher gross
profit margins from our shift away from contract programming
services and from our shift to offshore projects in India, where
the personnel cost of IT professionals is lower as a percentage
of professional service fees. This benefit is partially offset
due to additional coordination efforts and costs for offshore
projects.

In an effort to sustain our growth and profitability, we have
made and continue to make substantial investments in our
infrastructure, including: (1) software development centers
in the United States and India; (2) global recruiting and
training centers in the United States and India; (3) system
methodologies; (4) sales and marketing teams; (5) a
geographically dispersed branch management structure; and
(6) internal systems.

11



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##### Table of Contents



Results of Operations

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

|                                             |  |              |       |      |  |      |       |   |  |  |        |   
|-------------------------------------------- |  | ------------ | ----- | ---- |  | ---- | ----- | - |  |  | ------ | --
|                                             |  |             
|                                             |  | Years Ended 
|                                             |  | December 31,
|                                             |  |             
|                                             |  | 1998         |       | 1999 |  | 2000
|                                            
|                                            
|                                            
|                                            
|Revenues                                     |  |              | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0% |   
|                                            
|                                            
|                                            
|                                            
|Cost of revenues                             |  |              | 65.4  |      |  |      | 67.0  |   |  |  | 73.5   |   
|                                             |  |              |       |      |  |      |       |   |  |  |        |   
|Gross profit                                 |  |              | 34.6  |      |  |      | 33.0  |   |  |  | 26.5   |   
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |              | 23.0  |      |  |      | 22.3  |   |  |  | 34.2   |   
|                                            
|                                            
|                                            
|                                            
|Restructuring, merger costs and other        |  |              | 7.8   |      |  |      | 1.2   |   |  |  | 5.1    |   
|                                             |  |              |       |      |  |      |       |   |  |  |        |   
|Income (loss) from continuing operations     |  |              | 3.8   | %    |  |      | 9.5   | % |  |  | (12.8  | )%

2000 Compared to 1999

Revenues.  Our revenues decreased 5.4% to
$419.6 million for fiscal 2000 from $443.5 million in
fiscal 1999. This decline in revenues is primarily due to longer
customer sales cycles brought on by the IT industry slowdown. We
expect that this trend will continue into early 2001 and
combined with margin pressure, our short-term earnings will
remain depressed. For the year ended December 31, 2000,
approximately 85% of our revenues were generated from existing
clients.

Gross Profit.  Gross profit consists of revenues
less cost of revenues. Cost of revenues consists primarily of
salaries (including nonbillable and training time), benefits,
travel and relocation for IT professionals. In addition, cost of
revenues includes depreciation and amortization, direct facility
costs and contractual services. Gross profit decreased 23.9% to
$111.3 million in fiscal 2000 from $146.4 million in
fiscal 1999. Gross profit as a percentage of revenues decreased
to 26.5% for fiscal 2000 from 33.0% in fiscal 1999. The decrease
in gross profit margin and gross profit margin as a percentage
of revenues are due to the decrease in revenues between periods,
decreased utilization rates, and our continuing investment in
training and development of our IT professional workforce.

Selling, General and Administrative Expenses. 
Selling, general and administrative expenses consist primarily
of costs associated with our direct selling and marketing
efforts, human resource and recruiting departments,
administration and indirect facility costs. Selling, general and
administrative expenses increased 45.5% to $143.5 million
in fiscal 2000 from $98.6 million in fiscal 1999. As a
percentage of revenues, selling, general and administrative
expenses increased in fiscal 2000 to 34.2% from 22.3% in fiscal
1999. These increases result from the recording of a
$23.0 million charge significantly due to the write-down of
certain accounts receivable from dot.com companies which had
become uncollectible and to recognize lower valuations of
investments in certain dot.com companies. In addition, we
recorded a $15.3 million charge to write-down goodwill,
primarily from our acquisition of EBS, that we determined was no
longer realizable. We continue to make increasing infrastructure
investments, including the enhancement of our selling and
marketing capabilities, as we pursue our transformation and
repositioning strategy.

Other Expense (Income).  Other expense (income)
represents interest earned on cash equivalents, net of interest
expense on borrowings. Other expense (income) for fiscal 2000
was $6.1 million compared to $3.7 million in fiscal
1999. This increase is primarily due to interest earned from the
investment of funds received in connection with the issuance of
Convertible Redeemable Preferred Stock to Clayton, Dubilier
& Rice, Inc. in April and July of 2000.

1999 Compared to 1998

Revenues.  Our revenues increased 22.6% to $443.5
million for fiscal 1999 from $361.7 million in fiscal 1998. This
growth is primarily attributable to increases in our IT
professional workforce, increases in average billing rates, and
additional services provided to existing clients. For the year
ended December 31, 1999, approximately 86% of our revenues
were generated from existing clients.

12



---



##### Table of Contents



Gross Profit.  Gross profit increased 16.9% to
$146.4 million in fiscal 1999 from $125.2 million in fiscal
1998. This increase is primarily attributable to increases in
our IT professional workforce and average U.S. billing rates.
Gross profit as a percentage of revenues decreased to 33.0% for
fiscal 1999 from 34.6% in fiscal 1998. This decrease in gross
profit margin as a percentage of revenues is primarily
attributable to a decrease in offshore utilization resulting
from the continuing transition from Year 2000 related services
to emerging technology services, including e-business services.

Selling, General and Administrative Expenses. 
Selling and administrative expenses increased 18.5% to $98.6
million in fiscal 1999 from $83.2 million in fiscal 1998. This
increase resulted from the continued expansion of our direct
selling and marketing effort, further investments in
infrastructure, and other general overhead cost increases
necessary to support our continued revenue growth. As a
percentage of revenues, selling, general and administrative
expenses decreased in fiscal 1999 to 22.3% from 23.0% in fiscal
1998 as we continued to leverage our existing infrastructure.

Other Expense (Income).  Other expense (income) for
fiscal 1999 was $3.7 million compared to $2.9 million in
fiscal 1998. This change is primarily due to interest earned
from the investment of net proceeds from our public offering of
stock in 1999.

1998 Compared to 1997

Revenues.  Our revenues increased 44.9% to
$361.7 million for fiscal 1998 from $249.5 million in
fiscal 1997. This growth in revenues is primarily attributable
to increases in our IT professional workforce, increases in
average billing rates, further expansion of our international
operations and additional services provided to existing clients.

Gross Profit.  Gross profit increased 55.2% to
$125.2 million in fiscal 1998 from $80.7 million in fiscal
1997. This increase is primarily attributable to increases in
our IT professional workforce and average U.S. billing rates, as
well as the continued expansion of our offshore development
centers. Gross profit as a percentage of revenues increased to
34.6% for fiscal 1998 from 32.3% in fiscal 1997. This increase
in gross profit margin as a percentage of revenues is primarily
attributable to our continued strategic shift of our business
toward higher margin service offerings and the increasing
utilization and expansion of our offshore development centers
which operate at higher gross profit and operating margins.

Selling, General and Administrative Expenses. 
Selling, general and administrative expenses increased 32.4% to
$83.2 million in fiscal 1998 from $62.9 million in fiscal
1997. This increase resulted from the continued expansion of our
direct selling and marketing effort, further investments in
infrastructure, and other general overhead cost increases
necessary to support our continued revenue growth. As a
percentage of revenues, selling, general and administrative
expenses decreased to 23.0% in fiscal 1998 from 25.2% in fiscal
1997 as we continued to leverage our existing infrastructure.

Other Expense (Income).  Other expense (income) for
fiscal 1998 was $2.9 million compared to $0.8 million
in fiscal 1997. This change is primarily due to reduced interest
expense, resulting from the repayment of our outstanding debt in
1997, the repayment of Costellos and Claremonts debt
in 1998 and interest earned from the investment of net proceeds
from our and Claremonts public offerings of common stock
in 1997.

Discontinued Operations and Gain on Sale of Discontinued
Operations

In June 2000, our board of directors adopted a plan to sell the
operations of our contract programming services subsidiary,
Synova. Accordingly, the accompanying consolidated financial
statements have been reclassified to reflect Synova as a
discontinued operation. The net operating results of Synova have
been reported, net of income taxes, as income (loss) from
discontinued operations in the accompanying consolidated
statements of operations for all years presented. The net cash
flows of Synova have been included in cash used in
discontinued operations and effect of exchange rate changes in
cash in the accompanying consolidated statements of cash
flows for all years presented.

13



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##### Table of Contents



Net assets of Synova as of December 31, 1999 were $785 and
are classified as Other Assets in the accompanying balance sheet.

On September 28, 2000, we sold Synova to a related party in
exchange for 750,000 shares of our Common Stock, determined to
be the fair market value.

As a result of this exchange, we recorded a gain on the sale of
a discontinued operation of $6,072, net of income taxes, in the
accompanying consolidated statements of operations.

Restructuring, Merger and Other Related Charges

In fiscal 2000, we recorded restructuring and other costs of
$21,507, consisting of the following:

|                                                                              |  |  |       | 
|----------------------------------------------------------------------------- |  |  | ----- | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Severance and costs associated with building a new executive
	management team |  |  | 8,822 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Termination of lease obligations associated with consolidation
	of facilities |  |  | 5,800 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Writeoff of assets due to change in strategic direction                       |  |  | 2,900 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Other                                                                         |  |  | 3,985 | 

In fiscal 1999, we recorded merger and other costs of $5,367,
principally for lease termination and employee severance related
to the acquisition of EBS. These costs did not meet the
requirements of Emerging Issues Task Force (EITF) 95-03 and
therefore were not accrued at the time of acquisition and
capitalized in goodwill.

In fiscal 1998, we recorded merger and other costs of $28,250
consisting of $12,700 of transaction costs related to the
mergers with Costello and Claremont, and $15,550 for the
writedown of certain assets which Claremont determined, prior to
June 30, 1998, were no longer realizable.

Liquidity and Capital Resources

We generally fund our operations and working capital needs
through internally generated funds, periodically supplemented by
borrowings under our revolving credit facilities with a
commercial bank. Cash provided by (used in) operating activities
was ($3.3) million, $12.5 million and
$14.4 million for the years ended December 31, 2000,
1999 and 1998, respectively. The decrease in cash provided by
operations in 2000 is primarily due to reduced gross profit
margins, increased infrastructure investments and an increase in
the accounts receivable days sales outstanding.

The principal use of cash for investing activities during the
three years ended December 31, 2000 was for the purchase of
property and equipment, primarily as part of the development and
enhancement of our offshore software development centers, the
investment in internally developed computer software, and other
strategic investments.

To facilitate future cash flow needs, we have an arrangement
with a commercial bank, where we may borrow an amount not to
exceed $30.0 million with interest at the banks prime
interest rate, or the LIBOR rate plus 1  1/4%. Borrowings
under this facility are short-term, payable on demand and are
secured by our trade accounts receivable and equipment.

Net cash provided by financing activities of $81.3 million,
$63.2 million and $0.8 million for years ended
December 31, 2000, 1999 and 1998, respectively, was
primarily due to the funds received in connection with the
issuance of Convertible Redeemable Preferred Stock in 2000 and
realizing net proceeds from the issuance of common stock in
fiscal 1999 in a follow-on offering.

Significant uses of cash by financing activities were for the
repurchase of our Common Stock and the partial distributions of
previously undistributed S corporation earnings following the
terminations of the companies S corporation status.
During the years ended December 31, 2000 and 1999, we
repurchased 7,663,600 and 354,000 shares of our Common Stock,
for cash, at a total of $111.8 million and
$5.2 million,

14



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##### Table of Contents





Our international operations accounted for 12.6%, 10.3%, and
9.8% of our total revenues for the years ended December 31,
2000, 1999 and 1998, respectively. Most of our revenues are
billed in U.S. dollars. We recognize transaction gains and
losses in the period of occurrence. Foreign currency
fluctuations in 2000, 1999 and 1998 did not have a material
impact on income (loss) from operations as currency fluctuations
on revenue denominated in a foreign currency were offset by
currency fluctuations on expenses denominated in a foreign
currency. There were no material operating trends or effects on
liquidity as a result of fluctuations in the functional
currency. We do not generally use any types of derivatives to
hedge against foreign currency fluctuations, nor do we speculate
in foreign currency.

Inflation did not have a material impact on our revenues or
income (loss) from operations in fiscal years 2000, 1999 and
1998.

Factors That May Affect Future Results

Failure to Recruit, Train and Retain Skilled IT Professionals
Could Increase Costs or Limit Growth

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

Failure to Properly Manage Mergers, Acquisitions and
Strategic Investments Could Adversely Affect Our Business

We have expanded, and plan to continue to expand our operations
through mergers with or acquisitions of additional businesses
that complement our core skills and that have the potential to
increase our overall value. We have previously made and may
continue to make investments in start-up companies that have the
potential to be successful and to complement our current
business. We may not be able to continue to identify and merge
with or acquire businesses with which we are compatible. In
addition, we may not be able to identify or to negotiate
appropriate terms with potentially successful start-up
companies. Investing in such companies is a highly risky
strategy, these companies frequently have a limited operating
history, unproven business plans and are exposed to high
start-up costs. Further, we cannot be certain that such start-up
companies will achieve anticipated revenues and earnings.

Mergers and acquisitions involve a number of special risks,
including:

  Diversion of managements attention;

  Failure to retain key personnel of the acquired
business;

  Assumption of unanticipated legal liabilities and
other problems;

  Difficulties in integrating systems, operations and
cultures;

  Amortization of acquired intangible assets; and

  Potential dilution of earnings per share.

Our reputation is a valuable asset and performance problems and
client dissatisfaction with a firm which we acquire or merge
with could adversely affect our reputation. In addition, we
cannot be certain that businesses we acquire or merge with will
achieve anticipated revenues and earnings. Failure to
successfully manage our merger and acquisition strategy could
have a material adverse effect on our business.

15



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##### Table of Contents



See Managements Discussion and Analysis of Financial
Condition and Results of Operations, 2000 compared to 1999, for
discussion related to our recognition of lower valuations of
investments and write off of goodwill in fiscal 2000.

Variability of Quarterly Operating Results

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

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

  The number of working days in a quarter;

  Employee hiring, attrition and utilization rates;

  Progress on fixed-price projects during a quarter;

  The consummation of mergers and acquisitions;

  The ability of clients to terminate engagements
without penalty;

  The size and scope of assignments; and

  General economic conditions.

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

Impact of Government Regulation of Immigration Could Limit
Growth

We recruit IT professionals globally to create a workforce that
can be deployed wherever required by our clients. As a result,
we must comply with the immigration laws in the countries in
which we operate, particularly the United States. As of
December 31, 2000, approximately 23% of our worldwide
workforce was working under H-1B temporary work permits in the
United States. Government regulation limits the number of new
H-1B permits that may be approved in a fiscal year. If the limit
is reached in any year, we may not be able to recruit enough IT
professionals to meet our personnel requirements. This could
materially affect our business. Congress and administrative
agencies with jurisdiction over immigration matters have
periodically expressed concern over the level of legal and
illegal immigration into the United States. These concerns have
often resulted in proposals aimed at reducing the number of work
permits that may be issued. Any change making it more difficult
for us to hire foreign nationals, or limiting our ability to
retain foreign employees, could require us to incur additional
unexpected labor costs and other expenses.

Our Fixed-Price Projects Expose us to Cost Overrun Risks

We undertake certain projects on a fixed-price basis, as
distinguished from billing on a time-and-materials basis. We
realized approximately 20% of our revenues from fixed-price
projects during the year ended December 31, 2000.
Significant cost overruns can occur if we fail to:

  Adequately estimate the resources required to
complete a project;

  Properly determine the scope of an engagement; or

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

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

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##### Table of Contents



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

Our international consulting and offshore software development
operations accounted for approximately 12.6% of our total
revenues for the year ended December 31, 2000. Our
international operations and international business activities
are subject to the following risks:



| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unexpected changes in regulatory environments;                                                                                                                           
|
| |  | Foreign currency fluctuations;                                                                                                                                           
|
| |  | Tariffs and other trade barriers;                                                                                                                                        
|
| |  | Difficulty in managing international operations;                                                                                                                         
|
| |  | Potential foreign tax consequences, including repatriation of
	earnings;                                                                                                 
|
| |  | Burden of complying with a wide variety of foreign laws and
	regulations;                                                                                                
|
| |  | Unexpected changes in the local and regional political climate
	and the possible reaction to those changes by the international
	community, including economic sanctions;
|
| |  | Risk of increased duties, taxes and governmental royalties; and                                                                                                          
|
| |  | Changes in laws and policies governing operations of
	foreign-based companies.                                                                                           

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

Exposure to Regulatory, Political and General Economic
Conditions in India

A significant element of our business strategy is to expand our
offshore software development centers in India. As of
December 31, 2000, approximately 33% of our workforce was
located in India. We benefit directly from certain incentives
provided by the Indian government to encourage foreign
investment, including tax holidays (temporary exemptions from
taxation on operating income) and liberalized import and export
duties. If the Indian government changes any of these
incentives, it could negatively impact the profitability of our
Indian operations.

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

We Operate in Highly Competitive Markets

The IT services industry is highly competitive, undergoing
consolidation and is served by many national, regional and local
firms, all of which are either existing or potential
competitors. Our primary competitors include:

  Large accounting firms;

  Implementation firms;

  Software applications firms;

  Service groups of computer equipment companies;

  General management consulting firms; and

  Programming companies and temporary staffing firms.

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##### Table of Contents



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

Our Contracts are Short-Term and Contain Termination
Provisions

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

Failure to Properly Manage Growth Could Adversely Affect Our
Business

As a result of our internal growth and acquisition strategy, we
have experienced a rapid increase in the number of branch
locations, the number of employees and revenues. This rapid
growth has placed significant demands on our managerial,
administrative and operational resources. Effective management
of our growth will require us to continue to improve our
operational, financial and other management processes and
systems and to quickly and efficiently integrate businesses we
merge with or acquire. We cannot be sure that we will continue
to grow or that we will be able to manage our growth.

Some of Our Clients May Experience Unique Economic Conditions
that are Specific to Their Particular Industry

We provide services to clients in a wide variety of industries.
Many of the industries are subject to factors and economic
conditions that are unique to the particular industry and may
not be reflected in the overall health of the economy in
general. Our revenue growth and the realizability of our
accounts receivable could be adversely affected if our clients
in these particular industries encounter economic difficulties.
Such difficulties could include:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the inability of participants in the industry to access the
	capital or credit markets;
|
| |  | business slowdowns due to excess inventory; and                                        
|
| |  | shortfalls in demand for the product or service produced by
	particular industry.      

Possible Write-Off of Computer Software Could Adversely
Affect Our Business

As of December 31, 2000 we have remaining net capitalized
software development costs and internally developed computer
software of $2.8 million and $8.6 million,
respectively. If, in subsequent periods, remaining capitalized
software costs exceed the potential revenue or benefit that can
be derived from the software, we would be required under
generally accepted accounting principles to immediately
write-down the asset to its realizable value. The amount of the
write-down in any particular period may be as much as the total
amount of capitalized software development costs carried on our
balance sheet and could have an adverse effect on our results of
operations and financial condition.

See Managements Discussion and Analysis of Financial
Condition and Results of Operations, Restructuring, Merger and
Other Related Charges related to our write-off of assets during
fiscal 2000.

18



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##### Table of Contents



Limited Protection of Intellectual Property Rights

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

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

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

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

Potential Liability to Clients

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

19



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##### Table of Contents



Item 8.  Financial Statement and Supplementary Data

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Complete Business Solutions, Inc.:

We have audited the accompanying consolidated balance sheets of
Complete Business Solutions, Inc. (a Michigan corporation)
(effective February 5, 2001 d/b/a Covansys Corporation) and
subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations,
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2000. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements
referred to above present fairly, in all material respects, the
financial position of Complete Business Solutions, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the
United States.

ARTHUR ANDERSEN LLP

Detroit, Michigan,



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS


|                            |                                           |                        |        |         |         |  |        |        |         | 
|--------------------------- | ----------------------------------------- | ---------------------- | ------ | ------- | ------- |  | ------ | ------ | ------- | 
|                            |                                           |                       
|                            |                                           | December 31,          
|                            |                                           |                       
|                            |                                           | 2000                   |        | 1999   
|                            |                                           |                       
|                            |                                           | (Dollars in thousands)
|ASSETS                      |                                           |                       
|                           
|                           
|                           
|                           
|Current assets:             |                                           |                        |        |         |         |  |        |       
|                           
|                           
|                           
|                           
|                            | Cash and cash equivalents                 |                        | $      | 140,123 |         |  | $      | 91,236 |        
|                           
|                           
|                           
|                           
|                            | Accounts receivable, net                  |                        |        | 82,203  |         |  |        | 85,506 |        
|                           
|                           
|                           
|                           
|                            | Revenue earned in excess of billings, net |                        |        | 22,347  |         |  |        | 18,152 |        
|                           
|                           
|                           
|                           
|                            | Deferred and refundable income taxes      |                        |        | 13,158  |         |  |        | 5,253  |        
|                           
|                           
|                           
|                           
|                            | Prepaid expenses and other                |                        |        | 4,143   |         |  |        | 4,612  |        
|                            |                                           |                        |        |         |         |  |        |       
|                            |                                           | Total current assets   |        |         | 261,974 |  |        |        | 204,759 | 
|                            |                                           |                        |        |         |         |  |        |       
|Property and equipment, net |                                           |                        | 34,169 |         |         |  | 29,836 |       
|                           
|                           
|                           
|                           
|Computer software, net      |                                           |                        | 3,409  |         |         |  | 5,936  |       
|                           
|                           
|                           
|                           
|Goodwill, net               |                                           |                        | 11,398 |         |         |  | 25,209 |       
|                           
|                           
|                           
|                           
|Other assets, net           |                                           |                        | 19,951 |         |         |  | 11,648 |       
|                            |                                           |                        |        |         |         |  |        |       
|                            |                                           | Total assets           |        | $       | 330,901 |  |        | $      | 277,388 | 
|                            |                                           |                        |        |         |         |  |        |       

|                                                                                                                                                    |                                                                                                                                                                     |                                            |         |         |         |  |       |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ----- | ------- | ------- | 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                |                                                                                                                                                                     |                                            |         |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Current liabilities:                                                                                                                                |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Accounts payable                                                                                                                                                    |                                            | $       | 13,715  |         |  | $     | 8,432   |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Accrued payroll and related costs                                                                                                                                   |                                            |         | 27,581  |         |  |       | 26,510  |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Other accrued liabilities                                                                                                                                           |                                            |         | 11,991  |         |  |       | 2,784   |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Deferred revenue                                                                                                                                                    |                                            |         | 1,787   |         |  |       | 982     |        
|                                                                                                                                                    |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|                                                                                                                                                    |                                                                                                                                                                     | Total current liabilities                  |         |         | 55,074  |  |       |         | 38,708  | 
|                                                                                                                                                    |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|Deferred taxes                                                                                                                                      |                                                                                                                                                                     |                                            | 2,969   |         |         |  | 2,095 |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Other liabilities                                                                                                                                   |                                                                                                                                                                     |                                            | 92      |         |         |  | 168   |        
|Commitments and contingencies                                                                                                                       |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Convertible redeemable preferred stock, no par value, 200,000
	and 0 shares issued and outstanding as of December  31,
	2000 and 1999, respectively |                                                                                                                                                                     |                                            | 155,660 |         |         |  |      |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Shareholders equity:                                                                                                                               |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Preferred stock, no par value, 1,000,000 shares authorized,
	200,000 issued as Convertible redeemable preferred stock in 2000
	and 0 issued in 1999                 |                                            |         |        |         |  |       |        |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Common stock, no par value, 200,000,000 shares authorized,
	29,577,428 and 37,494,446 shares issued and outstanding as
	of December 31, 2000 and 1999, respectively |                                            |         |        |         |  |       |        |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Additional paid-in capital                                                                                                                                          |                                            |         | 122,139 |         |  |       | 182,816 |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Retained earnings                                                                                                                                                   |                                            |         | 2,553   |         |  |       | 60,709  |        
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Stock subscriptions receivable                                                                                                                                      |                                            |         | (3,176  | )       |  |       | (5,599  | )      
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Accumulated other comprehensive loss                                                                                                                                |                                            |         | (4,410  | )       |  |       | (1,509  | )      
|                                                                                                                                                    |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|                                                                                                                                                    |                                                                                                                                                                     | Total shareholders equity                 |         |         | 117,106 |  |       |         | 236,417 | 
|                                                                                                                                                    |                                                                                                                                                                     |                                            |         |         |         |  |       |        
|                                                                                                                                                    |                                                                                                                                                                     | Total liabilities and shareholders equity |         | $       | 330,901 |  |       | $       | 277,388 | 
|                                                                                                                                                    |                                                                                                                                                                     |                                            |         |         |         |  |       |        

The accompanying notes are an integral part of these
consolidated balance sheets.

21



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |        |         |         | 
|------------------------------------------------------------------------ | ----------------------------------- | ------------------------------------------- | ------------------------------------------------------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                                                         |                                     |                                            
|                                                                         |                                     | Year Ended December 31,                    
|                                                                         |                                     |                                            
|                                                                         |                                     | 2000                                        |                                                                                       | 1999   |         | 1998   
|                                                                         |                                     |                                            
|                                                                         |                                     | (In thousands, except per share data)      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Revenues                                                                 |                                     | $                                           | 419,641                                                                               |        |         | $       | 443,541 |        |         | $       | 361,667 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cost of revenues:                                                        |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                     | Salaries, wages and employee benefits       |                                                                                       |        | 260,186 |         |         |        | 246,833 |         |         |        | 187,047 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                     | Contractual services                        |                                                                                       |        | 25,982  |         |         |        | 25,732  |         |         |        | 30,268  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                     | Project travel and relocation               |                                                                                       |        | 18,079  |         |         |        | 20,463  |         |         |        | 15,334  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                     | Depreciation and amortization               |                                                                                       |        | 4,052   |         |         |        | 4,143   |         |         |        | 3,850   |        
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Total cost of revenues                                                                |        |         | 308,299 |         |        |         | 297,171 |         |        |         | 236,499 | 
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Gross profit                                                                          |        |         | 111,342 |         |        |         | 146,370 |         |        |         | 125,168 | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                                     |                                             | 143,467                                                                               |        |         |         | 98,645  |        |         |         | 83,233  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Restructuring, merger costs and other                                    |                                     |                                             | 21,507                                                                                |        |         |         | 5,367   |        |         |         | 28,250  |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Income (loss) from continuing operations                                              |        |         | (53,632 | )       |        |         | 42,358  |         |        |         | 13,685  | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other expense (income)                                                   |                                     |                                             | (6,060                                                                                | )      |         |         | (3,737  | )      |         |         | (2,927  | )     
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Income (loss) from continuing operations before provision
	(benefit) for income taxes |        |         | (47,572 | )       |        |         | 46,095  |         |        |         | 16,612  | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Provision (benefit) for income taxes                                     |                                     |                                             | (11,255                                                                               | )      |         |         | 16,283  |        |         |         | 9,962   |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Net income (loss) from continuing operations                                          |        |         | (36,317 | )       |        |         | 29,812  |         |        |         | 6,650   | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income (loss) from discontinued operations, net of income taxes          |                                     |                                             | (1,692                                                                                | )      |         |         | (15     | )      |         |         | 41      |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Gain on sale of discontinued operations, net of income taxes             |                                     |                                             | 6,072                                                                                 |        |         |         |        |        |         |         |        |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Net income (loss)                                                                     |        |         | (31,937 | )       |        |         | 29,797  |         |        |         | 6,691   | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Beneficial conversion feature                                            |                                     |                                             | (23,651                                                                               | )      |         |         |        |        |         |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Convertible redeemable preferred stock dividends                         |                                     |                                             | (2,569                                                                                | )      |         |         |        |        |         |         |        |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     |                                             | Net income (loss) available for common shareholders                                   |        | $       | (58,157 | )       |        | $       | 29,797  |         |        | $       | 6,691   | 
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Basic earnings (loss) per share                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Weighted average shares outstanding |                                             |                                                                                       | 32,892 |         |         |         | 37,267 |         |         |         | 34,414 |        
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Basic earnings (loss) per share from continuing operations               |                                     | $                                           | (1.10                                                                                 | )      |         | $       | 0.80    |        |         | $       | 0.19    |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Basic loss per share from discontinued operations                        |                                     |                                             | (0.05                                                                                 | )      |         |         |        |        |         |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Basic earnings per share from gain on sale of discontinued
	operations   |                                     |                                             | 0.18                                                                                  |        |         |         |        |        |         |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Basic loss per share from beneficial conversion feature and
	dividends   |                                     |                                             | (0.80                                                                                 | )      |         |         |        |        |         |         |        |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Basic earnings (loss) per share                                          |                                     | $                                           | (1.77                                                                                 | )      |         | $       | 0.80    |        |         | $       | 0.19    |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Diluted earnings (loss) per share                                       |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Weighted average shares outstanding |                                             |                                                                                       | 32,892 |         |         |         | 37,267 |         |         |         | 34,414 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Dilutive effect of stock options    |                                             |                                                                                       |       |         |         |         | 945    |         |         |         | 1,797  |        
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Diluted weighted average shares outstanding                              |                                     |                                             | 32,892                                                                                |        |         |         | 38,212  |        |         |         | 36,211  |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Diluted earnings (loss) per share from continuing operations             |                                     | $                                           | (1.10                                                                                 | )      |         | $       | 0.78    |        |         | $       | 0.18    |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted loss per share from discontinued operations                      |                                     |                                             | (0.05                                                                                 | )      |         |         |        |        |         |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted earnings per share from gain on sale of discontinued
	operations |                                     |                                             | 0.18                                                                                  |        |         |         |        |        |         |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted loss per share from beneficial conversion feature and
	dividends |                                     |                                             | (0.80                                                                                 | )      |         |         |        |        |         |         |        |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Diluted earnings (loss) per share                                        |                                     | $                                           | (1.77                                                                                 | )      |         | $       | 0.78    |        |         | $       | 0.18    |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Pro forma information:                                                   |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income (loss) as reported                                            |                                     | $                                           | (58,157                                                                               | )      |         | $       | 29,797  |        |         | $       | 6,691   |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Pro forma incremental income tax benefit                                 |                                     |                                             |                                                                                      |        |         |         |        |        |         |         | (1,417  | )     
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Pro forma net income (loss)                                              |                                     | $                                           | (58,157                                                                               | )      |         | $       | 29,797  |        |         | $       | 8,108   |       
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|Earnings (loss) per share                                               |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                     | Pro forma basic earnings (loss) per share   |                                                                                       | $      | (1.77   | )       |         | $      | 0.80    |         |         | $      | 0.24    |        
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       
|                                                                         |                                     | Pro forma diluted earnings (loss) per share |                                                                                       | $      | (1.77   | )       |         | $      | 0.78    |         |         | $      | 0.22    |        
|                                                                         |                                     |                                             |                                                                                       |        |         |         |         |        |         |         |         |       

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

22



---



##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |          |  
|--------------------------- | ----------------------------------------------------------- | ---------------------- | ---------- | ---------- | - | -------- | ------- | ------------- | - | ------------- | ------ | ------------- | - | - | ------ | ------ | - | - | ------ | ------ | - | - | ------- | -------- | -
|                            |                                                             |                        |            |            |   |          |         |               |   | Accumulated   |        |              
|                            |                                                             | Common                 |            | Additional |   |          |         | Stock         |   | Other         |        | Total        
|                            |                                                             | Stock                  |            | Paid-in    |   | Retained |         | Subscriptions |   | Comprehensive |        | Shareholders
|                            |                                                             | Outstanding            |            | Capital    |   | Earnings |         | Receivable    |   | Loss          |        | Equity       
|                            |                                                             |                       
|                            |                                                             | (Dollars in thousands)
|                           
|                           
|                           
|                           
|Balance  December 31, 1997 |                                                             |                        | 33,056,759 |            |   | $        | 108,671 |               |   | $             | 19,822 |               |   | $ | (2,503 | )      |   | $ | (664   | )      |   | $ | 125,326 |         
|                           
|                           
|                           
|                           
|                            | Net income                                                  |                        |            |           |   |          |         |              |   |               |        | 6,691         |   |   |        |       |   |   |        |       |   |   |         | 6,691    |  
|                           
|                           
|                           
|                           
|                            | Currency translation adjustment (loss)                      |                        |            |           |   |          |         |              |   |               |        |              |   |   |        |       |   |   |        | (433   | ) |   |         | (433     | )
|                           
|                           
|                           
|                           
|                            | Stock options exercised                                     |                        |            | 1,598,768  |   |          |         | 9,541         |   |               |        |              |   |   |        | (5,015 | ) |   |        |       |   |   |         | 4,526    |  
|                           
|                           
|                           
|                           
|                            | Repayment of stock subscriptions receivable                 |                        |            |           |   |          |         |              |   |               |        |              |   |   |        | 1,439  |   |   |        |       |   |   |         | 1,439    |  
|                           
|                           
|                           
|                           
|                            | Issuances of common stock                                   |                        |            | 21,769     |   |          |         | 389           |   |               |        |              |   |   |        |       |   |   |        |       |   |   |         | 389      |  
|                           
|                           
|                           
|                           
|                            | Distributions to shareholders                               |                        |            |           |   |          |         |              |   |               |        | (133          | ) |   |        |       |   |   |        |       |   |   |         | (133     | )
|                           
|                           
|                           
|                           
|                            | Recapitalization                                            |                        |            |           |   |          |         | (3,484        | ) |               |        | 3,484         |   |   |        |       |   |   |        |       |   |   |         |         |  
|                           
|                           
|                           
|                           
|                            | Adjustment for pooling of interests                         |                        |            | 185,346    |   |          |         | 2,473         |   |               |        | 1,048         |   |   |        |       |   |   |        | (171   | ) |   |         | 3,350    |  
|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |         
|Balance  December 31, 1998 |                                                             |                        | 34,862,642 |            |   |          | 117,590 |               |   |               | 30,912 |               |   |   | (6,079 | )      |   |   | (1,268 | )      |   |   | 141,155 |         
|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |         
|                            | Net income                                                  |                        |            |           |   |          |         |              |   |               |        | 29,797        |   |   |        |       |   |   |        |       |   |   |         | 29,797   |  
|                           
|                           
|                           
|                           
|                            | Currency translation adjustment (loss)                      |                        |            |           |   |          |         |              |   |               |        |              |   |   |        |       |   |   |        | (241   | ) |   |         | (241     | )
|                           
|                           
|                           
|                           
|                            | Stock options exercised                                     |                        |            | 683,741    |   |          |         | 6,753         |   |               |        |              |   |   |        | (3,702 | ) |   |        |       |   |   |         | 3,051    |  
|                           
|                           
|                           
|                           
|                            | Repayment of stock subscriptions receivable                 |                        |            |           |   |          |         |              |   |               |        |              |   |   |        | 4,182  |   |   |        |       |   |   |         | 4,182    |  
|                           
|                           
|                           
|                           
|                            | Issuances of common stock                                   |                        |            | 2,302,063  |   |          |         | 63,686        |   |               |        |              |   |   |        |       |   |   |        |       |   |   |         | 63,686   |  
|                           
|                           
|                           
|                           
|                            | Repurchases of common stock                                 |                        |            | (354,000   | ) |          |         | (5,213        | ) |               |        |              |   |   |        |       |   |   |        |       |   |   |         | (5,213   | )
|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |         
|Balance  December 31, 1999 |                                                             |                        | 37,494,446 |            |   |          | 182,816 |               |   |               | 60,709 |               |   |   | (5,599 | )      |   |   | (1,509 | )      |   |   | 236,417 |         
|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |         
|                            | Net loss                                                    |                        |            |           |   |          |         |              |   |               |        | (31,937       | ) |   |        |       |   |   |        |       |   |   |         | (31,937  | )
|                           
|                           
|                           
|                           
|                            | Currency translation adjustment (loss)                      |                        |            |           |   |          |         |              |   |               |        |              |   |   |        |       |   |   |        | (2,901 | ) |   |         | (2,901   | )
|                           
|                           
|                           
|                           
|                            | Stock options exercised                                     |                        |            | 420,103    |   |          |         | 4,193         |   |               |        |              |   |   |        | (1,005 | ) |   |        |       |   |   |         | 3,188    |  
|                           
|                           
|                           
|                           
|                            | Repayment of stock subscriptions receivable                 |                        |            |           |   |          |         |              |   |               |        |              |   |   |        | 3,428  |   |   |        |       |   |   |         | 3,428    |  
|                           
|                           
|                           
|                           
|                            | Issuances of common stock                                   |                        |            | 76,479     |   |          |         | 724           |   |               |        |              |   |   |        |       |   |   |        |       |   |   |         | 724      |  
|                           
|                           
|                           
|                           
|                            | Beneficial conversion feature                               |                        |            |           |   |          |         |              |   |               |        | (23,651       | ) |   |        |       |   |   |        |       |   |   |         | (23,651  | )
|                           
|                           
|                           
|                           
|                            | Issuance of warrants                                        |                        |            |           |   |          |         | 56,306        |   |               |        |              |   |   |        |       |   |   |        |       |   |   |         | 56,306   |  
|                           
|                           
|                           
|                           
|                            | Convertible redeemable preferred stock dividend             |                        |            |           |   |          |         |              |   |               |        | (2,568        | ) |   |        |       |   |   |        |       |   |   |         | (2,568   | )
|                           
|                           
|                           
|                           
|                            | Receipt of common stock for sale of discontinued operations |                        |            | (750,000   | ) |          |         | (10,080       | ) |               |        |              |   |   |        |       |   |   |        |       |   |   |         | (10,080  | )
|                           
|                           
|                           
|                           
|                            | Repurchases of common stock                                 |                        |            | (7,663,600 | ) |          |         | (111,820      | ) |               |        |              |   |   |        |       |   |   |        |       |   |   |         | (111,820 | )
|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |         
|Balance  December 31, 2000 |                                                             |                        | 29,577,428 |            |   | $        | 122,139 |               |   | $             | 2,553  |               |   | $ | (3,176 | )      |   | $ | (4,410 | )      |   | $ | 117,106 |         
|                            |                                                             |                        |            |            |   |          |         |               |   |               |        |               |   |   |        |        |   |   |        |        |   |   |         |         

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

23



---



##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |         |        |         |         |  
|------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                                                                                                |                                                                                    |                                                          
|                                                                                                                                |                                                                                    | Year Ended December 31,                                  
|                                                                                                                                |                                                                                    |                                                          
|                                                                                                                                |                                                                                    | 2000                                                      |                                                               | 1999                                                                          |         | 1998   
|                                                                                                                                |                                                                                    |                                                          
|                                                                                                                                |                                                                                    | (Dollars in thousands)                                   
|Cash flows from (used in) operating activities                                                                                 |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Net income (loss)                                                                                                               |                                                                                    | $                                                         | (31,937                                                       | )                                                                             |         | $       | 29,797  |         |        | $       | 6,691   |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Adjustments to reconcile net income (loss) to net cash provided
	by (used in) operating activities from continuing
	operations: |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Depreciation and amortization                             |                                                               |                                                                               | 11,967  |         |         |         | 10,323 |         |         |         | 7,450  |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Provision for doubtful accounts                           |                                                               |                                                                               | 19,849  |         |         |         | 1,144  |         |         |         | 1,100  |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Writedown of goodwill, computer software and other assets |                                                               |                                                                               | 23,481  |         |         |         |       |         |         |         | 15,649 |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Provision (benefit) for deferred taxes                    |                                                               |                                                                               | (7,031  | )       |         |         | 6,319  |         |         |         | (8,343 | )      
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Loss (income) from discontinued operations                |                                                               |                                                                               | 1,692   |         |         |         | 15     |         |         |         | (41    | )      
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Non-cash gain on sale of discontinued operations          |                                                               |                                                                               | (10,106 | )       |         |         |       |         |         |         |       |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Change in assets and liabilities:                         |                                                               |                                                                               |         |         |         |         |        |         |         |         |        |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    |                                                           | Accounts receivable and revenue earned in excess of billings  |                                                                               |         | (20,741 | )       |         |        | (20,735 | )       |         |        | (22,739 | )      
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    |                                                           | Prepaid expenses and other assets                             |                                                                               |         | (804    | )       |         |        | 1,771   |         |         |        | (925    | )      
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    |                                                           | Accounts payable, accrued payroll and related costs and other |                                                                               |         | 9,675   |         |         |        | (13,994 | )       |         |        | 13,852  |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    |                                                           | Deferred revenue                                              |                                                                               |         | 637     |         |         |        | (2,169  | )       |         |        | 1,674   |        
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                                |                                                                                    |                                                           |                                                               | Net cash provided by (used in) operating activities of
	continuing operations |         |         | (3,318  | )       |        |         | 12,471  |         |        |         | 14,368  |  
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|Cash flows from investing activities                                                                                           |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Investment in property, equipment and other                                        |                                                           |                                                               | (11,895                                                                       | )       |         |         | (15,702 | )      |         |         | (10,531 | )     
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Investment in computer software                                                    |                                                           |                                                               | (3,580                                                                        | )       |         |         | (8,395  | )      |         |         | (1,510  | )     
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Business acquisitions and investments, net of cash acquired                        |                                                           |                                                               | (11,653                                                                       | )       |         |         | (21,048 | )      |         |         | (4,241  | )     
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                                |                                                                                    |                                                           |                                                               | Net cash used in investing activities of continuing operations                |         |         | (27,128 | )       |        |         | (45,145 | )       |        |         | (16,282 | )
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|Cash flows from financing activities                                                                                           |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Net payments on revolving credit facility and long-term debt                       |                                                           |                                                               |                                                                              |         |         |         |        |        |         |         | (4,471  | )     
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Net proceeds from issuances of common stock and other                              |                                                           |                                                               | 724                                                                           |         |         |         | 61,186  |        |         |         | 389     |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Net proceeds from issuance of convertible redeemable preferred
	stock and warrants |                                                           |                                                               | 185,747                                                                       |         |         |         |        |        |         |         |        |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | S corporation distributions                                                        |                                                           |                                                               |                                                                              |         |         |         |        |        |         |         | (1,093  | )     
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Net proceeds from exercise of stock options, net of tax benefit                    |                                                           |                                                               | 6,616                                                                         |         |         |         | 7,233   |        |         |         | 5,965   |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Repurchases of common stock                                                        |                                                           |                                                               | (111,820                                                                      | )       |         |         | (5,213  | )      |         |         |        |       
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                                |                                                                                    |                                                           |                                                               | Net cash provided by financing activities of continuing
	operations           |         |         | 81,267  |         |        |         | 63,206  |         |        |         | 790     |  
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|Cash used in discontinued operations and effect of exchange rate
	changes on cash                                               |                                                                                    |                                                           | (1,934                                                        | )                                                                             |         |         | (28     | )       |        |         | (5      | )      
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|Increase (decrease) in cash and cash equivalents                                                                                |                                                                                    |                                                           | 48,887                                                        |                                                                               |         |         | 30,504  |         |        |         | (1,129  | )      
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Cash and cash equivalents at beginning of period                                                                                |                                                                                    |                                                           | 91,236                                                        |                                                                               |         |         | 60,732  |         |        |         | 61,861  |        
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|Cash and cash equivalents at end of period                                                                                      |                                                                                    | $                                                         | 140,123                                                       |                                                                               |         | $       | 91,236  |         |        | $       | 60,732  |        
|                                                                                                                                |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|Supplemental disclosures of cash flow information:                                                                              |                                                                                    |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Cash paid during the period for:                                                   |                                                           |                                                               |                                                                               |         |         |         |         |        |         |         |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Interest                                                  |                                                               | $                                                                             |        |         |         | $       |       |         |         | $       | 128    |        
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                    | Income taxes                                              |                                                               | $                                                                             | 4,224   |         |         | $       | 17,594 |         |         | $       | 12,153 |        

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

24



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per share data)

1.  Organization and Summary of Significant Accounting
Policies

Operations

Complete Business Solutions, Inc. was founded in 1985. Complete
Business Solutions, Inc. and its subsidiaries (the Company)
provide information technology (IT) services worldwide to large
and mid-size organizations. The Company offers its clients a
focused range of IT services specializing in Web-to-Enterprise
Integration (WEIsm), industry-solutions and strategic
outsourcing. The Companys range of experience runs from
advising clients on IT business strategy and strategic
technology plans to developing and implementing appropriate IT
applications solutions.

In February 2001, the Company began doing business under the
name Covansys Corporation.

Principles of
Consolidation and Organization

The consolidated financial statements include the accounts of
the Company and all of its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial statements.

In April 1999, the Company closed a Stock Purchase Agreement for
the purchase of all of the outstanding common stock of
E-Business Solutions.com, Inc. (EBS), formerly
Impact Innovations Group, Inc. from Medaphis Corporation. The
acquisition of EBS was accounted for by the purchase method of
accounting, and accordingly, the operating results of EBS have
been included in the consolidated statements of operations,
shareholders equity, and cash flows since the date of the
acquisition.

In July 1998, the Company closed an Agreement and Plan of Merger
with Claremont Technology Group, Inc. (Claremont), a publicly
held Oregon corporation. The merger with Claremont was accounted
for by the pooling of interests method of accounting, and
accordingly, the accompanying consolidated balance sheets and
statements of operations, shareholders equity and cash
flows have been retroactively restated. Claremont had a fiscal
year end of June 30. The consolidated statements of
operations, shareholders equity, cash flows and footnote
information for the year ended December 31, 1998 combine
the Companys and Claremonts results for the year
ended December 31, 1998. As a result of these pooling of
interests period combinations, an adjustment has been included
in the consolidated statements of shareholders equity to
adjust all components of shareholders equity to their
respective balances as of December 31, 1998.

In January 1998, the Company closed an Agreement and Plan of
Merger with c.w. Costello & Associates, inc.
(Costello), a privately held Delaware corporation. The merger
with Costello was accounted for by the pooling of interests
method of accounting, and accordingly, the accompanying
consolidated balance sheets and statements of operations,
shareholders equity and cash flows have been retroactively
restated.

Foreign Currency and
Comprehensive Income (Loss)

For significant foreign operations, the local currencies have
been designated as the functional currencies. The financial
statements of these subsidiaries are translated into U.S.
dollars using exchange rates in effect at year end for assets
and liabilities and at the average exchange rate during the year
for revenues and expenses. The resulting foreign currency
translation adjustment is reflected as a separate component of
shareholders equity as of December 31, 2000 and 1999
and represents the only component of accumulated other
comprehensive loss.

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

25



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Comprehensive income (loss) was $(34,838), $29,556 and $6,087
for the years ended December 31, 2000, 1999 and 1998,
respectively.

Cash and Cash
Equivalents

Cash and cash equivalents include investments in highly liquid
money market funds and commercial paper.

Financial Instruments

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

Investments

The Company accounts for investments in common stock on the cost
method. The Company continually evaluates whether events and
circumstances have occurred that indicate a decline in the
market value of the common stock is judged to be other than
temporary. When factors indicate that the decline in market
value is other than temporary, the cost basis is written down to
fair market value.

In the third and fourth quarter of 2000, the Company determined
that certain investments in the technology sector had
experienced declines in market value which were judged to be
other than temporary. As a result, the Company recorded an
adjustment of approximately $3,773 to reduce these investments
to their estimated fair market value. This write-down is
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.

Goodwill

Goodwill represents the excess of cost over the net tangible and
identifiable intangible assets related to businesses acquired
and the acquisition of shares of a subsidiary. Goodwill is
carried at cost, less accumulated amortization, and is amortized
on a straight-line basis over periods ranging from 20 to 30
years. The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that
the remaining balance may not be recoverable. When factors
indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related
businesss undiscounted cash flow over the remaining life
of the goodwill in measuring whether the goodwill is recoverable.

In the fourth quarter of 2000, the Company determined that the
goodwill that originated from certain of its acquisitions was
impaired due to the Companys strategic decision to refocus
its service offerings and eliminate certain product line
offerings on a Company-wide basis. As a result, the Company
estimated the present value of expected future cash flows
related to this goodwill and recorded an adjustment of
approximately $15,292 to reduce these assets to their estimated
fair value. This write-down is included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations.

Goodwill amortization was $858, $951 and $331 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Accumulated amortization at December 31, 2000 and 1999 was
$3,240 and $2,382, respectively.

Property and
Equipment

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

The American Institute of Certified Public Accountants has
issued Statement of Position (SOP) 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires

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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


entities to capitalize and amortize certain costs and currently
expense certain other costs incurred for software developed or
obtained for internal use. Internally developed computer
software is recorded at cost and includes purchased, internally
developed and externally developed software to be used in the
Companys operations.

Revenue Recognition

The Company recognizes professional service fee revenue on
time-and-materials contracts as the services are performed.

Revenues on fixed-priced contracts are recognized using the
percentage of completion method. The percentage of completion is
determined by relating the actual cost of work performed to date
to the estimated total cost for each contract. If the estimate
indicates a loss on a particular contract, a provision is made
for the entire estimated loss without reference to the
percentage of completion. Retainages, which are not material for
any of the years presented, are included in accounts receivable
in the accompanying consolidated balance sheets. Revenue earned
in excess of billings is comprised of revenue recognized on
certain contracts in excess of contractual billings on such
contracts. Billings in excess of revenue earned are classified
as deferred revenue.

Computer Software

The Company performs research to develop software for various
business applications. The costs of such research are charged to
expense when incurred. When the technological feasibility of the
product is established, subsequent costs are capitalized.
Capitalized software costs are amortized on a product-by-product
basis. Amortization is recorded on the straight-line method over
the estimated economic life of the product, generally three
years to five years, commencing when such product is available.
The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs requires
considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated
future gross product revenue, estimated economic product lives
and changes in software and hardware technology. These
assumptions are reevaluated and adjusted as necessary at the end
of each accounting period. On an ongoing basis, management
reviews the valuation and amortization of capitalized
development costs. As part of this review, the Company considers
the value of future cash flows attributable to the capitalized
development costs in evaluating potential impairment of the
asset. The amortization of software development costs was
$1,245, $1,076 and $1,583 for the years ended December 31,
2000, 1999 and 1998, respectively.

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

Accumulated amortization on computer software amounted to $6,990
and $6,103 as of December 31, 2000 and 1999, respectively.

Amounts capitalized were $748, $2,387 and $1,510 for the years
ended December 31, 2000, 1999 and 1998, respectively.

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

Use of Estimates in the
Preparation of Financial Statements

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

27



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Income Taxes

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

Net Loss Per Share

Basic and diluted net loss per share is computed in accordance
with SFAS No. 128, Earnings Per Share, by
dividing the net loss allocable to common shareholders by the
weighted average number of shares of common stock outstanding.
For the year 2000, the effect of convertible redeemable
preferred stock, stock options and warrants outstanding for the
purchase of shares of common stock has not been used in the
calculation of diluted net loss per share because to do so would
be anti-dilutive. As such, the numerator and the denominator
used in computing both basic and diluted net loss per share
allocable to common stockholders are equal. The total number of
shares excluded from the calculations of diluted net loss per
share, prior to application of the treasury stock method,
was 5,473,763.

New Accounting
Pronouncements

The Company adopted Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25, effective July 1, 2000.
There was no impact on the Companys consolidated financial
position or results of operations.

The Company adopted Securities and Exchange Commission Staff
Accounting Bulletin No. 101, Revenue
Recognition, effective October 1, 2000. There was no
impact on the Companys consolidated financial position or
results of operations.

Reclassifications

Certain reclassifications have been made to the 1999 and 1998
consolidated financial statements to conform with the 2000
presentation.

2.  Common Stock Offerings

In February 1999, the Company completed an offering of 5,400,000
shares of its Common Stock at a price of $31 per share. This
offering consisted of 2,135,000 shares of newly issued Common
Stock and 3,265,000 shares sold by selling shareholders. After
underwriting discounts, commissions and other issuance costs,
net proceeds to the Company from the sale of the newly issued
shares in this offering were approximately $60,000.

3.  Common Stock Repurchase Program

In fiscal 2000 and 1999, the Companys board of directors
has authorized the repurchase of up to 12,000,000 shares of the
Companys Common Stock. During the years ended
December 31, 2000 and 1999, the Company repurchased
7,663,600 and 354,000 shares, for cash, at a total cost of
$111,820 and $5,213, respectively.

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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


4.  Mergers and Acquisitions

On April 20, 1999, the Company acquired all of the outstanding
capital stock of EBS for approximately $15,000. The aggregate
purchase price, which was funded through available working
capital, has been allocated to the assets based upon their
respective fair values.

For the year ended December 31, 1998, assuming the
acquisition of EBS occurred at the beginning of the period,
proforma revenues, income from continuing operations and diluted
earnings per share from operations would have been $406,076,
$2,282 and $.06 respectively. These results include certain
adjustments, primarily to eliminate the businesses of EBS that
were not acquired, amortization of goodwill and income taxes,
and are not necessarily indicative of what the results would
have been had the transaction actually occurred at the beginning
of the period. The proforma impact of the acquisition on results
of operations was not significant for the year ended
December 31, 1999.

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

Unaudited summarized results of operations and other changes in
shareholders equity of the previously separate entities
for the six month period ended June 30, 1998 are as follows:

|                                                                                          |  |                   |         |            |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------- |  | - | ------- | -
|                                                                                          |  | Complete Business |         |           
|                                                                                          |  | Solutions, Inc.   |         | Claremont 
|                                                                                          |  | (including        |         | Technology
|                                                                                          |  | Costello)         |         | Group Inc.
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Revenues                                                                                  |  | $                 | 121,149 |            |  | $ | 46,317  |  
|                                                                                          |  |                   |         |            |  |   |         |  
|Gross profit                                                                              |  | $                 | 37,990  |            |  | $ | 19,017  |  
|                                                                                          |  |                   |         |            |  |   |         |  
|Income (loss) from operations                                                             |  | $                 | 10,904  |            |  | $ | (13,160 | )
|                                                                                          |  |                   |         |            |  |   |         |  
|Net (loss) income                                                                         |  | $                 | 6,282   |            |  | $ | (10,056 | )
|                                                                                          |  |                   |         |            |  |   |         |  
|Other significant changes to shareholders equity S 
	Corporation distributions and other |  | $                 | 133     |            |  | $ |        |  
|                                                                                          |  |                   |         |            |  |   |         |  

On January 27, 1998, the Company closed a merger agreement
with Costello. This merger agreement provided for all of the
outstanding Costello common stock to be exchanged for
approximately 3,363,000 shares of the Companys common
stock. See Note 11.

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

5.  Accounts Receivable and Credit Risk

The allowance for doubtful accounts is as follows:

|                                     |  |      |        |      |  |      |       |   |  |   |       |  
|------------------------------------ |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                     |  | 2000 |        | 1999 |  | 1998
|                                    
|                                    
|                                    
|                                    
|Balance  beginning of period        |  | $    | 4,204  |      |  | $    | 2,245 |   |  | $ | 1,155 |  
|                                    
|                                    
|                                    
|                                    
|Provision                            |  |      | 19,849 |      |  |      | 1,144 |   |  |   | 1,100 |  
|                                    
|                                    
|                                    
|                                    
|Charge-offs                          |  |      | (6,400 | )    |  |      | (592  | ) |  |   | (10   | )
|                                    
|                                    
|                                    
|                                    
|Allowance related to EBS acquisition |  |      |       |      |  |      | 1,407 |   |  |   |      |  
|                                     |  |      |        |      |  |      |       |   |  |   |       |  
|Balance  end of period              |  | $    | 17,653 |      |  | $    | 4,204 |   |  | $ | 2,245 |  
|                                     |  |      |        |      |  |      |       |   |  |   |       |  

The Company grants credit to clients based upon
managements assessment of their creditworthiness.
Substantially all of the Companys receivables are from
large and mid-size companies, major systems integrators and
governmental agencies.

29



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


During the year ended December 31, 2000, the Company
recorded a $18,730 provision to write-down certain accounts
receivable, significantly due to dot.com companies which had
become uncollectible. The Company believes that its accounts
receivable from dot.com companies at December 31, 2000 is
not material and are reflected on the consolidated balance sheet
at their net realizable value.

6.  Property and Equipment

As of December 31, 2000 and 1999, property and equipment
consisted of the following:

|                                                         |  |              |         |           |  |       |         |   |  |  |           | 
|-------------------------------------------------------- |  | ------------ | ------- | --------- |  | ----- | ------- | - |  |  | --------- | 
|                                                         |  |              |         |          
|                                                         |  | December 31, |         | Estimated
|                                                         |  |              |         | Useful   
|                                                         |  | 2000         |         | 1999      |  | Lives
|                                                        
|                                                        
|                                                        
|                                                        
|Equipment and purchased software                         |  | $            | 45,333  |           |  | $     | 36,961  |   |  |  | 3-5 years | 
|                                                        
|                                                        
|                                                        
|                                                        
|Internally developed computer software and related costs |  |              | 8,639   |           |  |       | 5,808   |   |  |  | 10 years  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Furniture and fixtures                                   |  |              | 6,509   |           |  |       | 5,967   |   |  |  | 5-7 years | 
|                                                        
|                                                        
|                                                        
|                                                        
|Leasehold improvements                                   |  |              | 5,550   |           |  |       | 4,179   |   |  |  | 5-7 years | 
|                                                        
|                                                        
|                                                        
|                                                        
|Automobiles                                              |  |              | 902     |           |  |       | 834     |   |  |  | 5 years   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Buildings                                                |  |              | 641     |           |  |       | 683     |   |  |  | 31 years  | 
|                                                         |  |              |         |           |  |       |         |   |  |  |           | 
|                                                         |  |              | 67,574  |           |  |       | 54,432  |   |  |  |           | 
|                                                        
|                                                        
|                                                        
|                                                        
|Accumulated depreciation                                 |  |              | (33,405 | )         |  |       | (24,596 | ) |  |  |           | 
|                                                         |  |              |         |           |  |       |         |   |  |  |           | 
|Property and equipment, net                              |  | $            | 34,169  |           |  | $     | 29,836  |   |  |  |           | 
|                                                         |  |              |         |           |  |       |         |   |  |  |           | 

Depreciation expense was $11,967, $10,323 and $7,450 for the
years ended December 31, 2000, 1999 and 1998, respectively.

7.  Related Party Transactions

During the year ended December 31, 2000, the Company sold
Synova, Inc. (Synova), its contract programming services
subsidiary, to a related party. See Note 18.

The Company paid approximately $333 to Clayton, Dubilier &
Rice, Inc. for financial and management advisory services for
the year ended December 31, 2000.

The Company paid approximately $1,422, $856, and $654 for the
years ended December 31, 2000, 1999 and 1998, respectively,
for consulting services provided by an affiliate of an outside
director.

8.  Revolving Credit Facility

Under a credit arrangement with a commercial bank, the Company
may borrow an amount not to exceed $30,000 at the banks
prime interest rate, or LIBOR plus 1 1/4%. Borrowings under
the facility are short-term, payable on demand and are secured
by trade accounts receivable and equipment of the Company. There
were no amounts outstanding under this agreement at
December 31, 2000 and 1999. The credit agreement contains
various restrictive covenants which, among other items, require
the Company to maintain certain levels of tangible net worth, a
debt to earnings ratio, and a funded debt to capitalization
ratio.

9.  Self-Insurance

The Company is self-insured for health and dental benefits up to
$100, per occurrence. Insurance coverage is carried for risks in
excess of this amount. The Company recognized health and dental
benefits expense of approximately $10,805, $10,478, and $6,475
for the years ended December 31, 2000, 1999 and 1998,
respectively. Estimated claims incurred but not reported were
$3,100 and $2,250 as of December 31, 2000 and 1999,
respectively, and are included in other accrued liabilities in
the accompanying consolidated balance sheets.

30



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


10.  Leases

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

Rent expense for the years ended December 31, 2000, 1999
and 1998 amounted to approximately $10,120, $7,845, and $5,516,
respectively. The future minimum lease payments required under
these operating leases for the years ending December 31,
are as follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|          
|          
|          
|          
|2001       |  | $ | 7,886  | 
|          
|          
|          
|          
|2002       |  |   | 6,173  | 
|          
|          
|          
|          
|2003       |  |   | 4,841  | 
|          
|          
|          
|          
|2004       |  |   | 3,851  | 
|          
|          
|          
|          
|2005       |  |   | 3,354  | 
|          
|          
|          
|          
|Thereafter |  |   | 6,878  | 
|           |  |   |        | 
|           |  | $ | 32,983 | 
|           |  |   |        | 

During the year ended December 31, 2000, the Company made
decisions to close certain regional offices. See Note 19.

11.  Stock Options

The Company maintains a Stock Option Plan (the Plan). Under the
Plan, eligible employees and directors may be granted either
Incentive Stock Options (ISOs) or Non-Incentive Stock Options
(NISOs) at the discretion of the Compensation Committee of the
Board of Directors. At December 31, 2000 there are
13,247,454 shares of Common Stock authorized for grant under the
Plan. Options under the Plan are granted at fair value on the
date of grant. The options vest over periods determined by the
Compensation Committee of the Board of Directors. As a result of
the merger with Claremont, as discussed in Note 4,
outstanding Claremont stock options as of July 24, 1998
were converted into approximately 1,225,000 options of the
Company. These options retained their original terms and vesting
periods.

The Plan agreements provide for the option holder to exercise
the options in exchange for cash, or a promissory note payable
to the Company over a period of up to five years for NISOs and
up to two years for ISOs. These notes are full recourse and bear
interest at the prime rate of interest determined at the date of
exercise. Interest on the loans is payable every six months.

The Company has elected to provide the pro forma disclosures, as
permitted under the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation
(SFAS No. 123). Accordingly, no
additional compensation expense has been recognized for the Plan
within the accompanying consolidated statements of operations.
Had compensation expense for the Plan been determined based on
the fair value at the grant date for awards in 2000, 1999 and
1998 consistent with the provisions of SFAS No. 123, the
Companys pro forma net income (loss) from continuing
operations and pro forma diluted earnings (loss) per common
share would have been reduced to the amounts indicated below:

|                                                              |                        |      |   |         |   |      |   |        |  |  |   |       | 
|------------------------------------------------------------- | ---------------------- | ---- | - | ------- | - | ---- | - | ------ |  |  | - | ----- | 
|                                                              |                        | 2000 |   | 1999    |   | 1998
|                                                             
|                                                             
|                                                             
|                                                             
|Net income (loss) from continuing operations:                 |                        |      |   |         |   |      |   |        |  |  |   |      
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | As reported            |      | $ | (36,317 | ) |      | $ | 29,812 |  |  | $ | 6,650 | 
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | SFAS No. 123 pro forma |      | $ | (48,514 | ) |      | $ | 23,586 |  |  | $ | 1,659 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Diluted earnings (loss) per share from continuing operations: |                        |      |   |         |   |      |   |        |  |  |   |      
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | As reported            |      | $ | (1.10   | ) |      | $ | 0.78   |  |  | $ | 0.18  | 
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | SFAS No. 123 pro forma |      | $ | (1.47   | ) |      | $ | 0.62   |  |  | $ | 0.05  | 

31



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


A summary of option activity, restated for 1998 to give effect
to the mergers with Costello and Claremont, is as follows:

|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|-------------------------- |  | ------------------- | ------ | ---------------- |  | ----------- | ----- | ---------------- |  |  | ----- |  |  | - | ----- | 
|                           |  |                     |        |                  |  |            
|                           |  | Options Outstanding |        |                  |  |            
|                           |  |                     |        |                  |  |            
|                           |  |                     |        | Weighted Average |  | Options     |       | Weighted Average
|                           |  | Shares              |        | Exercise Price   |  | Exercisable |       | Fair Value of   
|                           |  | (in thousands)      |        |                  |  |             |       | Options Granted 
|                          
|                          
|                          
|                          
|Balance, December 31, 1997 |  |                     | 4,219  |                  |  | $           | 7.62  |                  |  |  | 1,114 |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Options granted            |  |                     | 2,107  |                  |  |             | 23.84 |                  |  |  |       |  |  | $ | 16.35 | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Options exercised          |  |                     | (1,784 | )                |  |             | 4.59  |                  |  |  |       |  |  |   |       | 
|                          
|                          
|                          
|                          
|Options cancelled          |  |                     | (515   | )                |  |             | 18.62 |                  |  |  |       |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Balance, December 31, 1998 |  |                     | 4,027  |                  |  | $           | 16.53 |                  |  |  | 880   |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Options granted            |  |                     | 2,393  |                  |  |             | 15.22 |                  |  |  |       |  |  | $ | 10.08 | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Options exercised          |  |                     | (684   | )                |  |             | 7.59  |                  |  |  |       |  |  |   |       | 
|                          
|                          
|                          
|                          
|Options cancelled          |  |                     | (1,085 | )                |  |             | 19.97 |                  |  |  |       |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Balance, December 31, 1999 |  |                     | 4,651  |                  |  | $           | 16.37 |                  |  |  | 975   |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Options granted            |  |                     | 4,382  |                  |  |             | 22.02 |                  |  |  |       |  |  | $ | 11.97 | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Options exercised          |  |                     | (349   | )                |  |             | 9.14  |                  |  |  |       |  |  |   |       | 
|                          
|                          
|                          
|                          
|Options cancelled          |  |                     | (1,521 | )                |  |             | 18.27 |                  |  |  |       |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 
|Balance, December 31, 2000 |  |                     | 7,163  |                  |  | $           | 18.33 |                  |  |  | 1,608 |  |  |   |       | 
|                           |  |                     |        |                  |  |             |       |                  |  |  |       |  |  |   |       | 

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions used for the 2000, 1999 and 1998 grants:
risk-free rate of interest of 6.2%, 5.6% and 5.5% in 2000, 1999
and 1998, respectively, dividend yield of 0%, and expected lives
of 4 to 5 years. A volatility factor of 87%, 87% and 93%
was used in 2000, 1999 and 1998, respectively.

A summary of options outstanding at December 31, 2000, is
as follows:

|               |  |  |       |                     |  |                     |      |          |  |                |       |          |  |  |     |  |  |   |       |  |  |  |  | 
|-------------- |  |  | ----- | ------------------- |  | ------------------- | ---- | -------- |  | -------------- | ----- | -------- |  |  | --- |  |  | - | ----- |  |  |  |  | 
|               |  |  |       |                     |  |                    
|               |  |  |       | Options Outstanding |  | Options Exercisable
|               |  |  |       |                     |  |                    
|               |  |  |       |                     |  | Weighted            |      |          |  |               
|               |  |  |       | Number              |  | Average             |      | Weighted |  | Number         |       | Weighted
|               |  |  |       | Outstanding at      |  | Remaining           |      | Average  |  | Exercisable at |       | Average 
|Range of       |  |  |       | December 31,        |  | Contractual         |      | Exercise |  | December 31,   |       | Exercise
|Exercise Price |  |  |       | 2000                |  | Life                |      | Price    |  | 2000           |       | Price   
|              
|              
|              
|              
|$ 0.01 -  6.00 |  |  | 125   |                     |  |                     | 4.75 |          |  | $              | 4.33  |          |  |  | 115 |  |  | $ | 4.19  | 
|              
|              
|              
|              
|$ 6.01 - 14.99 |  |  | 2,257 |                     |  |                     | 8.23 |          |  | $              | 13.04 |          |  |  | 886 |  |  | $ | 13.39 | 
|              
|              
|              
|              
|$15.00 - 19.34 |  |  | 760   |                     |  |                     | 7.21 |          |  | $              | 17.40 |          |  |  | 246 |  |  | $ | 17.68 | 
|              
|              
|              
|              
|$19.35 - 22.89 |  |  | 3,655 |                     |  |                     | 9.07 |          |  | $              | 21.33 |          |  |  | 169 |  |  | $ | 22.75 | 
|              
|              
|              
|              
|$22.90 - 34.58 |  |  | 366   |                     |  |                     | 7.16 |          |  | $              | 27.68 |          |  |  | 192 |  |  | $ | 27.64 | 

12.  Benefit Plans

The Company maintains the Complete Business Solutions, Inc.
Incentive Savings Plan and Trust (the 401(k) plan). All
employees of the Company are eligible to participate in the
401(k) plan once they have completed one year of service and
have attained age 21. The 401(k) plan is a defined
contribution plan, qualified as a profit sharing plan under
Section 401(k) of the Internal Revenue Code. The 401(k)
plan allows eligible employees to contribute up to 18% of their
compensation with the Company matching a percentage of the
contributions. For the years ended December 31, 2000, 1999
and 1998, the Company matched 40% of the employees
contribution up to a maximum of 2.4% of the employees
compensation.

32



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Matching contributions made by the Company amounted to
approximately $1,914, $2,184 and $1,286 for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company
may also make an additional contribution, at its discretion, to
the 401(k) plan. No such additional contributions have been made
to date.

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

13. Income Taxes

Prior to the Costello merger, Costello was governed under the
provisions of Subchapter S. Accordingly, the application of
the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, resulted
in the recognition of deferred tax assets and liabilities, and a
corresponding charge to the provision for income taxes of
approximately $1,400 for the year ended December 31, 1998.

The Company provides federal and state income taxes in the
consolidated statements of operations based on the effective tax
rate. The unaudited pro forma net income in the consolidated
statements of operations reflects applicable pro forma
adjustments to the provision for income taxes to reflect net
income as if the Subchapter S election for Costello had
been revoked prior to January 1, 1998. See Note 21.

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

The provision (benefit) for income taxes consists of:

|           |                 |                         |         |        |   |      |        |       |   |   |        |        |  
|---------- | --------------- | ----------------------- | ------- | ------ | - | ---- | ------ | ----- | - | - | ------ | ------ | -
|           |                 |                        
|           |                 | Year Ended December 31,
|           |                 |                        
|           |                 | 2000                    |         | 1999   |   | 1998
|Current   |                 |                         |         |        |   |      |        |       |   |   |        |       
|          
|          
|          
|          
|           | Federal         |                         | $       | (4,258 | ) |      | $      | 8,731 |   |   | $      | 17,024 |  
|          
|          
|          
|          
|           | State and local |                         |         | (547   | ) |      |        | 1,115 |   |   |        | 987    |  
|          
|          
|          
|          
|           | Foreign         |                         |         | 581    |   |      |        | 118   |   |   |        | 294    |  
|           |                 |                         |         |        |   |      |        |       |   |   |        |       
|           |                 |                         | (4,224  | )      |   |      | 9,964  |       |   |   | 18,305 |       
|Deferred  |                 |                         |         |        |   |      |        |       |   |   |        |       
|          
|          
|          
|          
|           | Federal         |                         |         | (6,733 | ) |      |        | 6,598 |   |   |        | (8,164 | )
|          
|          
|          
|          
|           | State and local |                         |         | (866   | ) |      |        | (108  | ) |   |        | (459   | )
|          
|          
|          
|          
|           | Foreign         |                         |         | 568    |   |      |        | (171  | ) |   |        | 280    |  
|           |                 |                         |         |        |   |      |        |       |   |   |        |       
|           |                 |                         | (7,031  | )      |   |      | 6,319  |       |   |   | (8,343 | )     
|           |                 |                         |         |        |   |      |        |       |   |   |        |       
|           |                 | $                       | (11,255 | )      |   | $    | 16,283 |       |   | $ | 9,962  |       
|           |                 |                         |         |        |   |      |        |       |   |   |        |       

33



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


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

|                           |                                         |                                      |                         |        |        |        |   |        |        |       | 
|-------------------------- | --------------------------------------- | ------------------------------------ | ----------------------- | ------ | ------ | ------ | - | ------ | ------ | ----- | 
|                           |                                         |                                     
|                           |                                         | December 31,                        
|                           |                                         |                                     
|                           |                                         | 2000                                 |                         | 1999  
|Deferred tax assets       |                                         |                                      |                         |        |        |        |   |       
|                          
|                          
|                          
|                          
|                           | Accrued expenses                        |                                      | $                       | 4,463  |        |        | $ | 3,593  |       
|                          
|                          
|                          
|                          
|                           | Allowance for doubtful accounts         |                                      |                         | 7,134  |        |        |   | 1,890  |       
|                          
|                          
|                          
|                          
|                           | Federal net operating loss carryforward |                                      |                         | 2,311  |        |        |   | 2,552  |       
|                          
|                          
|                          
|                          
|                           | Foreign net operating losses            |                                      |                         |       |        |        |   | 568    |       
|                          
|                          
|                          
|                          
|                           | Restructuring charge                    |                                      |                         | 1,561  |        |        |   |       |       
|                          
|                          
|                          
|                          
|                           | Investment write-down                   |                                      |                         | 1,490  |        |        |   |       |       
|                          
|                          
|                          
|                          
|                           | Goodwill write-down                     |                                      |                         | 231    |        |        |   |       |       
|                          
|                          
|                          
|                          
|                           | Other                                   |                                      |                         | 128    |        |        |   | 205    |       
|                           |                                         |                                      |                         |        |        |        |   |       
|                           |                                         | Total gross deferred tax assets      |                         |        | 17,318 |        |   |        | 8,808  |      
|Deferred tax liabilities  |                                         |                                      |                         |        |        |        |   |       
|                          
|                          
|                          
|                          
|                           | Capitalized software development costs  |                                      |                         | (3,937 | )      |        |   | (4,163 | )     
|                          
|                          
|                          
|                          
|                           | S to C Corporation conversion           |                                      |                         | (370   | )      |        |   | (741   | )     
|                          
|                          
|                          
|                          
|                           | CBS Mauritius                           |                                      |                         | (237   | )      |        |   | (237   | )     
|                          
|                          
|                          
|                          
|                           | Loss on equity investment               |                                      |                         | (2,340 | )      |        |   |       |       
|                          
|                          
|                          
|                          
|                           | Other                                   |                                      |                         | (245   | )      |        |   | (509   | )     
|                           |                                         |                                      |                         |        |        |        |   |       
|                           |                                         | Total gross deferred tax liabilities |                         |        | (7,129 | )      |   |        | (5,650 | )    
|                           |                                         |                                      |                         |        |        |        |   |       
|                           |                                         |                                      | Net deferred tax assets |        | $      | 10,189 |   |        | $      | 3,158 | 
|                           |                                         |                                      |                         |        |        |        |   |       

The items accounting for the difference between income
taxes computed at the federal statutory rate and the
consolidated effective rate are as follows:

|                       |                                                                  |                         |     |      |   |      |    |    |   |  |    |     |  
|---------------------- | ---------------------------------------------------------------- | ----------------------- | --- | ---- | - | ---- | -- | -- | - |  | -- | --- | -
|                       |                                                                  |                        
|                       |                                                                  | Year Ended December 31,
|                       |                                                                  |                        
|                       |                                                                  | 2000                    |     | 1999 |   | 1998
|                      
|                      
|                      
|                      
|Federal statutory rate |                                                                  |                         | (35 | )%   |   |      | 35 | %  |   |  | 35 | %  
|Effect of             |                                                                  |                         |     |      |   |      |    |    |   |  |    |    
|                      
|                      
|                      
|                      
|                       | Tax rate differences on foreign earnings not subject to U.S. tax |                         |     | (1   | ) |      |    | (5 | ) |  |    | (10 | )
|                      
|                      
|                      
|                      
|                       | Goodwill write down                                              |                         |     | 6    |   |      |    |   |   |  |    |    |  
|                      
|                      
|                      
|                      
|                       | Nondeductible merger costs                                       |                         |     |     |   |      |    |   |   |  |    | 26  |  
|                      
|                      
|                      
|                      
|                       | State income taxes, net of federal tax effect                    |                         |     | (4   | ) |      |    | 4  |   |  |    | 2   |  
|                      
|                      
|                      
|                      
|                       | Other, net                                                       |                         |     | 10   |   |      |    | 1  |   |  |    | 3   |  
|                       |                                                                  |                         |     |      |   |      |    |    |   |  |    |    
|                       |                                                                  |                         | (24 | )%   |   |      | 35 | %  |   |  | 56 | %  
|                      
|                      
|                      
|                      
|                       | S Corporation earnings and terminations                          |                         |     |     |   |      |    |   |   |  |    | 4   |  
|                       |                                                                  |                         |     |      |   |      |    |    |   |  |    |    
|                       |                                                                  |                         | (24 | )%   |   |      | 35 | %  |   |  | 60 | %  
|                       |                                                                  |                         |     |      |   |      |    |    |   |  |    |    

14. Segment Information

The Company is a provider of IT services, and is organized into
office locations throughout North America, Europe and Asia. The
chief operating decision-makers evaluate each locations
performance based primarily on their revenues, gross margin and
operating income. Under this organization, the operating
segments have been aggregated into one reportable segment. The
accounting policies of the operating segments are the same as
those described in the summary of significant accounting
policies.

34



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


The following table summarizes selected financial information of
the Companys operations by geographic location. Revenues
are attributed to countries based on the location of the
customer.

|                    |                     |                         |       |         |         |      |       |         |         |   |       |         |         |  
|------------------- | ------------------- | ----------------------- | ----- | ------- | ------- | ---- | ----- | ------- | ------- | - | ----- | ------- | ------- | -
|                    |                     |                        
|                    |                     | Year Ended December 31,
|                    |                     |                        
|                    |                     | 2000                    |       | 1999    |         | 1998
|Revenues           |                     |                         |       |         |         |      |       |         |         |   |       |        
|                   
|                   
|                   
|                   
|                    | United States       |                         | $     | 391,946 |         |      | $     | 420,419 |         |   | $     | 349,173 |        
|                   
|                   
|                   
|                   
|                    | India               |                         |       | 32,313  |         |      |       | 23,977  |         |   |       | 23,414  |        
|                   
|                   
|                   
|                   
|                    |                     | Less intersegment       |       |         | (25,334 | )    |       |         | (22,686 | ) |       |         | (22,164 | )
|                    |                     |                         |       |         |         |      |       |         |         |   |       |        
|                    |                     |                         | 6,979 |         |         |      | 1,291 |         |         |   | 1,250 |        
|                   
|                   
|                   
|                   
|                    | Other international |                         |       | 20,716  |         |      |       | 21,831  |         |   |       | 11,972  |        
|                    |                     |                         |       |         |         |      |       |         |         |   |       |        
|                    |                     |                         |       | $       | 419,641 |      |       | $       | 443,541 |   |       | $       | 362,395 |  
|                    |                     |                         |       |         |         |      |       |         |         |   |       |        
|Long-Lived Assets  |                     |                         |       |         |         |      |       |         |         |   |       |        
|                   
|                   
|                   
|                   
|                    | United States       |                         | $     | 48,769  |         |      | $     | 41,168  |         |   | $     | 18,608  |        
|                   
|                   
|                   
|                   
|                    | India               |                         |       | 6,736   |         |      |       | 5,189   |         |   |       | 5,558   |        
|                   
|                   
|                   
|                   
|                    | Other international |                         |       | 2,024   |         |      |       | 1,063   |         |   |       | 390     |        
|                    |                     |                         |       |         |         |      |       |         |         |   |       |        
|                    |                     | Total                   |       | $       | 57,529  |      |       | $       | 47,420  |   |       | $       | 24,556  |  
|                    |                     |                         |       |         |         |      |       |         |         |   |       |        

15.  Commitments, Contingencies and Potential Liability
to Clients

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

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

The Company has provided a guarantee of up to $13.5 million
for indebtedness of an affiliated entity. As of
December 31, 2000, the affiliated entity had outstanding
indebtedness of $10.6 million. The Company does not expect
to perform under this guarantee.

16.  Stock Dividend

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

17.  Convertible Redeemable Preferred Stock

On March 17, 2000, the Company entered into an agreement
with a fund managed by Clayton, Dubilier & Rice, Inc. (CDR)
whereby CDR purchased, in two transactions, from the Company
200,000 shares of convertible redeemable preferred stock
(Preferred Stock) for $200,000 and was issued warrants to
purchase 5,300,000 shares of the Companys Common Stock.

35



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


The Preferred Stock is convertible at any time subsequent to
issuance at a price of $23 per share, subject to certain
adjustments, and may be redeemed, at CDRs option, if not
converted within ten years of the date of issuance. The warrants
consist of seven-year warrants to purchase 3,500,000 shares at
$25 per share and ten-year warrants to purchase 1,800,000
shares at $31 per share. All of the warrants become exercisable
upon the earlier of the third anniversary of the date of
issuance or the Companys stock price exceeding a
predetermined price for twenty consecutive trading days.

Upon closing of the transactions, the proceeds were allocated to
the convertible Preferred Stock and the warrants based on their
relative fair values, with the convertible Preferred Stock
classified outside of stockholders equity and the warrants
as additional paid-in capital on the consolidated balance sheet.
Any difference between the fair value allocated to the
convertible Preferred Stock and the fair value of the
Companys Common Stock is considered a beneficial
conversion feature. The beneficial conversion feature, which
does not affect net income, is accounted for as a dividend on
the convertible Preferred Stock in the period it is issued and
as a reduction of income available to common shareholders in the
computation of basic and fully diluted earnings per share.

The Preferred Stock is redeemable at the option of the holder
seven years from issuance. Due to the redeemable nature of the
Preferred Stock, the difference between the proceeds allocated
to the Preferred Stock and the amount of the redemption
($200,000) is being accreted to Preferred Stock over the
redemption period as a dividend on Preferred Stock. The
Preferred Stock ranks senior to common stock in the event of
liquidation, has voting rights equal to the number of common
shares into which it is convertible and is entitled to the same
dividend as common stock if a dividend is declared.

The Company also entered into an agreement with CDR whereby CDR
will provide the Company financial and management advisory
services. During 2000, the amount paid under this agreement was
$333.

18.  Discontinued Operations and Gain on Sale of
Discontinued Operations

In June 2000, the Companys board of directors adopted a
plan to sell the operations of its contract programming services
subsidiary, Synova. Accordingly, the accompanying consolidated
financial statements have been reclassified to reflect Synova as
a discontinued operation. The net operating results of Synova
have been reported, net of income taxes, as income (loss)
from discontinued operations in the accompanying
consolidated statements of operations for all years presented.
The net cash flows of Synova have been included in cash
used in discontinued operations and effect of exchange rate
changes in cash in the accompanying consolidated
statements of cash flows for all years presented.

Summarized financial information for the discontinued operations
of Synova are as follows:

|                              |  |               |        |                          |  |      |        |   |  |   |        | 
|----------------------------- |  | ------------- | ------ | ------------------------ |  | ---- | ------ | - |  | - | ------ | 
|                              |  | Nine Months   |        |                          |  |     
|                              |  | Ended         |        |                         
|                              |  | September 30, |        | Years Ended December 31,
|                              |  |               |        |                         
|                              |  | 2000          |        | 1999                     |  | 1998
|                             
|                             
|                             
|                             
|Revenues                      |  | $             | 39,204 |                          |  | $    | 18,529 |   |  | $ | 14,900 | 
|                             
|                             
|                             
|                             
|Income (loss) from operations |  |               | (2,685 | )                        |  |      | (24    | ) |  |   | 65     | 

Net assets of Synova as of December 31, 1999 were $785 and
are classified as Other Assets in the accompanying balance sheet.

On September 28, 2000, the Company sold Synova to a related
party in exchange for 750,000 shares of the Companys
Common Stock, determined to be the fair market value. As a
result of this exchange, the Company has recorded a gain on the
sale of a discontinued operation of $6,072, net of income taxes,
in the accompanying consolidated statements of operations.

36



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##### Table of Contents



COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


In connection with the sale of Synova, certain receivables due
to the Company were converted into a note receivable from Synova
of $8,000. The note receivable, which bears interest at
approximately 8.5% and is due in September 2005, is
guaranteed by the related party.

19.  Restructuring, Merger and Other Related Charges

In fiscal 2000, the Company recorded restructuring and other
costs of $21,507, consisting of the following:

|                                                                              |  |  |       | 
|----------------------------------------------------------------------------- |  |  | ----- | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Severance and costs associated with building a new executive
	management team |  |  | 8,822 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Termination of lease obligations associated with consolidation
	of facilities |  |  | 5,800 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Writeoff of assets due to change in strategic direction                       |  |  | 2,900 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Other                                                                         |  |  | 3,985 | 

In fiscal 1999, the Company recorded merger and other costs of
$5,367, principally for lease termination and employee severance
related to the acquisition of EBS. These costs did not meet the
requirements of Emerging Issues Task Force (EITF) 95-03 and
therefore were not accrued at the time of acquisition and
capitalized in goodwill.

In fiscal 1998, the Company recorded merger and other costs of
$28,250 consisting of $12,700 of transaction costs related to
the mergers with Costello and Claremont, and $15,550 for the
writedown of certain assets which Claremont determined, prior to
June 30, 1998, were no longer realizable.

The following is a rollforward of the accrual balance for
Restructuring, Merger and Other Related charges:

|                               |  |      |         |      |  |      |        |   |  |   |         |  
|------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                               |  | 2000 |         | 1999 |  | 1998
|                              
|                              
|                              
|                              
|Balance, beginning of period   |  | $    | 0       |      |  | $    | 0      |   |  | $ | 0       |  
|                              
|                              
|                              
|                              
|Provision                      |  |      | 21,507  |      |  |      | 5,367  |   |  |   | 28,250  |  
|                              
|                              
|                              
|                              
|Write-down/write-off of assets |  |      | (3,100  | )    |  |      |       |   |  |   | (15,550 | )
|                              
|                              
|                              
|                              
|Cash payments                  |  |      | (10,866 | )    |  |      | (5,367 | ) |  |   | (12,700 | )
|                              
|                              
|                              
|                              
|Reversals into income          |  |      |        |      |  |      |       |   |  |   |        |  
|                               |  |      |         |      |  |      |        |   |  |   |         |  
|Balance, end of period         |  | $    | 7,541   |      |  | $    | 0      |   |  | $ | 0       |  
|                               |  |      |         |      |  |      |        |   |  |   |         |  

20.  Supplemental Quarterly Information (Unaudited)

The following quarterly information is unaudited.

|                                                     |  |               |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|---------------------------------------------------- |  | ------------- | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | - |  | - | ------- | -
|                                                     |  |              
|2000                                                 |  | Quarter Ended
|                                                     |  |              
|                                                     |  | March 31      |         | June 30 |  | September 30 |         | December 31
|                                                    
|                                                    
|                                                    
|                                                    
|Revenues                                             |  | $             | 101,721 |         |  | $            | 105,831 |             |  | $ | 105,641 |   |  | $ | 106,448 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Gross profit                                         |  |               | 30,918  |         |  |              | 27,499  |             |  |   | 26,771  |   |  |   | 26,154  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Income (loss) from continuing operations             |  |               | 7,593   |         |  |              | (2,798  | )           |  |   | (16,417 | ) |  |   | (42,010 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Net income (loss)                                    |  |               | 5,011   |         |  |              | (2,040  | )           |  |   | (3,900  | ) |  |   | (31,008 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted net income (loss) per weighted-average share |  | $             | 0.13    |         |  | $            | (0.06   | )           |  | $ | (0.11   | ) |  | $ | (1.00   | )

|                                              |  |               |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|--------------------------------------------- |  | ------------- | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                              |  |              
|1999                                          |  | Quarter Ended
|                                              |  |              
|                                              |  | March 31      |         | June 30 |  | September 30 |         | December 31
|                                             
|                                             
|                                             
|                                             
|Revenues                                      |  | $             | 109,617 |         |  | $            | 116,382 |             |  | $ | 113,906 |  |  | $ | 103,636 | 
|                                             
|                                             
|                                             
|                                             
|Gross profit                                  |  |               | 38,310  |         |  |              | 40,807  |             |  |   | 37,017  |  |  |   | 30,236  | 
|                                             
|                                             
|                                             
|                                             
|Income from continuing operations             |  |               | 14,577  |         |  |              | 10,088  |             |  |   | 12,106  |  |  |   | 5,587   | 
|                                             
|                                             
|                                             
|                                             
|Net income                                    |  |               | 10,235  |         |  |              | 7,261   |             |  |   | 8,244   |  |  |   | 4,057   | 
|                                             
|                                             
|                                             
|                                             
|Diluted net income per weighted-average share |  | $             | 0.27    |         |  | $            | 0.19    |             |  | $ | 0.22    |  |  | $ | 0.11    | 

37



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COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


21.  Pro Forma Statement of Income Information
(Unaudited)

The pro forma adjustments for the incremental income tax
provision (benefit) included in the accompanying consolidated
statements of operations reflects the additional provision
(benefit) for Federal and state income taxes at the effective
income tax rate as if Costellos Subchapter S
elections had been revoked prior to January 1, 1998 and the
companies had been taxed as C corporations. The differences
between the United States Federal statutory rate and the
consolidated effective rate are as follows:

|                                                                  |  |              |      |  
|----------------------------------------------------------------- |  | ------------ | ---- | -
|                                                                  |  | Year Ended  
|                                                                  |  | December 31,
|                                                                  |  |             
|                                                                  |  | 1998        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Statutory Federal income tax rate                                 |  |              | 35   | %
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|State income taxes, net of Federal tax effect                     |  |              | 2    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Tax rate differences on foreign earnings not subject to
	U.S. tax |  |              | (10) |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Non-deductible merger costs                                       |  |              | 26   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other                                                             |  |              | (2   | )
|                                                                  |  |              |      |  
|                                                                  |  |              | 51   | %
|                                                                  |  |              |      |  

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

38



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##### Table of Contents



Item 9.  Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure

None

39



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##### Table of Contents








PART III


Item 10.  Directors and Executive Officers of the
Company

The information required by this item is included in our Proxy
Statement for our 2001 Annual Meeting of Shareholders under the
caption Directors and Executive Officers and is incorporated
herein by reference.

Item 11.  Executive Compensation

The information required by this item is included in our Proxy
Statement for our 2001 Annual Meeting of Shareholders under the
caption Executive Compensation and is incorporated herein by
reference.

Item 12.  Security Ownership of Certain Beneficial
Owners and Management

The information required by this item is included in our Proxy
Statement for our 2001 Annual Meeting of Shareholders under the
caption Director and Executive Officer Ownership of CBSI Common
Stock and is incorporated herein by reference.

Item 13.  Certain Relationships and Related
Transactions

The information required by this item is included in our Proxy
Statement for our 2001 Annual Meeting of Shareholders under the
caption Certain Relationships and Related Transactions and is
incorporated herein by reference.

40



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##### Table of Contents








PART IV


Item 14.  Exhibits, Financial Statement Schedules and
Reports on Form 8-K



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



|   |                                  
|-- | ---------------------------------
|1. | Consolidated Financial Statements



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

|                                                                                                              |  |      |    | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                              |  | Page
|                                                                                                              |  |     
|Report of Independent Public Accountants                                                                      |  |      | 20 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Consolidated Balance Sheets as of December 31, 2000 and 1999                                                  |  |      | 21 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Consolidated Statements of Operations for each of the years
	ended December 31, 2000, 1999 and 1998           |  |      | 22 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Consolidated Statements of Shareholders Equity for each of
	the years ended December 31, 2000, 1999 and 1998 |  |      | 23 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Consolidated Statements of Cash Flows for each of the years
	ended December 31, 2000, 1999 and 1998           |  |      | 24 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Notes to Consolidated Financial Statements                                                                    |  |      | 25 | 

2.  Financial Statement Schedules

None

3.  Exhibits

|        |      |             |  |                                                                                                                                                                                      
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        | 3.1* |             |  | Restated Articles of Incorporation of the Company, as amended.                                                                                                                       
|        | 3.2* |             |  | Bylaws of the Company.                                                                                                                                                               
|        | 4.1* |             |  | See Exhibits 3.1 and 3.2 for provisions of the Restated Articles
	of Incorporation and Restated Bylaws of the Company defining
	rights of the holders of Common Stock of the Company.
|        | 4.2* |             |  | Specimen Stock Certificate.                                                                                                                                                          
|        | 21.1 |             |  | Subsidiaries of Registrant. (Filed Herein)                                                                                                                                           
|        | 23.1 |             |  | Consent of Arthur Andersen LLP. (Filed Herein)                                                                                                                                       
|        | (b)  |             |  | Reports on Form 8-K.                                                                                                                                                                 
|        |      |             |  | Per report on Form 8-K filed October 10, 2000.                                                                                                                                       




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

41



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##### Table of Contents








SIGNATURES


Pursuant to the requirements of Sections 13 and 15(d) 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.



| |                                  
| | ---------------------------------
| | COMPLETE BUSINESS SOLUTIONS, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ MICHAEL W. BEALMEAR

| |                                                
| | -----------------------------------------------
| |                                                
| | Michael W. Bealmear                            
| | President, Chief Executive Officer and Director
| | April 2, 2001                                  

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

|                                               |  |                                                                                                                                    |  |              
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|/s/ RAJENDRA B. VATTIKUTIRajendra B. Vattikuti |  | Co-Chairman, Director                                                                                                              |  | April 2, 2001
|/s/ NED G. LAUTENBACHNed G. Lautenbach         |  | Co-Chairman, Director                                                                                                              |  | April 2, 2001
|/s/ MICHAEL W. BEALMEARMichael W. Bealmear     |  | President, Chief Executive Officer and Director                                                                                    |  | April 2, 2001
|/s/ TIMOTHY S. MANNEYTimothy S. Manney         |  | Executive Vice President of Strategic Planning and Corporate
	Development, Treasurer (Principal Financial and
	Accounting Officer) |  | April 2, 2001
|William Brooks                                 |  | Director                                                                                                                           |  | April 2, 2001
|/s/ KEVIN CONWAYKevin Conway                   |  | Director                                                                                                                           |  | April 2, 2001
|/s/ DOUGLAS S. LANDDouglas S. Land             |  | Director                                                                                                                           |  | April 2, 2001
|/s/ RONALD K. MACHTLEYRonald K. Machtley       |  | Director                                                                                                                           |  | April 2, 2001
|John A. Stanley                                |  | Director                                                                                                                           |  | April 2, 2001
|/s/ FRANK D. STELLAFrank D. Stella             |  | Director                                                                                                                           |  | April 2, 2001
|/s/ DAVID WASSERMANDavid Wasserman             |  | Director                                                                                                                           |  | April 2, 2001

42



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EXHIBIT INDEX


|        |      |             |  |                                                                                                                                                                                      
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|No.     |      | Description
|        |      |            
|        | 3.1  | *           |  | Restated Articles of Incorporation of the Company, as amended.                                                                                                                       
|        | 3.2  | *           |  | Bylaws of the Company.                                                                                                                                                               
|        | 4.1  | *           |  | See Exhibits 3.1 and 3.2 for provisions of the Restated Articles
	of Incorporation and Restated Bylaws of the Company defining
	rights of the holders of Common Stock of the Company.
|        | 4.2  | *           |  | Specimen Stock Certificate.                                                                                                                                                          
|        | 21.1 |             |  | Subsidiaries of Registrant. (Filed Herein)                                                                                                                                           
|        | 23.1 |             |  | Consent of Arthur Andersen LLP. (Filed Herein)                                                                                                                                       

43