SECURITIES AND EXCHANGE COMMISSION
Washington, DC
Form 8-K
Amendment No. 1 to Current Report on Form 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 28, 1999
Fingermatrix, Inc.
(Exact name of Registrant as Specified in its Charter)
New York 0-9940 13-2854686
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
249 North Saw Mill River Road, Elmsford, New York 10523
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (914) 592-5930
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This report amends the Registrant's report on Form 8-K, initially filed on May
13, 1999 to provide financial statements of Sequential Electronic Systems, Inc.
and S-Tech, Inc.
Item 7. Financial Statements.
(a) Financial Statements of the Business's Acquired
Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the following
financial statements were omitted from disclosure contained in the Registrant's
Current Report on Form 8-K filed on May 13, 1999 but are filed herewith:
Audited financial statements of Sequential Electronic Systems,
Inc. as of December 31, 1997 and for the year ended December 31, 1997 and
Independent Auditors' report theron, which is attached as Exhibit 99.1 hereto.
Audited financial statements of Sequential Electronic Systems,
Inc. as of December 31, 1998 and for the year ended December 31, 1998 and
Independent Auditors' report theron, which is attached as Exhibit 99.2 hereto.
Audited financial statements of S-Tech, Inc. as of December 31,
1997 and for the year ended December 31, 1997 and Independent Auditors' report
theron, which is attached as Exhibit 99.3 hereto.
Audited financial statements of S-Tech, Inc. as of December 31,
1998 and for the year ended December 31, 1998 and Independent Auditors' report
theron, which is attached as Exhibit 99.4 hereto.
(b) Exhibits
99.1 Audited financial statements of Sequential Electronic Systems, Inc. as
of December 31, 1997 and for the year ended December 31, 1997 and
Independent Auditors' report theron, which is attached as Exhibit 99.1
hereto.
99.2 Audited financial statements of Sequential Electronic Systems, Inc. as
of December 31, 1998 and for the year ended December 31, 1998 and
Independent Auditors' report theron, which is attached as Exhibit 99.2
hereto.
99.3 Audited financial statements of S-Tech, Inc. as of December 31, 1997
and for the year ended December 31, 1997 and Independent Auditors'
report theron, which is attached as Exhibit 99.3 hereto.
99.4 Audited financial statements of S-Tech, Inc. as of December 31, 1998
and for the year ended December 31, 1998 and Independent Auditors'
report theron, which is attached as Exhibit 99.4 hereto.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FINGERMATRIX, INC.
By: /S/ Lewis S. Schiller
Date: October 8, 1999 ---------------------
--------------- Lewis S. Schiller
Chief Executive Officer
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Exhibit 99.1
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997.
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April 24, 1998
Mr. Lewis Schiller, Chairman
Sequential Electronic Systems, Inc.
249 North Saw Mill River Road
Elmsford, New York 10523
Dear Mr. Schiller:
We have audited the financial statements of
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
for the year ended December 31, 1997.
As a result of our audit, we present the following exhibits:
EXHIBIT A: Balance Sheet as of December 31, 1997
EXHIBIT B: Statement of Operations for the year ended December 31, 1997
EXHIBIT C: Statement of Stockholders' Equity [Deficit] for the year ended
December 31, 1997.
EXHIBIT D: Statement of Cash Flows for the year ended December 31, 1997
Respectfully submitted,
MOORE STEPHENS, P. C.
Certified Public Accountants.
2
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Sequential Electronic Systems, Inc.
Elmsford, New York
We have audited the accompanying balance sheet of Sequential
Electronic Systems, Inc. as of December 31, 1997, and the related statement of
operations, stockholders' equity [deficit], and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the 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, the financial statements referred to above
present fairly, in all material respects, the financial position of Sequential
Electronic Systems, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 5, 1998
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Exhibit A
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
- --------------------------------------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Assets:
Current Assets:
Cash $ 6,183
Receivables - Net 199,950
Inventories - Net 1,761,636
Prepaid Expenses 4,356
---------------
Total Current Assets 1,972,125
Property and Equipment - Net 70,221
---------------
Other Assets:
Security Deposits 20,000
---------------
Total Assets $ 2,062,346
===============
Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 349,884
Current Portion of Obligations Under Capitalized Leases 28,343
Commissions Payable 111,906
Loans Payable - Asset-Based Lender 150,792
---------------
Total Current Liabilities 640,925
Long-Term Liabilities:
Obligations Under Capitalized Leases 25,187
Stockholders' Equity [Deficit]:
Common Stock - No Par Value, $1.00 Stated Value;
1,000 Shares Authorized, Issued and Outstanding 1,000
Paid-in Capital 3,689,999
Accumulated Deficit (2,294,765)
----------------
Total Stockholders' Equity [Deficit] 1,396,234
---------------
Total Liabilities and Stockholders' Equity [Deficit] $ 2,062,346
===============
See Notes to Financial Statements.
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Exhibit B
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Sales $ 1,833,988
Cost of Sales 1,540,821
---------------
Gross Income [Loss] 293,167
Expenses:
Selling 387,314
General and Administrative 443,007
---------------
Total Expenses 830,321
Loss from Operations (537,154)
Other [Expenses] Income:
Interest Expense (26,679)
----------------
Loss Before Provision for Income Taxes (563,833)
Provision for Income Taxes --
---------------
Net Loss $ (563,833)
===============
See Notes to Financial Statements.
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Exhibit C
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY [DEFICIT]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common
No Par Value Stock
Liquidation No Par Total
Preference Value Stockholders'
Number of of $5,000 Number of $1 Stated Paid-in Accumulated Equity
Shares Per Share Shares Value Capital Deficit [Deficit]
------ --------- ------ ----- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 -- -- 1,000 1,000 499,000 (1,730,932) (1,230,932)
Capitalization of Debt
to Affiliated Company -- -- -- -- 3,190,999 -- 3,190,999
Net Loss for the year
ended December 31, 1997 -- -- -- -- -- (563,833) (563,833)
---------- ------------ ----------- ----------- ------------ ------------- -------------
Balance - December 31, 1997 -- $ -- 1,000 $ 1,000 $ 3,689,999 $ (2,294,765) $ 1,396,234
========== ============ =========== =========== ============ ============= =============
</TABLE>
See Notes to Financial Statements.
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Exhibit D
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Operating Activities:
Net Loss $ (563,833)
----------------
Adjustments to Reconcile Net Loss to Net Cash
[Used for] Operating Activities:
Depreciation 23,468
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 30,948
Inventories 2,000
Prepaid Expenses 10,205
Miscellaneous Receivables 7,065
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 128,382
Commissions Payable 17,372
---------------
Total Adjustments 219,440
Net Cash - Operating Activities (344,393)
---------------
Investing Activities:
Capital Expenditures (3,995)
Financing Activities:
Payments Under Capital Lease (24,847)
Advances from Affiliates 205,229
Net Advances from Asset-Based Lender 150,792
---------------
Net Cash - Financing Activities 331,174
---------------
Net Decrease in Cash (17,214)
Cash - Beginning of Year 23,397
---------------
Cash - End of Year $ 6,183
===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 26,679
Income Taxes $ --
Supplemental Disclosures of Non-Cash Investing
and Financing Activities:
During 1997, the Company purchased equipment for $37,504 and assumed capital
lease obligations for the full amount.
See Notes to Financial Statements.
7
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Organization and Nature of Operation
Sequential Electronic Systems, Inc. [the "Company"] is primarily engaged in
the manufacture and assembly of precision electro-mechanical and electro-optical
devices for sale to commercial and government institutions throughout the United
States. The Company is a subsidiary of Spectec, Inc. which is a subsidiary of
Consolidated Technology Group Ltd. ["Consolidated"], a public company. During
1997, the Company has taken over the operations of 3D Technology, Inc. ["3DT"].
The Company and 3DT are commonly controlled. These operations consist of
marketing and selling three dimensional imaging products of both software and
hardware.
In April 1997, Spectec, Inc. acquired all of the issued and outstanding
capital stock of SES Holdings Corp., ["SESH"], [which at the date of the
acquisition was a majority owned subsidiary of SIS Capital Corp., ["SISC"],
which is a wholly owned subsidiary of Consolidated Technology Group Ltd.
Spectec, Inc, SESH and Consolidated are commonly controlled. Spectec, Inc. was
formed on April 16, 1997 to facilitate a settlement agreement among SISC, Lewis
S. Schiller, DLB, Inc. ["DLB"] and Lafayette Industries, Inc. ["Lafayette"]. On
December 20, 1996, SISC, DLB and Mr. Schiller sold all of the shares of SESH to
Lafayette. As a result of the inability of Lafayette's independent accountants
to render an unqualified opinion on Lafayette's financial statements for its
year ended December 31, 1996, and other matters, SISC, DLB, Mr. Schiller and
Lafayette, in order to avoid costly and time consuming litigation, agreed, among
other things, that Lafayette would transfer to a subsidiary of SISC, DLB and Mr.
Schiller, all of Lafayette's interest in SESH acquired under the December 20,
1996 agreement. The settlement was consummated on April 21, 1997. At such time,
Spectec, Inc. was formed by SISC, Mr. Schiller and DLB and the shares of SESH
were transferred by Lafayette to Spectec, Inc. [2] Summary of Significant
Accounting Policies
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash equivalents are comprised of certain
highly liquid investments with a maturity of three months or less when
purchased. At December 31, 1997 , the Company had no cash equivalents.
Inventories - Inventories consist of raw materials and work-in-process. Raw
materials are valued at the lower of cost [average price] or market. The
work-in-process represents accumulated costs of raw materials, direct labor and
factory overhead on current work orders.
Management has established an estimated reserve for obsolescence as of
December 31, 1997. Management believes that the remaining value of the inventory
is realizable and that no further reserve is needed. This is based upon the
existence of contracts which will require a portion of this inventory and the
expectation of future similar type contracts. Actual results could differ
significantly from these estimates.
Property and Equipment - Depreciation of property and equipment is computed
generally by the straight-line method at rates adequate to allocate the cost of
applicable assets over their expected useful lives. Amortization of property and
equipment held under capitalized lease obligations is included in depreciation
expense.
Estimated useful lives of property and equipment is as follows:
Machinery and Equipment 5 - 20 Years
Vehicles 4 - 5 Years
Tools and Dies 5 Years
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Income Taxes - At December 31, 1997, the Company has net operating loss
carryforwards of approximately $2,900,000 for income tax purposes which will
expire between 2000 and 2012. Federal income tax returns are filed on a
consolidated basis with those of the Parent Company. On a consolidated basis,
there is no tax expense. The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Adoption
had no material effect on the financial statements. The net operating loss
carryfowards and inventory obsolescence reserve create a deferred tax asset of
approximately $1,160,000 which is offset by a valuation allowance of $1,160,000.
The valuation allowance increased $330,000 in 1997.
Revenue Recognition - Sales and profits under all fixed price type
contracts are accounted for under the unit of delivery method. Under the unit of
delivery method, sales and profits are recognized in proportion to the number of
units shipped in relation to total units ordered. Anticipated losses on
contracts in progress are charged to operations as soon as such losses can be
determined.
Advertising Costs - Advertising costs are expensed as they are incurred.
Advertising expense was $9,259 in 1997.
Fair Value of Financial Instruments - The fair value of cash, accounts
receivable and accounts payable is the carrying amount because of the short
maturity of such instruments. Repayment terms have not been established;
therefore, it was not practicable to estimate the fair value of the subordinated
note payable to affiliate company.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and accounts
receivable arising from normal business activities. The Company routinely
assesses the financial strength of its customers and based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
does not require collateral from its customers. The Company places its cash with
high credit quality financial institutions and believes no significant
concentration of credit risk exists with respect to these cash investments.
Revenues from one customer amounted to $290,378 and comprised approximately 16%
of total revenues in 1997.
[3] Receivables
Accounts receivable consist of:
Accounts Receivable $ 206,935
Less: Allowance for Bad Debts 6,985
---------------
Accounts Receivable - Net $ 199,950
- ------------------------- ===============
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[3] Receivables [Continued]
The Company finances a majority of its receivables from an asset-based
lender under agreements entered into in July 1997. The agreement has a maximum
availability of funds of $350,000. Funds can be advanced in an amount equal to
75% of the total face amount of outstanding and unpaid receivables, with the
asset-based lender having the right to reserve 25% of the outstanding and unpaid
receivables financed. The Company pays interest on the daily unpaid cash
balances outstanding during each month at a rate equal to the highest prime rate
in effect in New York City during such month as generally reported, plus 10% per
annum, but the basic rate shall not be less than 18-1/2% per annum or mor than
the maximum permitted by applicable law. In addition, there is a commitment fee
of $3,500 per month for each month that this agreement is to remain in effect.
The asset-based lender has a security interest in all accounts receivables,
contract rights, personal property, fixtures and inventory of the Company. At
December 31, 1997, the total amount advanced by the asset-based lender was
$150,792.
[4] Inventories
Inventories are stated as follows:
Work-in-Process $ 1,613,089
Raw Materials 393,652
---------------
Totals 2,006,741
Less: Reserve for Inventory Obsolescence 850,000
---------------
Inventories - Net $ 1,156,741
----------------- ===============
[5] Property and Equipment
Property and equipment consist of the following:
Machinery and Equipment $ 1,958,245
Vehicles 87,689
Tools and Dies 144,712
---------------
Total Cost 2,190,646
Less: Accumulated Depreciation 2,120,425
---------------
Net $ 70,221
--- ===============
Depreciation charged to operations for the year ended December 31, 1997 was
$23,468.
10
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[6] Lease Obligations
The Company leases a vehicle and equipment under capital leases expiring in
2000. Minimum future lease payments as of December 31, 1997, for the next five
years and in the aggregate are:
Capital
December 31, Leases
1998 $ 33,995
1999 23,383
2000 3,951
2001 --
2002 --
---------------
Minimum Lease Payments 61,329
Less: Amounts Representing Interest 7,799
---------------
Present Value of Minimum Lease Payments $ 53,530
--------------------------------------- ===============
Following is a summary of property held under capital leases:
Vehicles $ 62,629
Machinery and Equipment 282,622
---------------
Totals 345,251
Less: Accumulated Depreciation 290,512
---------------
Net $ 54,739
--- ===============
Depreciation on property held under capital leases is included with depreciation
expense for the year ended December 31, 1997 was $21,908.
Rental expense for the year ended December 31, 1997 was $139,500. The Company's
current lease on its primary facility is on a month-to-month basis.
[7] Capitalization of Debt / Due to Affiliates
At December 31, 1997, the Company had an amount due to affiliates of
$976,612. This amount represents non-interest bearing cash advances and various
allocated expenses between the Company and various related parties which are
under common control. At December 31, 1997, the Company had a secured
subordinated note payable to an affiliated company which bears interest at the
rate of 10% and is payable quarterly. There is no maturity date on the note.
Interest on this note has not been accrued as the affiliate has chosen to waive
any interest due at this time
11
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[7] Capitalization of Debt / Due to Affiliates [Continued]
Pursuant to an agreement entered into or about March 31, 1998 between Lewis
S. Schiller and Consolidated Technology Group LTD (COTG), the parent company,
Mr. Schiller was given the stock of the Sequential Electronic Systems, Inc.
subsidiary effective December 31, 1997. This was in conjunction with his formal
resignation from COTG of all duties and responsibilities. Additionally, the
outstanding intercompany debt to COTG and affiliates of $ 3,190,999 was forgiven
and thereby capitalized as Paid In Capital due to the fact it was with related
parties.
[8] New Authoritative Accounting Pronouncement
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Management is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are reported in annual financial statements and requires the reporting of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's consolidated results of operations, financial position or cash
flows.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
. . . . . . . . . . . . . .
12
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Exhibit 99.2
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
1
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Independent Auditors' Report
To the Board of Directors and Stockholders
Sequential Electronic Systems, Inc.
We have audited the accompanying balance sheet of SEQUENTIAL
ELECTRONIC SYSTEMS, INC. as at December 31, 1998, and the related statements of
operations and deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sequential
Electronic Systems, Inc. as at December 31, 1998, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has sustained a net loss of $378,078 for the
year ended December 31, 1998, anticipates additional net losses in 1999 and has
relied on its stockholder and an affiliated entity controlled by its stockholder
for continuing financial support and for loans to fund its operations. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also described in
Note A. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
June 17, 1999
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
BALANCE SHEET
AS AT DECEMBER 31, 1998
ASSETS
(NOTE D)
Current assets:
Cash and money market fund $ 12,125
Accounts receivable (less $6,985 allowance for doubtful
accounts) (Note A) 268,619
Inventory (Notes A and B) 1,613,974
Prepaid expenses and other current assets 12,425
------------
Total current assets 1,907,143
Property, plant and equipment (at cost) $ 2,136,119
Less accumulated depreciation (Notes A and C) 2,100,247 35,872
Security deposits 23,955
------------
TOTAL $ 1,966,970
============
LIABILITIES
Current liabilities:
Revolving line of credit (Note D) $ 466,814
Current portion of leases payable (Note E) 17,117
Accounts payable 39,733
Accrued expenses and other current liabilities 278,145
Advances from affiliate (Note F) 143,156
------------
Total current liabilities 944,965
Leases payable (less current portion) (Note E) 3,848
------------
Total liabilities 948,813
Commitments and contingent liabilities (Notes G and H)
STOCKHOLDER'S EQUITY
Common stock - no par value, authorized 1,000
shares; issued 100 shares at stated value $ 1,000
Additional paid-in capital 3,690,000
Deficit (2,672,843)
-------------
Total stockholder's equity 1,018,157
------------
TOTAL $ 1,966,970
The notes to financial statements are made a part hereof.
3
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues $ 2,184,487
Cost of goods sold 1,712,898
-----------
Gross profit 471,589
Selling, general and administrative expenses 849,667
-----------
NET (LOSS) (378,078)
Deficit - January 1, 1998 (2,294,765)
------------
DEFICIT - DECEMBER 31, 1998 $(2,672,843)
============
The notes to financial statements are made a part hereof.
4
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
NET INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net (loss) $(378,078)
Adjustments to reconcile results of operations to
net cash effect of operating activities:
Depreciation 26,790
Loss on sale of property, plant and equipment 4,846
Net change in asset and liability accounts:
Accounts receivable (68,670)
Inventory 147,662
Prepaid expenses and other current assets (8,070)
Security deposits (3,955)
Accounts payable (21,370)
Accrued expenses and other current liabilities (122,545)
----------
Total adjustments (45,312)
Net cash used for operating activities (423,390)
----------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,100)
Proceeds from sale of property, plant and equipment 10,813
---------
Net cash provided by investing activities 2,713
---------
Cash flows from financing activities:
Proceeds from revolving line of credit - net 316,022
Advances from affiliate 453,290
Repayments of advances from affiliate (310,134)
Repayments of leases payable (32,559)
----------
Net cash provided by financing activities 426,619
----------
NET INCREASE IN CASH 5,942
Cash - January 1, 1998 6,183
----------
CASH - DECEMBER 31, 1998 $ 12,125
=========
Supplemental disclosure of interest paid $ 134,400
=========
The notes to financial statements are made a part hereof.
5
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SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - Summary of Significant Accounting Policies
Business
Sequential Electronic Systems, Inc. (the "Company") is a
manufacturer of optical encoders, encoded motors for precision
speed control and limit programmers. An optical encoder precisely
measures the angular position of a shaft principally used in
military and industrial processes. An encoded motor is utilized in
precision tape recorders used primarily by the military. Limit
programmers are used to control the motion of a product as it moves
along an automated assembly line. This product is principally used
by industrial manufacturing concerns.
For the year ended December 31, 1998, one customer accounted for
approximately 18% of revenues.
Basis of Presentation
The attached financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business.
However, for the year ended December 31, 1998, the Company
sustained a net loss of $378,078 and the Company projects
continuing net losses for 1999. Through December 31, 1998, the
Company has relied on advances and other financial support from its
stockholder and an affiliate controlled by its stockholder (see
Notes D and F) and the Company expects to continue to rely on such
advances and other financial support to fund its operations in
1999. As indicated in Note I, on April 28, 1999, the Company,
together with two other affiliated entities under common control,
were merged into Fingermatrix, Inc. (Fingermatrix), a previously
inactive publicly-traded company. Management plans to seek
additional business by expanding its marketing efforts and to raise
operating funds for the Company and its affiliates through a
private and/or public placement of Fingermatrix's securities. The
continuation of the Company as a going concern is dependent upon
its ability to increase its business to achieve profitable
operations and its ability to obtain additional funds from its
stockholder or the affiliate controlled by its stockholder or from
a sale of Fingermatrix's securities. The attached financial
statements do not include any adjustments that would result should
the Company be unable to continue as a going concern.
Inventories
Inventories are stated at the lower of average cost or estimated
net realizable value.
(Continued)
6
<PAGE>
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - Summary of Significant Accounting Policies (Continued)
Depreciation
Property, plant and equipment are depreciated on a straight-line
basis over the estimated useful lives of the related assets and on
accelerated methods for income tax purposes.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain amounts and
disclosures.
Accordingly, actual results could differ from those estimates.
Income Taxes
The Company has elected to be treated in the same manner as a
partnership under the provisions of Subchapter S of the Internal
Revenue Code. Accordingly, its earnings or losses are reportable on
the personal income tax return of its stockholder and any income
taxes thereon are payable by him.
NOTE B - Inventories
Inventories consist of the following at December 31, 1998:
Raw materials $ 655,461
Work-in-process 411,942
Fabricated parts 546,571
-----------
Total $ 1,613,974
===========
(Continued)
7
<PAGE>
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE C - Property, Plant and Equipment
Property, plant and equipment is comprised of the following as at
December 31, 1998:
Estimated
Useful Life
(Years)
-----------
Cost:
Leasehold improvements(*) $ 90,243
Machinery and equipment 1,816,082 3-10
Furniture and fixtures 85,082 7-10
Tools and dies(*) 144,712
------------
Total 2,136,119
Less accumulated depreciation and
amortization 2,100,247
Balance $ 35,872
============
(*) Fully depreciated.
NOTE D - Revolving Line of Credit
The Company's loan agreement which expires on December 31, 1999
provides for advances of up to 80% of eligible accounts receivable
to a maximum loan of $350,000. Interest is charged at the greater
of 18.5% or prime plus 10%. The Company also pays an annual 1% line
commitment fee plus a monthly finance fee of 1% of the line plus
overadvances, if any. At December 31, 1998, the Company has
received overadvances of approximately $117,000. The line is
collateralized by the assets of the Company and has been guaranteed
by the Company's stockholder. The Company's stockholder has a
$200,000 participating interest in the line of credit with the
lender.
NOTE E - Capital Leases Payable
Machinery with a cost of $37,000 is leased to March 2000 under
capital leases which provide for monthly payments of $1,316,
including interest at 16%.
(Continued)
8
<PAGE>
SEQUENTIAL ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE F - Advances from Affiliate
The Company was advanced funds from a business controlled by its
stockholder. The advances bear interest at 9% a year and have no
specific due dates. Interest on these advances was approximately
$12,000 for the year ended December 31, 1998 and has been included
in accrued expenses on the balance sheet. From January 1, 1999
through June 17, 1999, additional advances of approximately $92,000
were received from the affiliate.
NOTE G - Leases
The Company's office premises are leased on a month-to-month lease
at a current annual rate of approximately $140,000. Rent expense
charged to operations for the year ended December 31, 1998 was
approximately $185,000; such amount includes short-term leases for
additional space.
NOTE H - Litigation
The Company is a defendant in a suit in which a vendor is seeking
$90,000 for unpaid sales commissions. Management believes the
action will ultimately be settled rather than litigated. A
provision has been made in the attached financial statements for
the Company's estimate of the commissions which will ultimately be
paid.
NOTE I - Subsequent Event
On April 28, 1999, through a series of transactions, the Company
and two affiliates owned by the Company's stockholder became
wholly-owned subsidiaries of Fingermatrix, Inc., an inactive
publicly-held corporation. The other affiliates are in the business
of developing a security system based on fingerprint identification
and the manufacturing and assembly of aircraft instruments,
electro-mechanical and electro-optical devices and vending devices
for sale to commercial and governmental entities. In this
connection, the companies' stockholder received approximately 60%
of the outstanding stock of Fingermatrix, Inc.
9
<PAGE>
Exhibit 99.3
S-TECH, INC.
REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997.
1
<PAGE>
March 20, 1998
Mr. Lewis Schiller, Chairman
S-Tech, Inc.
66A Otis Street
West Babylon, New York 11704
Dear Mr. Schiller:
We have audited the financial statements of
S-TECH, INC.
for the year ended December 31, 1997.
As a result of our audit, we present the following exhibits:
EXHIBIT A: Balance Sheet as of December 31, 1997.
EXHIBIT B: Statement of Operations and Accumulated Deficit for the year
ended December 31, 1997.
EXHIBIT C: Statement of Stockholders' Equity [Deficit] for the year ended
December 31, 1997.
EXHIBIT D: Statement of Cash Flows for the year ended December 31, 1997.
Respectfully submitted,
MOORE STEPHENS, P. C.
Certified Public Accountants.
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
S-Tech, Inc.
West Babylon, New York
We have audited the accompanying balance sheet of S-Tech, Inc.
as of December 31, 1997, and the related statement of operations and accumulated
deficit, stockholders' equity [deficit], and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the 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, the financial statements referred to above
present fairly, in all material respects, the financial position of S-Tech, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 20, 1998
3
<PAGE>
Exhibit A
S-TECH, INC.
- --------------------------------------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Assets:
Current Assets:
Cash $ 9,723
Receivable - Net 97,215
Inventories - Net 650,000
---------------
Total Current Assets 756,938
Property and Equipment:
Furniture and Fixtures 225,000
Computer Equipment 2,946
---------------
Totals - At Cost 227,946
Less: Accumulated Depreciation 148,705
---------------
Property and Equipment - Net 79,241
---------------
Total Assets $ 836,179
===============
Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
Accounts Payable $ 100,979
Accrued Expenses 5,783
Payroll Taxes Payable 14,163
---------------
Total Current Liabilities 120,925
Stockholders' Equity [Deficit]:
Common Stock - No Par Value, 1,500 Shares Authorized,
Issued and Outstanding 1,500
Paid-in Capital 4,176,881
Accumulated Deficit (3,463,127)
----------------
Total Stockholders' Equity [Deficit] 715,254
----------------
Total Liabilities and Stockholders' Equity [Deficit] $ 836,179
===============
See Notes to Financial Statements.
4
<PAGE>
Exhibit B
S-TECH, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
- --------------------------------------------------------------------------------
Year ended
December 31,
1997
----
Sales $ 1,221,878
Cost of Sales 1,160,940
---------------
Gross Profit [Loss] 60,938
Selling, General and Administrative Expenses 521,419
---------------
Loss from Operations (460,481)
Other Expenses:
Interest Expense 174,555
Other 8,257
---------------
Total Other Expenses 182,812
Loss Before Extraordinary Item and
Provision for Income Taxes (643,293)
Extraordinary Item - Forgiveness of Debt 287,321
---------------
Loss Before Provision for Income Taxes (355,972)
Provision for Income Taxes --
----------------
Net Loss (355,972)
Accumulated Deficit - Beginning of Year (3,107,155)
----------------
Accumulated Deficit - End of Year $ (3,463,127)
================
See Notes to Financial Statements.
5
<PAGE>
Exhibit C
S-TECH, INC.
- --------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY [DEFICIT]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Preferred Stock Common Stock Stockholders'
--------------- ------------
Number of Number of Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit [Deficit]
------ ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 -- -- 1,500 1,500 -- (3,107,155) (3,105,655)
Capitalization of Debt to
Affiliated Company -- -- -- -- 4,176,881 -- 4,176,881
Net Loss for the year
ended December 31, 1997 -- -- -- -- -- (355,972) (355,972)
----------- -------------- ----------- ------------ ---------- -------------- --------------
Balance - December 31, 1997 -- $ -- 1,500 $ 1,500 $4,176,881 $ (3,463,127) $ 715,254
=========== ============== =========== ============ ========== ================ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Exhibit D
S-TECH, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Operating Activities:
Net Loss $ (355,972)
---------------
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operations:
Depreciation 45,980
Provision for Bad Debt (9,847)
Provision for Obsolete Inventory 400,000
Forgiveness of Debt (287,321)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (22,744)
Inventory (115,754)
Prepaid Expenses 9,760
Miscellaneous Receivables 523
Due from Affiliate (15,000)
Increase [Decrease] in:
Accounts Payable (134,213)
Accrued Expenses and Payroll Taxes Payable 10,038
---------------
Total Adjustments 118,578
Net Cash - Operating Activities (474,550)
---------------
Financing Activities:
Repayments of Debt (8,300)
Cash Overdraft (5,657)
Advances from Affiliate 498,230
---------------
Net Cash - Financing Activities 484,273
---------------
Net Increase [Decrease] in Cash 9,723
Cash - Beginning of Year --
---------------
Cash - End of Year $ 9,723
===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,193
Income Taxes $ --
See Notes to Financial Statements.
7
<PAGE>
S-TECH, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
Corporate Organization - S-Tech, Inc. [the "Company"] is primarily engaged
in the manufacture and assembly of aircraft instruments, electro-mechanical and
electro-optical devices, and vending devices for sale to commercial and
governmental institutions. The Company is a subsidiary of Spectec, Inc. which is
a subsidiary of Consolidated Technology Group Ltd. ["Parent"], a public company.
Cash and Cash Equivalents - Cash equivalents are comprised of certain
highly liquid investments with a maturity of three months or less when
purchased. At December 31, 1997, the Company had no cash equivalents.
Accounts Receivable - Accounts receivable have been reduced by an allowance
for doubtful accounts of $6,407 as of December 31, 1997.
Income Taxes - For state income tax purposes at December 31, 1997, the
Company has net operating loss carryforwards of approximately $3,660,000
expiring by the year 2000. Federal income tax returns are filed on a
consolidated basis with those of the Parent. On a consolidated basis, there is
no tax expense. The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Adoption had no
material effect on the financial statements. A deferred tax asset of
approximately $2,000,000 is offset by a valuation allowance of $2,000,000. The
change in the valuation allowance during the year was $500,000
Property and Equipment and Depreciation - Property and equipment are stated
at cost. Depreciation is computed by use of the straight-line method based on
the estimated useful lives of the various assets. Estimated useful lives of
depreciable assets range from three to five years.
Inventories - Inventories are stated at lower of cost [determined on the
first-in, first-out basis] or market. The work-in-process represents accumulated
costs of raw materials, direct labor and factory overhead.
Management has established an estimated reserve for obsolescence of
$800,000 for the year ended December 31, 1997. Management feels that the
remaining value of the inventory is reasonable and that no further reserve is
needed. This is based upon the existence of contracts which may require a
portion of this inventory and the expectation of future similar type contracts.
Due to the uncertainties in the outcome of these contracts, it is reasonably
possible that management's estimates on the allowance for obsolescence may
change in the interim period.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments - The fair value of cash, accounts
receivable, accounts payable, and short-term debt is the carrying amount because
of the short maturity of such instruments. The fair value of the note payable to
affiliate approximates the carrying value.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and accounts
receivable arising from normal business activities. The Company routinely
assesses the financial strength of its customers and based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowances is limited since its
major customer is the U.S. government. The Company places its cash with high
credit quality financial institutions. The Company believes no significant
concentration of credit risk exists with respect to these cash investments.
Revenues from a U.S. government agency amounted to approximately $624,000 of the
total revenues for the year ended December 31, 1997. Revenues from two customers
and a U.S. government agency amounted to approximately $905,250 of the total
revenues for the year ended December 31, 1997. Purchases from one vendor
amounted to approximately $60,000 or 15% or the total purchases for the year
ended December 31, 1997. Management believes that there are alternative
competitive sources within the industry.
8
<PAGE>
S-TECH, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[2] Forgiveness of Debt
During 1997, based upon agreements entered into with the SBA and a service
provider, the Company was forgiven of debts totaling $ 287,321. The total amount
of forgiveness of debt was accounted for in the Statement of Operations as an
extraordinary item.
[3] Receivables
Accounts receivable consist of:
Trade Accounts Receivable $ 103,622
Less: Allowance for Bad Debts 6,407
---------------
Accounts Receivable - Net $ 97,215
------------------------- ===============
[4] Inventories
Inventories are stated as follows:
Work-in-Process $ 30,048
Raw Materials 1,419,952
---------------
Totals 1,450,000
Less: Reserve for Inventory Obsolescence 800,000
---------------
Total Inventories $ 650,000
----------------- ===============
[5] Property and Equipment
Property and equipment consist of the following:
Furniture and Fixtures $ 225,000
Computer Equipment 2,946
---------------
Totals - At Cost 227,946
Less: Accumulated Depreciation 148,705
---------------
Property and Equipment - Net $ 79,241
---------------------------- ===============
Depreciation charged to operations for the years ended December 31, 1997 was
$45,980.
9
<PAGE>
S-TECH, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[6] Lease Obligations
The Company leases a facility under an operating lease expiring in April
1998. Minimum future lease payments as of December 31, 1998, for the next five
years and in the aggregate are:
December 31,
1998 $ 14,196
1999 --
2000 --
2001 --
2002 --
---------------
Present Value of Minimum Lease Payments $ 14,196
--------------------------------------- ===============
Rental expense for the years ended December 31, 1997 was $41,142.
[7] Capitalization of Debt / Due to/From Affiliated Parties
At December 31, 1997, the Company had a note payable due to a related party
which bears interest at the rate of 8% and is payable quarterly. There is no
maturity date on the note. Interest expense for the year ended December 31, 1997
was $5,918.
At December 31, 1997, the Company had been advanced approximately
$1,750,000 from a related party which accrued interest at 10% compounded
quarterly. Interest payable to the related party was approximately $550,000 at
December 31, 1997. Interest expense on these advances was $168,637 at December
31, 1997. The Company was advanced non-interest bearing loans of approximately
$139,000 from a related party.
Pursuant to an agreement entered into on or about March 31, 1998 between
Lewis S. Schiller and Consolidated Technology Group LTD ( COTG) ,the Parent, Mr.
Schiller was given the stock of the S-Tech subsidiary effective December 31,
1997. This was in conjunction with his formal resignation from COTG of all
duties and responsibilities. Additionally, the outstanding intercompany debt to
COTG and affiliates of $ 4,176,881 was forgiven and thereby capitalized as Paid
in Capital due to the fact it was with related parties.
[8] New Authoritative Pronouncements
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Management is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are reported in annual financial statements and requires the reporting of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's consolidated results of operations; financial position or cash
flows.
10
<PAGE>
S-TECH, INC.
NOTES TO THE FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[8] New Authoritative Pronouncements [Continued]
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
. . . . . . . . . . .
11
<PAGE>
Exhibit 99.4
S-TECH INCORPORATED
FINANCIAL STATEMENTS
DECEMBER 31, 1998
1
<PAGE>
Independent Auditors' Report
To the Stockholders
S-Tech Incorporated
We have audited the accompanying balance sheet of S-TECH INCORPORATED
as at December 31, 1998, and the related statements of operations and deficit
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of S-Tech Incorporated
as at December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has sustained a net loss of $391,691 for the
year ended December 31, 1998, anticipates additional net losses in 1999 and has
relied on an affiliated entity controlled by its stockholder for loans to fund
its operations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note A. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
June 23, 1999
2
<PAGE>
S-TECH INCORPORATED
BALANCE SHEET
AS AT DECEMBER 31, 1998
ASSETS
Current assets:
Cash $ 1,592
Accounts receivable $ 25,387
Less allowance for doubtful accounts (Note A) 2,910 22,477
-------------
Inventory (Notes A and B) 622,283
Prepaid expenses and other current assets 20,319
-------------
Total current assets 666,671
Property and equipment (at cost, less depreciation)
(Notes A and C) 33,750
-------------
TOTAL $ 700,421
=============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 131,597
Payroll taxes payable 30,671
Advances from affiliate (Note E) 214,590
-------------
Total current liabilities 376,858
Commitments (Note D)
STOCKHOLDER'S EQUITY
Common stock - no par value; 1,500 shares authorized,
issued and outstanding $ 1,500
Additional paid-in capital 4,176,881
Deficit (3,854,818)
--------------
323,563
--------------
TOTAL $ 700,421
=============
The notes to financial statements are made a part hereof.
3
<PAGE>
S-TECH INCORPORATED
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
Sales $ 586,814
Cost of sales 663,607
------------
Balance (76,793)
Selling, general and administrative expenses 309,531
------------
(Loss) from operations (386,324)
Interest expense (5,367)
-------------
NET (LOSS) (391,691)
Deficit - January 1, 1998 (3,463,127)
-------------
DEFICIT - DECEMBER 31, 1998 $ (3,854,818)
=============
The notes to financial statements are made a part hereof.
4
<PAGE>
S-TECH INCORPORATED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net (loss) $(391,691)
Adjustments to reconcile results of operations
to net cash effect of operating activities:
Depreciation 45,491
Provision for uncollectable accounts (3,497)
Net change in asset and liability accounts:
Accounts receivable 78,235
Inventories 27,717
Prepaid expenses and other current assets (20,319)
Accounts payable and accrued expenses 24,836
Payroll taxes payable 16,507
---------
Total adjustments 168,970
Net cash used for operating activities (222,721)
----------
Cash flows from financing activities:
Proceeds of advances from affiliate 232,590
Repayment of advances from affiliate (18,000)
----------
Net cash provided by financing activities 214,590
---------
NET (DECREASE) IN CASH (8,131)
Cash - January 1, 1998 9,723
---------
CASH - DECEMBER 31, 1998 $ 1,592
=========
Supplemental disclosure of cash paid for interest $ 126
=========
The notes to financial statements are made a part hereof.
5
<PAGE>
S-TECH INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Organization
S-Tech Incorporated (the "Company") is primarily engaged in the
manufacturing and assembly of aircraft instruments,
electro-mechanical and electro-optical devices and vending devices
for sale to commercial and governmental institutions. The Company
commenced operations in 1993 when it purchased the business and
operating assets of General Aero Products, Inc, which had been
operating under Chapter 11 of the U.S. Bankruptcy Code since 1989.
From 1993 to December 31, 1997, the Company was a wholly-owned
subsidiary of Consolidated Technology Group Ltd. (Consolidated), a
publicly traded corporation. Effective January 1, 1998, in a series
of related transactions, ownership of the outstanding stock of the
Company was transferred to a former officer of Consolidated in
connection with his separation agreement from that corporation. As
a result of certain continuing legal matters relating to the
bankruptcy of General Aero Products, Inc. and the relative lack of
attention to the Company's business by Consolidated, from 1994
through 1997, sales of the products produced by the Company
declined materially. Commencing July 1, 1998, management has been
attempting to re-enter the markets previously served by the
Company. However, through December 31, 1998, these efforts have
been adversely affected by the Company's limited financial
resources.
For the year ended December 31, 1998, two customers accounted for
approximately 68% of revenues.
Basis of Presentation
The attached financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business.
However, for the year ended December 31, 1998, the Company
sustained a net loss of $391,691 and the Company projects
continuing net losses for 1999. Through December 31, 1998, the
Company has relied on advances from an affiliate controlled by its
stockholder (see Note E) and the Company expects to continue to
rely on such advances to fund its operations in 1999. As indicated
in Note F, on April 28, 1999, the Company, together with two other
affiliated entities under common control were merged into
Fingermatrix, Inc. (Fingermatrix), a previously inactive
publicly-traded company. Management plans to seek additional
business by re-entering the markets it previously served and to
raise operating funds for the Company and its affiliates through a
private and/or public placement of Fingermatrix's securities. The
continuation of the Company as a going concern is dependent upon
its ability to increase its business to achieve profitable
operations and its ability to obtain additional funds from the
affiliate or from sales of Fingermatrix's securities. The attached
financial statements do not include any adjustments that would
result should the Company be unable to continue as a going concern.
(Continued)
6
<PAGE>
S-TECH INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies (Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market, representing estimated net realizable value.
Work-in-process represents accumulated costs of raw materials,
direct labor and factory overhead (see Note B).
Depreciation of Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
by use of the straight-line method based on the estimated useful
lives of the various assets. Estimated useful lives of depreciable
assets range from three to five years.
Income Taxes
The Company has elected to be treated in the same manner as a
partnership under the provisions of Subchapter S of the Internal
Revenue Code. Accordingly, its earnings or losses are reportable on
the personal income tax return of its stockholder and any income
taxes thereon are payable by him.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from
those estimates.
NOTE B - Inventory
Inventories are stated as follows:
Raw materials $560,207
Work-in-process 62,076
--------
Total $622,283
========
A substantial portion of the raw material inventory at December 31,
1998 is held for the manufacture of certain products not produced
by the Company in recent years. This inventory is recorded at
estimated net realizable value, which is less than its cost.
Management is seeking or intends to seek contracts for these
products as the Company re-enters these markets (see Note A).
However, since the outcome of these efforts is not certain, it is
at least reasonably possible that the Company's estimates could
change in 1999 and additional inventory reductions would be
required.
(Continued)
7
<PAGE>
S-TECH INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE C - Property and Equipment
A summary of the cost and estimated useful lives as follows:
Estimated
Useful Life
(Years)
-----------
Furniture and fixtures $ 225,000 5
Computer equipment 2,946 3
---------
Total 227,946
Less accumulated depreciation 194,196
---------
Total $ 33,750
=========
NOTE D - Commitments
The Company's office premises are leased through May 1999 at an
average annual rental of approximately $42,000. Rental expense
charged to operations for the year ended December 31, 1998 was
approximately $41,000.
NOTE E - Advances from Affiliate
The Company was advanced funds from a business controlled by its
stockholder. The advances bear interest at 9% a year and have no
specific due dates. Interest on these advances was approximately
$5,200 for the year ended December 31, 1998 and has been included
in accrued expenses on the balance sheet. From January 1, 1999
through June 17, 1999, additional advances of approximately
$109,500 were received from the affiliate.
NOTE F - Subsequent Event
On April 28, 1999, through a series of transactions, the Company
and two affiliates owned by the Company's stockholder became
wholly-owned subsidiaries of Fingermatrix, Inc., an inactive
publicly-held corporation. The other affiliates are in the business
of developing a security system based on fingerprint identification
and the manufacturing of optical encoders and encoded motors for
precision speed control and limit programmers for use by either the
military or industrial manufacturers. In this connection, the
companies' stockholder received approximately 60% of the
outstanding stock of Fingermatrix, Inc.
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