<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
For the Fiscal Year Ended July 31, 1994.
Commission File Number 0-4186
CONSOLIDATED TECHNOLOGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
13-1948169
(I.R.S. Employer Identification Number)
160 Broadway, New York, NY 10038
(Address of principal executive offices)
Registrant's telephone number, including area code:(212) 233-4500
Purpose of Amendment:
Part II.:
Item 6. Selected Financial Data - The selected financial data
schedule is changed to reflect the restated financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Discussion is changed based on the changes
in the restated financial statements.
Part IV.:
Item 14. Exhibits, Financial Statements Schedules, and Reports on
Form 8-K:
(a)1. Financial Statements - The financial statements are being
restated to reflect the following changes:
1) Reclass July 31, 1993 classification of losses from discontinued
operations to other expense which relates to the losses of a
discontinuation of a part of a line of business of $562,361.
2) Reclass July 31, 1994 classification of expenses from unusual to
selling, general, and administrative which relates to noncash stock
option expense of $845,000.
3) As of July 31, 1994, reclass approximately $1,936,000 of amounts
payable to a factor as a current debt in the liability section of the
balance sheet which was previously shown as a reduction of trade
receivables in current assets.
4) Reclass approximately $972,000 from goodwill to customer lists.
5) Increase of July 31, 1994 expenses and additional paid-in
capital of $5,870,000 which relates to a reduction in the discount
taken on stock option issuances.
6) Changes in the footnote disclosures to comprehend the changes
made for the restated financial statements.
7) Updated Independent Auditors Report
<PAGE> 2
PART II
Item 6. Selected Financial Data
Fiscal Year Ended July 31,
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in 000's except per share data)
Revenues:
Fees and Services $11,968 $ 654 $1,178 $ 329 $ 665
Product Sales 3,475 3,055 3,355 3,720 --
Development Stage 299 130 -- -- --
------ ------ ------ ------ -----
Total Revenues $15,742 $3,839 $4,533 $4,049 $ 665
====== ====== ====== ====== =====
Income (Loss)
from Continuing
Operations ($10,772) $ 594*($ 122) $ 537 ($ 187)
Loss from Discon-
tinued Operations -- -- -- -- (290)
Extraordinary Item
- Net of Tax -- 146 -- -- --
------ ----- ----- ----- -----
Net Income (Loss) ($10,772) $ 740 ($ 122) $ 537 ($ 477)
====== ===== ===== ===== =====
Income (Loss) from
Continuing Operations
per Common Share ($1.35) $0.18 ($0.03) $0.13 ($0.04)
===== ===== ===== ===== =====
Selected Balance Sheet Data:
Total Assets $25,070 $7,381 $4,775 $4,200 $3,107
====== ====== ====== ====== ======
Long-term Obligations:
Long-term Debt and
Capital Lease
Obligations $ 298 -- -- -- --
====== ====== ====== ====== ======
Cash Dividends Declared
per Common Share -- -- -- -- --
====== ====== ====== ====== ======
* Includes unusual income of $1,523.
Page 1
<PAGE> 3
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (in 000's):
Fiscal 1994 Compared with Fiscal 1993:
Revenues increased by $11,903 compared to the previous year.
Revenues from product sales increased by $420 or 14% and revenues from
consulting sales increased by $11,313 or 173%, and development stage
companies generated $299 in revenue. The increase in product sales
was attributable to slight reversals in governmental spending
cutbacks. A majority of the products manufactured are used in the
governmental sector. Gross profit as product sales decreased from 32%
in fiscal 1993 to 6% in fiscal 1994, primarily from a one time charge
for a reserve against inventory of approximately $250. The increase
in consulting revenue is attributable to the acquisitions of ARC
Acquisition Group, Inc. and ARC Networks, Inc. as of January 1, 1994
which increased consulting revenue by $10,220 and $1,130,
respectively. Gross profit on consulting services remained fairly
constant, 16% in fiscal 1994 and 14% in fiscal 1993. The development
stage segment revenues increased by $169 to $299.
Management feels that there is a possibility that there will be more
reversals in governmental spending cutbacks. However, defense and
military spending continues to be sluggish. Management plans to place
more emphasis on other governmental areas as well as the private
sector. Management believes consulting revenues will keep consistent
with the current year. The development stage companies are at the
stage where they will have product available for sale to the public.
Management, is not able to determine the amount of revenue, if any,
these products will generate.
Net loss was $10,772 for fiscal 1994 compared to net income of $740
for fiscal 1993. A significant portion of the loss for fiscal 1994
resulted from the issuance of non employee, directors, consultants and
advisors stock options which resulted in noncash expenses of $7,140.
Net income in fiscal 1993 was due to the one time gain resulting from
the acquisition of certain net assets of General Technology Group,
Ltd. by S-Tech Corp., a subsidiary of the Company.
Interest expense for fiscal 1994 increased by $262 to $490 in fiscal
1993. The increase is attributable to acquisitions by the Company
throughout the year as well as debt incurred by subsidiaries for
operational purposes.
Fiscal 1993 Compared with Fiscal 1992:
Revenues increased by $55 compared to the previous year. Revenues
from product sales decreased by $300 or 9% and revenues from
consulting sales decreased by $524 or 44%, however, the sale of
securities generated $749 in revenues and development stage companies
generated $130 in revenue. The decline in product sales was largely
attributable to the cutbacks in governmental, defense and military
spending. A majority of the products manufactured are used in these
areas. The decline in revenue was attributable to these types of
products. The gross profit percentage remained constant at 32% on
product sales. The decline in consulting revenue was due to an
overall decrease in its permanent and temporary personnel placement
Page 2
<PAGE> 4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (in 000's) (continued):
business and the completion of a consulting contract which generated
approximately $300 in revenue in fiscal 1992. The gross profit
percentage on consulting revenues declined from 31% to 14%, primarily
due to the previously mentioned consulting agreement which generated a
gross profit of approximately 82%. Sale of securities represents the
sale of Energy Research Corp. stock which was held for investment
purposes by the Company. Revenues generated from development stage
companies were derived primarily from consulting agreements.
Management feels that there is a possibility that there will be
reversals in the governmental spending cutbacks. However, defense and
military spending continues to be sluggish. Management plans to place
more emphasis on other governmental areas as well as the private
sector through its new acquisition S-Tech. Management believes
consulting revenues will keep consistent with the current year.
However, there are no long-term consulting agreements in effect at the
present time. Security sales vary from period to period as securities
are sometimes included as part of the payment on consulting
agreements. At this time management cannot estimate the amount of
revenues, if any, that will be generated from security sales in the
future. The development stage companies are at the stage where they
will have products available for sale to the public. Management, is
not able to determine the amount of revenue, if any, these products
will generate.
Net income was $740 for fiscal 1993 compared to a net loss of $122
for fiscal 1992. This positive trend was due to the one time gain
resulting from the acquisition of certain net assets of General
Technologies Group, Ltd. by S-Tech Corp., a subsidiary of the Company.
Interest expense for fiscal 1993 increased by $68 to $229 from $161
in fiscal 1992.
Fiscal 1992 Compared with Fiscal 1991:
Revenues increased by $484 compared to the previous year. The
fiscal 1992 net loss was $122 as compared to the fiscal 1991 net
income $538. The net income in 1991 was attributable to a gain
recorded on the disposal of a part of a line of business. On July 30,
1991, the Company sold its 50.1% interest in Trinity Holding Corp., a
management and financial consulting and placement service, to one of
the minority shareholders of Trinity Holding Corp. in exchange for one
dollar and the waiver of significant emoluments granted by the
Company's Board in 1989. At that date, liabilities exceeded assets by
$833,890. The excess of net liabilities over the net investment in
Trinity Holding Corp. of $766,893 has been recorded as a gain and is
included in other income. Excluding the gain on the disposal of a
part of a line of business, the 1991 results would have netted losses from
operations of $175. The positive trend in 1992 was due to a
significant increase in consulting revenues and management's ability
to keep general and administrative expenses at a level consistent with
fiscal 1991.
Page 3
<PAGE> 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (in 000's) (continued):
Interest expense for fiscal 1992 increased by $34 to $161 from $127
in fiscal 1991.
Liquidity and Capital Commitments:
Financial Condition:
Working capital increased from $906 at July 31, 1993 to $6,807 at
July 31, 1994. Current assets increased by $9,381 and current assets
increased by $3,480 of which both increases were primarily due to
assets and liabilities acquired through the Company's newly acquired
subsidiaries, ARC Acquisition Group, Inc., ARC Networks, Inc., and
Creative Socio-Medics, Inc.
The Company generated cash of approximately $8,000 and $6,000
through the issuance of common stock through an offering under
Regulation "S" and the exercise of stock options. Of the $14,000
generated, approximately $7,000 was used for acquisitions, $2,000 for
the payment of debt, $1,000 for loans made and $1,000 for the purchase
of capital equipment and capitalized software development costs.
Impact of Inflation:
The Company is subject to normal inflationary trends and anticipates
that any increased costs should be passed on to its customers.
Page 4
<PAGE> 6
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements
F-1 Report of Mortenson and Associates, P.C.
Independent Certified Accountants
F-2 & F-3 Consolidated Balance Sheets as of July 31,
1994 and 1993
F-4 Consolidated Statements of Operations for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
F-5 - F-8 Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
F-9 - F-11 Consolidated Statements of Cash Flows for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
F-12 - F-38 Notes to Consolidated Financial Statements
Page 5
<PAGE> 7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Consolidated Technology Group Ltd.
New York, New York.
We have audited the accompanying consolidated balance sheets of
Consolidated Technology Group Ltd. [Formerly Sequential Information
Systems, Inc.] and its subsidiaries as of July 31, 1994 and 1993, and
the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the
period ended July 31, 1994. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
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
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Consolidated Technology Group Ltd. and its
subsidiaries as of July 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three fiscal years in
the period ended July 31, 1994, in conformity with generally accepted
accounting principles.
/S/
------------------------------
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.
Cranford, New Jersey
October 26, 1994
F-1
<PAGE> 8
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(in 000's except share data)
July 31, July 31,
1994 1993
-------- --------
Assets:
Current assets:
Cash and cash equivalents $ 1,773 $ 174
Cash escrow 2,000 --
Receivables, net of allowances 5,095 540
Inventories 3,727 4,102
Loans receivable 1,019 38
Prepaid expenses and
other current assets 899 279
------ ------
Total current assets 14,513 5,133
------ ------
Property, plant and equipment, net 906 778
------ ------
Other assets:
Capitalized software development costs 1,144 575
Goodwill, net 5,852 220
Covenant not to compete, net 514 --
Customer lists, net 972 --
Deferred offering costs 172 --
Receivables, long-term 56 244
Receivables, related parties 491 320
Investments in common stock, long-term 259 67
Other Assets 191 44
------ ------
Total other assets 9,651 1,470
------ ------
Total Assets $25,070 $ 7,381
====== ======
See notes to consolidated financial statements.
F-2
<PAGE> 9
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(in 000's except share data)
July 31, July 31,
1994 1993
-------- --------
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $ 3,276 $ 957
Accrued payroll and related expenses 127 748
Accrued interest 151 349
State taxes payable 20 26
Interim billings in excess of costs
and estimated profits 744 --
Notes payable, related parties 183 221
Current portion of long-term debt 3,012 1,909
Current portion of capitalized
lease obligations 192 16
------ ------
Total current liabilities 7,705 4,226
------ ------
Long-term liabilities:
Long-term debt 242 --
Capitalized lease obligations 56 --
------ ------
Total long-term liabilities 298 --
------ ------
Commitments and contingencies
Minority interest 6 76
------ ------
Shareholders' Equity:
Preferred stock 81 81
Additional paid-in capital,
preferred stock 311 311
Common stock (50,000,000 shares
authorized, 12,534,260 shares
issued and outstanding) 125 42
Additional paid-in capital, common stock 41,731 16,753
Accumulated deficit (24,802) (14,030)
Net unrealized loss on long-term
investments in common stock (385) (78)
------ ------
Total shareholders' equity 17,061 3,079
------ ------
Total Liabilities and Shareholders' Equity $25,070 $ 7,381
====== ======
See notes to consolidated financial statements.
F-3
<PAGE> 10
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Operations for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's except per share data)
1994 1993 1992
-------- -------- --------
Revenues $15,742 $ 3,839 $ 4,533
Direct costs 13,560 2,664 3,106
------ ------ ------
Gross profit 2,182 1,175 1,427
Selling, general
and administrative 12,748 2,578 1,368
------ ------ ------
Income (Loss) from operations (10,566) (1,403) 59
------ ------ ------
Other income (expense):
Interest expense (490) (229) (161)
Other income (expense) 69 (46) (20)
Gain (loss) from
security sales 13 694 --
Unusual items -- 1,523 --
------ ------ ------
Total other income (expense) (408) 1,942 (181)
------ ------ ------
Income (Loss) from operations
before income taxes and
minority interest (10,974) 539 (122)
Income Taxes -- (21) --
Minority Interest in Loss
of Subsidiaries 202 76 --
------ ------ ------
Income (loss) before
extraordinary item (10,772) 594 (122)
Extraordinary Item -- 146 --
------ ------ ------
Net Income (Loss) ($10,772) $ 740 ($ 122)
====== ====== ======
Earnings (Loss) per Share:
Income (loss) before
extraordinary item ($1.35) $0.14 ($0.03)
Extraordinary item -- 0.04 --
------ ------ ------
Net income (loss) per share ($1.35) $0.18 ($0.03)
====== ====== ======
Weighted average number of
common shares 7,972,594 4,224,260 4,224,260
========= ========= =========
See notes to consolidated financial statements.
F-4
<PAGE> 11
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock, $1.00
par value, 6% Series
A 77,713 shares
authorized:
Beginning balance 77,713 $ 78 -- -- -- --
Issuance of Series A -- -- 77,713 $ 78 -- --
---------- ------ ---------- ------ ---------- ------
Ending balance 77,713 $ 78 77,713 $ 78 -- --
========== ====== ========== ====== ========== ======
Preferred stock, $1.00
par value, $3.50 and
$.10 Series B & E 8,000
shares authorized each:
Beginning balance 262 $ 1 262 $ 1 262 $ 1
========== ====== ========== ====== ========== ======
Ending balance 262 $ 1 262 $ 1 262 $ 1
========== ====== ========== ====== ========== ======
Preferred stock, $1.00
par value, $8.00 sub-
ordinated Series F,
6,000 shares authorized:
Beginning balance 2,700 $ 2 2,700 $ 2 2,700 $ 2
========== ====== ========== ====== ========== ======
Ending balance 2,700 $ 2 2,700 $ 2 2,700 $ 2
========== ====== ========== ====== ========== ======
(continued)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 12
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Total preferred
stock - par 80,675 $ 81 80,675 $ 81 2,962 $ 3
========== ====== ========== ====== ========== ======
Additional paid-in
capital, preferred
stock:
Beginning balance $ 311 -- --
Issuance of Series A -- $ 311 --
------ ------ ------
Ending balance $ 311 $ 311 --
====== ====== ======
Common stock, $0.01
par value,
50,000,000 shares
authorized:
Beginning balance 4,224,260 $ 42 4,224,260 $ 42 4,224,260 $ 42
Issuance for offerings 3,500,000 35 -- -- -- --
Issuance for
acquisitions 1,810,000 18 -- -- -- --
Issuance for exercise
of stock options 3,000,000 30 -- -- -- --
---------- ------ ---------- ------ ---------- ------
Ending balance 12,534,260 $ 125 4,224,260 $ 42 4,224,260 $ 42
========== ====== ========== ====== ========== ======
(continued)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 13
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Additional paid-in
capital, common stock:
Beginning balance $16,753 $16,753 $16,753
Issuance for offerings 8,330 -- --
Issuance for
acquisitions 4,938 -- --
Issuance for exercise
of stock options 11,710 -- --
------ ------ ------
Ending balance $41,731 $16,753 $16,753
====== ====== ======
Accumulated deficit:
Beginning balance ($14,030) ($14,770) ($14,648)
Net loss (10,772) 740 (122)
------ ------ ------
Ending balance ($24,802) ($14,030) ($14,770)
====== ====== ======
(continued)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 14
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net unrealized gain
(loss) on long-term
investments in
common stock:
Beginning balance ($78) -- --
Recognized investment
security (gains)
losses (307) (78) --
------ ------ ------
Ending balance ($385) ($78) --
====== ====== ======
Total shareholders' equity $17,061 $ 3,079 $ 2,028
====== ====== ======
(concluded)
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 15
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
1994 1993 1992
-------- -------- --------
Cash Flows from Operating
Activities:
Income (loss) before
extraordinary item ($10,772) $ 594 ($ 122)
------ ------ ------
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and Amortization 290 40 31
Minority interest in loss of
consolidated subsidiaries (202) (75) --
Bad debt expense 23 68 35
Deferred charges on option
exercise 7,140 -- --
Additional compensation 135 -- --
Unusual item -- (1,523) --
Extraordinary item -- 146 --
Write-down fixed assets
to fair value 225 -- --
Write-off of loans receivable 279 562 --
(Gain) loss on sale of common
stock investments (13) (694) 25
Change in current assets
and current liabilities:
(Increase) decrease in
in current assets:
Receivables (811) 52 (287)
Inventories 460 (57) (120)
Prepaid expenses and other
current assets (388) (107) (103)
Increase (Decrease) in
current liabilities:
Accounts payable and
accrued liabilities 680 103 182
Accrued payroll and
related expenses (868) 361 167
Accrued interest (184) 76 30
State taxes payable (6) 25 --
------ ------ ------
Total adjustments 6,760 (1,023) (40)
------ ------ ------
Net cash provided by (used)
in operating activities (4,012) ( 429) (162)
------ ------ ------
(continued)
See notes to consolidated financial statements.
F-9
<PAGE> 16
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
1994 1993 1992
-------- -------- --------
Cash Flows from Investing
Activities:
(Increase) decrease in
other assets (839) 30 34
Capital expenditures (161) (60) (39)
Capitalized software
development costs (581) (404) --
Investments in common stock (488) (95) --
Proceeds from sale of common
stock investments 25 749 --
Acquisition of subsidiary (500) -- --
Cash of company acquired 145 4 --
Cash of company sold (6) -- --
Cash escrow (2,000) -- --
Payments for loans made (1,194) (320) (44)
Collections from repayment
of loans made -- 31 --
------ ------ ------
Net cash used in
investing activities (5,599) (65) (49)
------ ------ ------
Cash Flows from Financing
Activities:
Deferred offering costs (172) -- --
Proceeds from issuance
of long-term debt 605 752 325
Repayment of long-term debt (1,976) (644) (8)
Payments on capital leases (8) (3) --
Issuance of preferred stock -- 40 --
Issuance of common stock 8,161 -- --
Exercise of stock options 4,600 -- --
------ ------ ------
Net cash provided by financing
activities 11,210 145 317
------ ------ ------
Net Increase (Decrease) in
Cash and Cash Equivalents 1,599 (349) 106
Cash and Cash Equivalents at
Beginning of Period 174 523 417
------ ------ ------
Cash and Cash Equivalents at
End of Period $ 1,773 $ 174 $ 523
====== ====== ======
(continued)
See notes to consolidated financial statements.
F-10
<PAGE> 17
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's)
1994 1993 1992
-------- -------- --------
Supplemental Disclosures of
Cash Flow Information:
Cash paid for interest $ 116 $ 143 $ 130
====== ====== ======
Cash paid for income taxes $ -- $ 1 --
====== ====== ======
(concluded)
Supplemental Disclosures of Noncash Investing and Financing
Activities:
During the fiscal year ended July 31, 1994, the Company:
(1) Purchased capital assets in the amount of $49 and assumed
notes payable for the full amount.
(2) Acquired ARC Acquisition Corp. and in connection therewith
assumed long-term debt approximating $1,400.
(3) Acquired Creative Socio-Medics and in connection therewith
assumed long-term debt approximating $530.
(4) Incurred $7,140 in noncash expense from the issuance and
exercise of 3,000,000 options.
During the fiscal year ended July 31, 1993, the Company:
(1) Purchased capital assets in the amount of $48 and assumed
capital lease obligations for the full amount.
(2) Procured insurance coverage valued at $20 and assumed debt
for the full amount.
(3) Through its subsidiary, S-Tech, purchased certain assets of
General Technologies Group, Ltd. which resulted in a one
time gain of $1,523.
(4) Converted debt in the amount of $349 into 69,711 shares of
Series A preferred stock.
See notes to consolidated financial statements.
F-11
<PAGE> 18
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
General - Effective September 1, 1993, the Company's name was
changed from Sequential Information Systems, Inc. to Consolidated
Technology Group Ltd.
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of the Company and all
of its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Cash - Escrow - Cash held in escrow of $2,000 represents money to
be applied towards the acquisition of IMI [See Note 19].
Property and Equipment and Depreciation - 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.
Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
Income [Loss] Per Common Share - Income [loss] per common share
is computed by dividing the net income [loss] for the year by the
weighted average number of common shares outstanding. Stock
options and warrants are assumed converted to common stock, when
dilutive.
Revenue Recognition - Revenue for the service sector is
recognized as services are provided. Revenue for the
manufacturing sector is recognized primarily under fixed price
type contracts and are accounted for under the unit of delivery
method. Anticipated losses on contracts in progress are charged
to operations as soon as such losses can be determined.
Revenues from fixed price software development contracts and
revenue under license agreements which require significant
modification of the software package to the customer's
specification, are recognized on the estimated
percentage-of-completion method. Revisions in cost estimates and
recognition of losses on these contracts are reflected in the
accounting period in which the facts become known. Revenue from
software package license agreements without significant vendor
obligations is recognized upon delivery of the software.
Information processing revenues are recognized in the period in
which the service is provided. Maintenance contract revenue is
F-12
<PAGE> 19
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
recognized on a straight-line basis over the life of the
respective contract. Software development revenues from
time-and-materials contracts are recognized as services are
performed.
Contract terms provide for billing schedules that differ from
revenue recognition and give rise to costs and estimated profits
in excess of billings, and billings in excess of costs and
estimated profits.
Costs and estimated profits in excess of billings of $269 at July
31, 1994, are included in other current assets and billings in
excess of costs and estimated profits of $744 are included in
accounts payable and accrued expenses at July 31, 1994.
Capitalized Software Development Costs - Capitalization of
computer software development costs begins upon the establishment
of technological feasibility. Technological feasibility for the
Company's computer software products is generally based upon
achievement of a detail program design free of high risk
development issues. The establishment of technological
feasibility and the ongoing assessment of recoverability of
capitalized computer software development costs requires
considerable judgment by management with respect to certain
external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technology.
Amortization of capitalized computer software development costs
will commence when the related products become available for
general release to customers. Amortization is to be provided on
a product by product basis using the straight-line method over
the estimated economic life of the product, estimated to be
approximately 2-3 years. Amortization at July 31, 1994 amounted
to $13. There was no amortization in fiscal 1993 and fiscal
1992.
Reclassification - Certain fiscal 1993 items have been
reclassified to conform to the current years presentation.
F-13
<PAGE> 20
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Intangible Assets - Intangible assets consist of the following at
July 31, 1994 and 1993:
1994 1993
---- ----
Goodwill $5,932 $226
Less: Accumulated Amortization (80) (6)
----- -----
Net $5,852 $220
===== =====
Covenant Not-to-Compete $ 602 --
Less: Accumulated Amortization (88) --
----- -----
Net $ 514 --
===== =====
Customer lists $ 972 --
Less: Accumulated amortization -- --
----- -----
Customer lists, net $ 972 --
===== =====
Amortization expense charged to operations for fiscal 1994 and
fiscal 1993, was $162 and $6, respectively.
The covenant not-to-compete is being amortized over a five-year
period [the life of the agreement] on the straight-line method.
Management of the Company evaluates the period of goodwill
amortization to determine whether latter events and circumstances
warrant revised estimates of useful lives. Management on a
quarterly basis evaluates whether the carrying value of goodwill
has become impaired. This evaluation is done by comparing the
carrying value of goodwill to the value of projected discounted
net cash flows from related operations. Impairment is recognized
if the carrying value of goodwill is less than the projected
discounted net cash flows from related operations.
Goodwill represents the excess of the cost of companies acquired
over the fair value of their net assets at dates of acquisition
and is being amortized over a twenty year period on the
straight-line method.
F-14
<PAGE> 21
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Receivables - Accounts receivable consist of:
July 31,
-------------------
1994 1993
-------- --------
Receivables Assigned to Factor $ 2,785 --
Trade Accounts Receivable 2,608 $ 748
Notes Receivable - Net -- 43
Less: Allowance for Bad Debts (242) (7)
------ ------
Receivables - Net 5,151 784
Less: Receivables - Long-term 56 244
------ ------
Receivables - Net - Current $ 5,095 $ 540
====== ======
The Company finances certain receivables to a factor under
agreements entered into in August 1993. The agreements expire in
one year and have a maximum availability of funds of $2,000.
Funds can be advanced in an amount equal to 85% of the total face
amount of outstanding and unpaid receivables, with the factor
having the right to reserve 15% of the outstanding and unpaid
receivables financed. The interest rates as of July 31, 1994
range from 2.65% to 7.95% based upon the age of the receivable
balance. The factor has a security interest in all accounts
receivables, contract rights, personal property, fixtures and
inventory of the Company. At July 31, 1994, the total amount
advanced by the factor was $1,936.
Loans Receivable - There is $988 in advances to Fingermatrix,
Inc. shown net of an allowance of $251. Fingermatrix is
currently in Chapter XI pursuant to a petition filed on September
11, 1993. The bankruptcy court has classified the Company as an
administrative creditor relating to $792 of these advances. As
administrative creditor, the Company feels extremely confident
that Fingermatrix will emerge out of bankruptcy in the near
future and satisfy, not only the preferred administrative debts,
but also all its unsecured debts to the Company.
F-15
<PAGE> 22
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Inventories - Inventories consist of raw materials,
work-in-process and finished goods. Raw materials are valued at
the lower of cost [first-in, first-out] or market. The
work-in-process represents accumulated costs of raw materials,
direct labor and factory overhead expenses on current work
orders. Finished goods represent computer software inventory
purchased for resale. Inventories of $3,727 in 1994 and
inventory of $4,136 in 1993 [shown net of progress payments of
$33] are as follows:
July 31,
-------------------
1994 1993
-------- --------
Finished Goods $ 12 $ 128
Work-in-Process 654 718
Raw Materials and Parts 3,061 3,290
------ ------
Subtotals 3,727 4,136
Less: Progress Payments -- (33)
------ ------
Totals $ 3,727 $ 4,103
====== ======
Deferred Offering Costs - Deferred offering costs represent
amounts paid or accrued for costs associated with an anticipated
public offering of a subsidiary of the Company. These costs will
be recorded as a reduction of the net proceeds of the offering or
they will be expensed if the offering is not consummated.
Notes Payable - Related Parties - The Company is indebted to
stockholders for cash received and office equipment contributed
by these stockholders in 1992. The loans are noninterest bearing
and have no fixed due date. Amounts due at July 31, 1994 and
1993 were $183 and $221, respectively.
F-16
<PAGE> 23
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- -----------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Notes Payable - Other - Notes payable - other consist of the
following:
July 31,
-------------------
1994 1993
-------- --------
Former Stockholders of Acquired
Subsidiary, due 1997 at 7% interest. $ 354 $ 494
Bank loans - payable on demand with
interest at 8% - 9.25%.
Collateralized by the assets and
stock of two subsidiaries of the
Company. $140 is currently in
default. 454 395
Loans payable to factor - base
interest rate of 7.65% at December
31, 1994 and July 31, 1994, plus
an additional 2% and 4% for the
respective periods. Collateralized
by accounts receivable, contract
rights, personal property, fixtures
and inventory. 1,936 --
Equipment Loans, due 1999
at variable interest rates. 48 --
Investors, in default at 10% interest. 162 --
Various Notes Payable, due on demand at
interest rates ranging from 8% to 12%. 300 1,020
------ ------
Totals 3,254 1,909
Less: Current Maturity 3,012 $ 1,909
------ ------
long-term Portion $ 242 --
====== ======
Aggregate principal payments for the next five years subsequent
to July 31, 1994 are as follows:
July 31,
--------
1995 $ 3,012
1996 171
1997 53
1998 11
1999 7
------
Total $ 3,254
======
F-17
<PAGE> 24
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Interest expense on all outstanding debt amounted to $490, $229
and $161.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
are cash equivalents and accounts receivable arising from its
normal business activities. The Company routinely assesses the
financial strength of it 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 places its cash and cash
equivalents with high credit quality financial institutions. The
amount on deposit in any one institution that exceeds federally
insured limits is subject to credit risk. The Company believes
no significant concentration of credit risk exists with respect
to these cash investments. Revenues from two customers accounted
for approximately 47% and 7% of total revenues for the year ended
July 31, 1994.
[2] Sale and Reacquisition of Subsidiary
Pursuant to an Agreement dated June 4, 1987, by and among General
Aero Products Corp., now called General Technologies Group Ltd.
["GTG"], the Company and Sequential Electronic Systems, Inc.
["SES"], the Company sold all of the then issued and outstanding
common stock of SES [100 shares] to GTG. The Company received
1,500,000 shares of GTG common stock and a ten year, 10.5%
promissory note in the principal amount of $2,000, which note was
subsequently written down by $500 and the return by the Company
of 500,000 shares of GTG common stock. This write down and
return of shares was in settlement of a fraudulent claim made by
GTG against the Company. The Company also loaned $500 to GTG
evidenced by GTG's 8% Convertible Debenture. Subsequent to the
above transactions, a Chapter XI petition was filed on December
14, 1989 by GTG [See Note 18].
In 1993, the Company through its wholly-owned subsidiary, SIS
Capital Corp. completed a settlement agreement with a financial
institution. The agreement includes the purchase by the Company
of the 100 shares of SES stock held by the financial institution
for $25 cash and a note of $75. In addition, S-Tech, Inc., a
subsidiary of the Company acquired from the financial
institution, certain net assets of General Technologies Group
Ltd. in the amount of $1,523 (which represents the appraised
F-18
<PAGE> 25
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[2] Sale and Reacquisition of Subsidiary (continued)
value of the assets) for $100 cash and a note of $270. The cost
of the purchase of the 100 shares of SES stock is included in the
expenses and losses recovered by the Company through the acquired
assets of General Technologies Group Ltd. [See Note 16]. In
conjunction with the agreement, an adversary proceeding commenced
against General Technologies Group Ltd. in its pending Bankruptcy
proceedings in the Bankruptcy Court -Eastern District of New York
has been settled. The Company's claim for rescission of the sale
of certain Sequential Electronic Systems, Inc. stock and damages
for fraud, and the financial institution's separate adversary
proceeding for an order voiding the issuance of nine hundred
(900) shares of Sequential Electronic Systems, Inc. stock have
all been discontinued. There are no other claims either by or
against the Company pending in those Bankruptcy proceedings. The
Company has paid for its purchase of one hundred (100) shares of
stock to the financial institution as part of its settlement of
all claims by and against the financial institution.
[3] Investments - Common Stock
Securities are stated at the lower of cost or market value.
At July 31, 1994 and 1993, these securities consisted of the
following:
Market Cost
Value Basis
-------- --------
July 31, 1994:
Noncurrent:
Common Stock $ 259 $ 644
====== ======
The net unrealized loss on long-term investments in common stock
of $386 is included as a reduction of shareholders' equity at
July 31, 1994.
July 31, 1993:
Noncurrent:
Common Stock $ 67 $ 145
====== ======
F-19
<PAGE> 26
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[4] Notes Receivable
Notes receivable at July 31, 1994 and 1993 were as follows:
July 31,
-------------------
1994 1993
-------- --------
Products and Patents Corporation - 10%
per year, interest payable quarterly,
due December 31, 1994. $ 23 $ 23
Value Trading, Inc. - 10% per year,
interest payable monthly. Principal
payable upon demand. 50 50
------ ------
Totals 73 73
Less: Allowance for Doubtful Notes (73) (30)
------ ------
Total Notes Receivable - Net $ -- $ 43
====== ======
[5] Property and Equipment
Property and equipment consist of the following:
July 31,
-------------------
1994 1993
-------- --------
Machinery and Equipment $ 2,563 $ 2,572
Tools and Dies 145 145
Furniture and Equipment 587 156
Furniture and Equipment Leased
Under Capital Leases 306 --
Vehicles 47 25
Leasehold Improvements 273 --
------ ------
Totals 3,921 2,898
Less: Accumulated Depreciation 3,015 2,120
------ ------
Totals $ 906 $ 778
====== ======
F-20
<PAGE> 27
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[6] Lease Obligations
Capitalized Lease Obligations - Capitalized lease obligations
consist of the following at July 31, 1994:
Capitalized lease obligations, interest
at 12% to 13%, due monthly through
November 1998 $ 248
Less: Current Maturities (192)
------
Noncurrent Portion $ 56
======
Capitalized lease obligations are collateralized by equipment
which has a net book value of $88 at July 31, 1994. The Company
has not made timely payments on a capitalized lease obligation on
equipment with a net book value of $81 at July 31, 1994.
Accumulated depreciation at July 31, 1994 contains $218 which
represents accumulated depreciation related to furniture and
fixtures leased under capital leases prior to the acquisition of
Creative Socio-Medics, Inc. [CSM] [See Note 14 and 5].
Future minimum payments under capitalized lease obligations as of
July 31, 1994 are as follows:
Year ending
July 31,
1995 $ 133
1996 107
1997 20
1998 20
1999 9
------
Total Minimum Payments 289
Less: Amount Representing Interest
at Rates Ranging from 12% to 13% (41)
------
Balance $ 248
======
Operating Lease Obligations - The Company's present executive
offices are located at 160 Broadway, New York, New York 10038,
which it occupies pursuant to a lease expiring February 28, 1999.
Payments are made by a subsidiary company. The current base rent
for such premises is $7 per month.
F-21
<PAGE> 28
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[6] Lease Obligations (continued)
The Company's subsidiaries occupy various facilities pursuant to
leases expiring through July 1999. The current base rent for
such premises approximates $48 per month.
Minimum future rental payments under noncancelable operating
leases having a remaining term in excess of one year through July
1999 are as follows:
Year ending
July 31,
-----------
1995 $ 571
1996 431
1997 402
1998 398
Thereafter 222
------
Total $ 2,024
======
Rent expense for the years ended July 31, 1994, 1993 and 1992
amounted to $357, $258 and $236, respectively.
[7] Capital Stock
Common Stock - Effective September 1, 1993, the capitalization of
the Company changed from 300,000,000 shares of common stock, $.01
par value, into 50,000,000 shares of common stock, $.01 par
value. Effective the same time, the presently issued and
outstanding shares of common stock were reverse split on the
basis of one [1] new share for each sixty [60] issued and
outstanding shares. All share data has been adjusted
retroactively.
In October 1993, January 1994 and March 1994, the Company
registered 1,500,000 shares, 1,000,000 shares and 1,500,000
shares, pursuant to a stock option plan for Non-Employee
Directors, Consultants and Advisors of which 3,000,000 were
exercised [See Note 8].
The Company also issued 850,000 shares in connection with the
acquisitions of Arc Acquisition Group, Inc. and Arc Networks,
Inc. [See Note 14].
F-22
<PAGE> 29
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[7] Capital Stock (continued)
In addition, pursuant to an offering in March 1994 made under
Regulation S of the Securities Act of 1933, the Company received
net proceeds of $8,162 in conjunction with the issuance of
3,500,000 shares of stock.
The Company also issued 840,000 shares in connection with the
acquisition of Creative Socio-Medics Corp. [See Note 14] and
120,000 shares in connection with the acquisition of the
remaining 20% of S-Tech.
Preferred Stock - Effective September 1, 1993, the authorized
number of shares of undesignated preferred stock, par value $1.00
per share, was increased from 1,000,000 to 2,000,000 shares.
The Series A convertible preferred stock bears a cumulative
dividend of 6%, is redeemable at any time at the option of the
Company at a redemption price of $10 per share, and is
convertible at the option of the holder at any time commencing
two years from the date of issuance, unless sooner called for
redemption by the Company at the rate of 7,812.5 shares of common
stock for each share of preferred stock if and when sufficient
shares of common stock are available for issuance. No dividends
were declared for the year ended July 31, 1994. As of July 31,
1994, dividends of approximately $6 are in arrears.
The Series B subordinated preferred stock is redeemable at the
option of the Company at the issue price of $87.50 per share.
The stock is entitled to a $3.50 annual dividend which is
contingent upon after tax earnings being in excess of $200. In
the event of involuntary or voluntary liquidation, the holders
may receive $87.50 per share and all dividends. No dividends
were declared for the years ended July 31, 1994, 1993 and 1992.
The Series E preferred stock is entitled to an annual dividend of
$.10 per share contingent upon after tax earnings being in excess
of $200. No dividends were declared for the years ended July 31,
1994, 1993 and 1992.
As consideration for granting extensions on former debts, the
Company issued, in 1984, 2,700 shares of preferred stock at $1.00
per share. The nonvoting preferred stock, designated Series "F",
with a dividend rate of $8.00 per share is redeemable at the
option of the Company after July 31, 1993 for $1.00 per share.
One share will be issued for each $100 of principal indebtedness
F-23
<PAGE> 30
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[7] Capital Stock (continued)
owed. The dividend will be noncumulative and is payable within
100 days from the close of any fiscal year where net income after
tax exceeds $500, and all dividends due on the Series "B"
preferred stock are paid or provided for. No dividends were
declared for the years ended July 31, 1994, 1993 and 1992.
[8] Stock Options and Warrants
Incentive Stock Option and Appreciation Plan - In August, 1983,
the Company's shareholders approved an Incentive Stock Option and
Appreciation Plan [the "Plan"]. The Plan provides for the
issuance of incentive stock options to purchase up to 166,667
shares of the Company's common stock to its officers, directors
and key employees. The exercise prices must be at least equal to
the market value of the Company's common stock on the date of
grant. The number of options granted, expiration dates, exercise
prices and number of shares covered per option will be decided by
the Stock Option Committee of the Company. No option may be
exercised within six months after the date of the grant or after
the expiration of ten years from the date of the grant.
Options under the Plan may not be granted to any employee owning
stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, unless the option price
is at least 110% of the fair market value of the Company's common
stock on the date of the grant. Options granted to such
employees must expire within five years of the date granted. The
aggregate fair market value of common stock for which any
employee may be granted options in any calendar year may not
exceed $100 plus certain carryovers in certain circumstances.
Options granted under the Plan may provide the holders, thereof,
with stock appreciation rights under which any increase in the
price of the Company's common stock with respect to unexercised
options may be paid to the holder in the form of cash, common
stock of the Company or both.
Options are cancelable because of death or termination of
employment.
On August 20, 1993, the Company authorized a stock option plan
for Non-Employee Directors, Consultants and Advisors to provide
compensation for services rendered to the Company in lieu of cash
payments, reserving 1,500,000 shares of authorized and unissued
common stock. Options to purchase 1,400,000 shares of common
F-24
<PAGE> 31
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[8] Stock Options and Warrants (continued)
stock were granted to advisors and consultants in lieu of cash
payments aggregating $100. On October 29, 1993, 1,400,000
shares of common stock were paid for and issued and the Company
received a cash payment of $1,400.
In October 1993, January 1994 and March 1994, the Company
registered 1,500,000 shares, 1,000,000 shares and 1,500,000
shares, respectively, pursuant to a stock option plan for
Non-Employee Directors, Consultants and Advisors. Options for
3,000,000 shares, of which 1,400,000 were exercised at $1.00 per
share and 1,600,000 exercised at $2.00 per share, resulted in
$7,140 of expenses computed as follows:
Shares 1,400,000 1,600,000 = 3,000,000
Per Share Value of
Stock at Date of Grant $ 3.62 $ 6.00 = $ 4.8917*
-------- -------- --------
Undiscounted Value $ 5,075 $ 9,600 = $ 14,675
20% Discount (1,015) (1,920) = (2,935)
-------- -------- -------
Discounted Value 4,060 7,680 = 11,740
Exercise Price (1,400) (3,200) = (4,600)
-------- -------- = -------
Expense $ 2,660 $ 4,480 = $ 7,140
======== ======== =======
* - Represents weighted average.
In accordance with the agreements relating to the various parties
involved, the $7,140 was charged as consulting services in the
determination of income from operations. A 20% discount was
utilized because the shares issued represents a large block of
stock.
[9] Selected Industry Segment Data
The Company's operations are classified into three principal
industry segments: manufacturing, service and development stage.
Following is a summary of segmented information for 1994, 1993
and 1992.
F-25
<PAGE> 32
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[9] Selected Industry Segment Data (continued)
1994 1993 1992
-------- -------- --------
Net Sales:
Manufacturing $ 3,475 $ 3,055 $ 3,355
Service 11,968 654 1,178
Development Stage 299 130 --
------ ------ ------
Total Net Sales $15,742 $ 3,839 $ 4,533
====== ====== ======
Operating Profit [Loss]:
Manufacturing $ (998) $ 100 $ 227
Service (8,125) (1,200) (168)
Development Stage (1,443) (303) --
------ ------ ------
Total Operating [Loss] Profit (10,566) (1,403) 59
Other [Expense] Income-Net (408) 1,942 (181)
Minority Interest in Loss
of Subsidiary 202 76 --
Provision for Taxes -- (21) --
------ ------ ------
[Loss] Income before
Extraordinary Item (10,772) 594 (122)
Extraordinary Item -- 146 --
------ ------ ------
Net [Loss] Income ($10,772) $ 740 $ (122)
====== ====== ======
Assets:
Manufacturing $ 4,931 $ 4,983 $ 3,300
Service 13,961 1,105 1,475
Development Stage 6,178 1,293 --
------ ------ ------
Total Assets $25,070 $ 7,381 $ 4,775
====== ====== ======
F-26
<PAGE> 33
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[9] Selected Industry Segment Data (continued)
Capital Expenditures[1]:
Manufacturing -- $ 455 --
Service $ 1,085 8 $ 39
Development Stage 142 278 --
------ ------ ------
Total Capital Expenditures $ 1,227 $ 741 $ 39
====== ====== ======
Depreciation and Amortization:
Manufacturing $ 43 $ 5 $ 20
Service 152 11 11
Development Stage 95 24 --
------ ------ ------
Total Depreciation and
Amortization $ 290 $ 40 $ 31
====== ====== ======
[1] For 1993, capital expenditures for the manufacturing segment
include $450 allocated to property and equipment from the
acquisition of certain net assets of General Technologies Group
Ltd. and capital expenditures for the development stage segment
include $182 in property and equipment from the acquisition of
Robotics and Designs, Inc. For 1994, capital expenditures for
the service segment include $1,066 allocated to property and
equipment from the acquisition of certain net assets of Arc
Acquisitions Group, Inc. and Creative Socio-Medics, Inc.
[10] Federal Income Taxes
The reconciliation of the provision for [benefit from]
income taxes is as follows:
July 31,
------------------------------
1994 1993 1992
-------- -------- --------
U.S. Federal Statutory Rate 34.0% 34.0% 34.0%
Operating [Losses] For Which
There is No Current Tax Benefit (34.0%) -- (34.0%)
Utilization of Net Operating
Loss Carryforward -- (34.0%) --
State Taxes -- 4.0% --
------ ------ ------
Actual Rate -- 4.0% --
====== ====== ======
F-27
<PAGE> 34
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[10] Federal Income Taxes [Continued]
Effective August 1, 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes". Under Statement 109, the
asset and liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of
Statement 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of
income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax
rate in effect in the year the difference originated.
Temporary differences between financial reporting and tax bases
of assets and liabilities consist mainly of depreciation,
reserves on receivables and amounts accrued for costs associated
with an anticipated public offering. These differences are
currently immaterial.
As permitted by Statement 109, the Company has elected not to
restate the financial statements of any prior years. The change
had no cumulative effect on pretax income or net income for the
year ended July 31, 1994.
At July 31, 1994, the Company had net operating loss
carryforwards of approximately $11,846 for financial reporting
purposes, net of approximately $662, $537 and $335 utilized in
1993, 1991 and 1986, respectively. The carryforwards expire in
years from 1996 through 2006. Investment tax credit and job
credit carryforwards of approximately $105 are available to
reduce future income taxes. These credits expire in various years
through 1999. These credits have been reduced to reflect changes
made by the Tax Reform Act of 1986.
At July 31, 1994, the Company has a deferred tax asset of
approximately $4,700 and a valuation allowance of approximately
$4,700 related to the asset. The deferred tax asset relates to
federal net operating loss carryforwards, investment tax credit
and job credit carryforwards of approximately $3,837 and state
net operating loss carryforwards of approximately $863.
F-28
<PAGE> 35
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[11] Related Party Transactions
The Company is indebted to stockholders for cash received and
office equipment contributed by these stockholders in 1992. The
loans are noninterest bearing and have no fixed due date.
Amounts due at July 31, 1994 and 1993 were $184 and $221,
respectively.
DLB, Inc. had advanced as of July 31, 1993 approximately $375,
subject to interest at the rate of 10% per annum, to the Company
and various subsidiaries. These loans are secured by a UCC-1 on
the assets of Sequential Electronic Systems, Inc. and the pledge
of certain common stock shares of three of the Company's
subsidiaries. DLB, Inc. is owned by the wife of the chairman of
the Company's Board of Directors, who disclaims any interest in
DLB, Inc.
During fiscal 1994, Consolidated Technology Group Ltd. and
Subsidiaries made advances to a company that they acquired on
September 30, 1994 in a business combination to be accounted for
as a purchase [See Note 19]. Advances receivable from this
company at July 31, 1994 amounted to $347.
During fiscal 1994, the Company made advances to a 31% owned
subsidiary. These loans amounted to $289 at July 31, 1994 and
have no fixed due dates or terms. A reserve of $145 has been set
up against these loans at July 31, 1994.
The Company entered into a consulting agreement with Irving Hertz
[now deceased], upon his resignation from the Board and as Chief
Executive Officer of the Company. Under this agreement, all of
the fringes Mr. Hertz had as CEO, including a leased car, would
continue to be provided by the Company. The services to be
performed for which Mr. Hertz received a monthly retainer, were
investment banking and financial consulting on various situations
in which the Company was interested. The Company paid Mr. Hertz
under this agreement $67. Upon Mr. Hertz's death, the Company
settled all claims his Estate had against the Company for $175.
$100 of this amount has been paid. At July 31, 1993, $75 was
payable with interest at 10% per annum. This amount was paid in
full during fiscal 1994. In addition to the fees paid to Mr.
Hertz, consulting fees were paid to other individuals and firms.
No such individual or firm was a related party at the time the
fees were paid and the amount paid to any such individual or firm
was not deemed material.
F-29
<PAGE> 36
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[12] Litigation
Although the Company is a party to certain legal proceedings
which have occurred in the ordinary course of business, the
Company does not believe such proceedings to be of a material
nature with the exception of (i) an action for damages filed on
May 30, 1991 in the U.S. District Court, Southern District of
New York against the partners of the former accounting firm of
GTG, and some of the former management of GTG. This action was
brought against the defendants for ongoing fraud and conspiracy
to defraud the Company (ii) a subsidiary company of the Company
filed an action in the Supreme Court, New York County, to recover
a delinquent account receivable. The receivable was generated
for services rendered by the subsidiary, pursuant to a consulting
agreement. The total due to the Company's subsidiary includes
cash and securities whose current market value exceeds $350. The
present value of the delinquent amount was also the approximate
value at the time the services were performed. (iii) An action
for damages for interference in the performance of the contract
pertaining to (ii) above, was also commenced. The action filed
named as defendants a law firm and a partner of said law firm,
which firm formerly represented the defendant discussed in (ii).
[13] New Authoritative Pronouncements
Effective for fiscal years beginning after December 15, 1993,
which is fiscal year ending 1995 for the Company, Statement of
Financial Accounting Standards [SFAS] No. 115, Accounting for
Certain Investments in Debt and Equity Securities, requires that,
except for debt instruments classified as "held-to-maturity
securities," investments in debt and equity securities should be
reported at fair value. At July 31, 1994, the Company has
certain investments in common stock, whose carrying amount is
stated at the lower of its aggregate cost or market pursuant to
SFAS No. 12, Accounting for Certain Marketable Securities. SFAS
No. 12 is superseded by SFAS No. 115 upon its adoption.
Under SFAS No. 115, the difference between the cost of securities
classified as either "trading securities" or "available for sale
securities," and their fair value should be reflected in the
current year's operations, except for unrealized gains and losses
on debt and equity instruments classified as "available for sale"
which are to be reflected as a component of stockholders' equity.
The Company's current investments in common stocks are
anticipated to be classified as "available for sale" securities.
The effect of this change in accounting principle is not expected
to have any material effect on the Company's financial statements
F-30
<PAGE> 37
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[13] New Authoritative Pronouncements (continued)
as unrealized losses on its investments are currently being
reflected as a component of stockholder equity, and the Company
does not anticipate an increase in market value of its securities
above its cost in the short term which would, under SFAS No. 115,
require the Company to record unrealized appreciation in its
stockholders' equity section.
SFAS No. 114, Accounting by Creditors for Impairment of a Loan,"
is effective for fiscal years beginning after December 15, 1994,
and establishes accounting standards for creditors who have
certain impaired loans. The Company believes that adoption of
SFAS No. 114 will not result in an allowance for credit losses
significantly different that its current method of evaluating the
collectibility of its loans receivable.
SFAS No. 106, Employers' Accounting for Post Retirement Benefits
Other Than Pensions, is effective for fiscal years beginning
after December 15, 1992. SFAS No. 112, Employers' Accounting for
Post Employment Benefits, is effective for fiscal years beginning
after December 15, 1993. The Company does not provide post
Retirement or post Employment benefits as defined by SFAS No. 106
and 112.
[14] Business Combination
On December 22, 1993, Consolidated Technology Group Ltd.,
acquired for 600,000 shares valued at $1,440 [through a 90% owned
subsidiary] Arc Acquisition Group, Inc. in a business combination
accounted for as a purchase. On the same date, the Company also
acquired for 250,000 shares valued at $600 [through a
wholly-owned subsidiary] 80% of the outstanding voting common
stock and 50.1% of the outstanding nonvoting stock of Arc
Networks, Inc., in a business combination also accounted for as a
purchase. The purchase price of these two acquisitions exceeded
the fair value of the net assets of Arc Acquisition Group, Inc.
and Arc Networks, Inc. by $2,543, which will be amortized over 20
years under the straight line method. For accounting purposes,
the results of operations of Arc Acquisition and Arc Networks are
included with the results of the Company from January 1, 1994
onward.
On June 16, 1994, a subsidiary of the Company, Carte Medical
Holdings, Inc. ["Holdings"], through a wholly-owned subsidiary,
CSM Acquisition Corp. ["Acquisition Corporation"], acquired the
assets and assumed liabilities of Creative Socio-Medics Inc.
F-31
<PAGE> 38
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[14] Business Combination (continued)
["CSM"] pursuant to a plan and agreement of reorganization dated
as of April 13, 1994, as amended [the "Purchase Agreement"],
among the Company, Carte Medical Corp. ["Carte"], Acquisition
Corporation, CSM and Advanced Computer Techniques, Inc. ["ACT"],
the parent of CSM. The Company is the parent of SIS Capital
Corp. ["SISC"], which is the parent of Holdings. In connection
with the purchase, (i) Acquisition Corporation purchased the
assets and assumed liabilities of CSM in exchange for 800,000
shares of the Company's common stock and $500, which was advanced
by Carte to Acquisition Corporation from the proceeds of a loan
made by SISC, (ii) Holdings transferred the stock of Acquisition
Corporation to Carte, (iii) in consideration for the transfer of
the Acquisition Corporation stock, the Carte is to issue to
Holdings an aggregate of 1,000,000 shares of common stock, of
which 450,000 shares are issuable on or about the date Carte
receives the proceeds from an initial public offering, and (iv)
Acquisition Corporation changed its corporate name to Creative
Socio-Medics Corp. At the time of the execution of the Purchase
Agreement, SISC granted to former officers of ACT and CSM,
options to purchase an aggregate of 202,560 shares of Carte's
common stock owned by SISC. The shares of common stock owned by
SISC were transferred to Holdings subject to the options. The
options are exercisable at an exercise price of $.174 per share
during the five-year period commencing on June 16, 1994, the date
the acquisition of CSM was consummated. At the closing of the
acquisition, the Company issued to such individuals an aggregate
of 40,000 shares of its common stock. The Carte options and the
Company common stock are valued at $101 and $135, respectively
and were issued as additional compensation for these individuals.
The purchase price of this acquisition exceeded the fair value of
the net assets of CSM by $3,851 which will be amortized over 20
years under the straight line method. For accounting purposes,
the results of operations of CSM are included with the results of
the Company from July 1, 1994 onward.
F-32
<PAGE> 39
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[14] Business Combination (continued)
The following pro forma unaudited results assume the above
acquisitions had occurred at the beginning of the year:
July 31,
-------------------
1994 1993
-------- --------
Net Revenues $28,050 $22,749
====== ======
Net Income [Loss] ($11,542) ($ 84)
====== ======
Income [Loss] Per Share ($ 1.45) ($ 0.02)
====== ======
The pro forma information is not necessarily indicative of either
the results of operations that would have occurred had the
acquisition been effective at the beginning of the year or of the
future results of operations.
[15] Sale of Majority Interest of Subsidiary
Effective January 1, 1994, the Company disposed of 61% of its
interest in Universal International, Inc. ["Universal"] through
its wholly-owned subsidiary, SIS Capital Corp.; which owned 100%
of Universal. The sale is being accounted for as a disposal of a
portion of a line of business that is not considered a business
segment. Other subsidiaries continue to operate in the service
segment.
The sale resulted in a loss of approximately $33 which is
included in other income [expense]. The revenues, costs and
expenses and net [loss] of Universal at December 31, 1994 were
approximately $138, $177 and $(39), respectively. Subsequent to
December 31, 1994, the investment in Universal is being accounted
for under the equity method. The Company's equity in the net
loss of Universal for the period from January 1, 1994 to July 31,
1994 amounted to approximately $19 and is included in other
income [expense].
F-33
<PAGE> 40
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[15] Sale of Majority Interest of Subsidiary (continued)
Following is a summary of net assets and results of operations of
Universal International, Inc. as of January 31, 1994 and July 31,
1993 and for the periods ended January 31, 1994 and July 31, 1993
and 1992:
January 31, July 31,
----------------------
1994 1993
-------- --------
Cash $ 2 $ 6
Receivables - Net 45 59
Property, Plant and Equipment - Net 20 24
Other Assets 8 28
------ ------
Total Assets 75 117
Accounts Payable and Accrued Expenses $ 41 $ 44
Accrued Payroll Taxes 105 97
Loans Payable 166 170
------ ------
Net Assets ($ 237) ($ 194)
====== ======
Period from
August 1, 1993 For the For the
through Year ended Year ended
January 31, July 31, July 31,
1994 1993 1992
-------- -------- --------
Revenues $ 195 $ 611 $ 727
Costs and Expenses 238 740 793
------ ------ ------
Net [Loss] ($ 43) ($ 129) ($ 66)
====== ====== ======
Net assets of Universal International, Inc. have been separately
classified in the accompanying balance sheet at July 31, 1993.
F-34
<PAGE> 41
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[16] Disposal of a Portion of a Line of Business
On July 30, 1991, the Company sold its 50.1% interest in Trinity
Holding Corp., a management and financial consulting and
placement service, to one of the minority shareholders of Trinity
Holding Corp. in exchange for one dollar and the waiver of
significant emoluments granted by the Company's Board in 1989.
At that date, liabilities exceeded assets by $823. The excess of
net liabilities over the net investment in Trinity Holding Corp.
of $767 has been recorded as a gain and is included in other
income. The sale is treated as a disposal of a portion of a line
of business since other subsidiaries continue to operate in this
service sector.
Following is a summary of net assets of Trinity Holding Corp. as
of July 30, 1991:
Cash $ 37
Receivables - Net 52
Property, Plant and Equipment - Net 7
Other Assets 17
------
Total Assets 113
Accounts Payable and Accrued Expenses 86
Accrued Payroll Taxes 278
Notes Payable - Other 572
------
Net Assets ($ 823)
======
In 1993, $562 in notes and loans receivable from Trinity Holding
Corp. were written off by the Company and included in other
expense.
[17] Extraordinary Item - Debt Restructuring
During fiscal 1993 and 1991, certain creditors agreed to forgive
debt totaling $153 and $285, respectively. The debt of $285
which was primarily owed to a related party was included in
additional paid-in capital at July 31, 1991. The $153 forgiven
in 1993 which was due to non-related entities, is reported as an
extraordinary item.
In addition, in 1993, debt in the amount of $349 owed to the
above entities, as well as others, was converted into Series A
preferred stock at a price of $5.00 per share [69,711 shares].
F-35
<PAGE> 42
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[18] Unusual Item
In May 1993, the Company, through its wholly-owned subsidiary,
SIS Capital Corp., completed an agreement with a major financial
institution settling a $6,000 lawsuit for damages filed against
the institution and General Technologies Group Ltd. [GTG]
pursuant to a RICO action undertaken by Mr. Lewis S. Schiller,
CEO of the Company, alleging ongoing fraud and conspiracy to
defraud the Company in connection with the Sequential Electronics
Systems, Inc. transaction [See Note 2]. The agreement gives the
Company clear title to all the shares of Sequential Electronic
Systems, Inc. and includes the purchase of certain net assets
and the operations of General Technologies Group Ltd. by S-Tech,
Inc., a subsidiary of the Company. The purchase by S-Tech, Inc.
was completed June 30, 1993, and resulted in the Company
acquiring net assets of $1,523 (representing appraised values).
To the extent that the Company recorded losses in prior periods
through the write-down of assets, the write-off of receivables,
and other related expenses, in its prior sale agreement with
General Technologies Group Ltd. [in excess of $1,600], the
Company has recorded a one time gain on the acquisition. S-Tech,
Inc. remains liable on a note to the financial institution
arising from the above purchase.
[19] Subsequent Events
[A] On September 30, 1994, the Company, through newly formed
wholly-owned subsidiaries, "IMI Acquisition Corporations,"
acquired substantially all of the operating assets and assumed
certain liabilities of International Magnetic Imaging, Inc., Pine
Island Magnetic Resonance Imaging Center, Ltd., Magnetic
Resonance Institute of North Miami Beach, Ltd., Magnetic
Resonance Institute of Boca Raton, Ltd., Magnetic Resonance
Institute of South Dade, Ltd., Oakland Magnetic Resonance
Institute, Ltd., San Juan MRI, Inc., Magnetic Resonance Institute
of Arlington, L.P., Magnetic Resonance Institute of Greater
Kansas City, L.P., Magnetic Resonance Institute of Oakland, Ltd.,
Physicians Outpatient of Diagnostic Center, Ltd., and J.
Sternberg and S. Schulman, M.D. Corp [Collectively "IMI"].
F-36
<PAGE> 43
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[19] Subsequent Events (continued)
The total purchase price will approximate $40,000 as follows:
Cash $ 6,960
Subordinated Debt @ 7% 19,755
Stock [3,343,000 shares @ $.87] 2,920
Acquisition Costs 1,329
Liabilities Assumed 8,754
------
Total Cost of Acquisition $39,718
======
The final allocation to the acquired assets has not been
determined as of the date of this report.
The notes issued in connection with the acquisition of the
centers mature primarily in September 1994, with notes in the
principal amount of $860 maturing in September 1997. The notes
to be issued to acquire IMI, Inc. and the assets of MD Corp.
mature in September 1997 and 1999, respectively.
In connection with this acquisition, the Company, through its
subsidiaries, borrowed an aggregate of approximately $7.1 million
on a secured, term-loan basis over 60 months pursuant to loan and
security agreements among the Company's subsidiaries and DVI
Financial Services, Inc. dba DVI Capital.
[B] The following pro forma unaudited results assume the three
acquisitions in notes 14 and 19 had occurred at the beginning of
the year:
July 31,
-------------------
1994 1993
-------- --------
Net Sales $55,385 $48,356
====== ======
Net Income [Loss] ($ 6,635) $ 2,950
====== ======
Income [Loss] Per Share ($ 0.83) $ 0.70
====== ======
F-37
<PAGE> 44
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(amounts are in 000's except share data)
- --------------------------------------------------------------------------------
[19] Subsequent Events (continued)
[C] Effective October 1, 1994, the former Chief Financial Officer
of IMI, was elected Chief Financial Officer of the Company. The
Company and this individual entered into a five-year employment
agreement pursuant to which he will receive a base salary of $150
per year.
[D] On October 14, 1994, the Company, through its wholly-owned
Arc Acquisition Group, Inc., signed a letter of intent to acquire
substantially all of the operating assets and assume certain
liabilities of International Technical Services ["ITS"]. ITS is
currently losing $1,000 to $2,000 a year on average revenues of
approximately $45,000. The Company feels that by merging the ITS
operation with Avionics [same business], the operations can be
turned around.
. . . . . . . . . .
F-38
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly casued
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONSOLIDATED TECHNOLOGY GROUP, LTD.
Date: March 27, 1996 /S/
------------------------
Lewis S. Schiller
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/S/ President and Director March 27, 1996
- -------------------- (Principal Executive
Lewis S. Schiller Officer)
/S/ Chief Financial Officer March 27, 1996
- -------------------- (Principal Financial and
George W. Mahoney Accounting Officer)
/S/ Director March 27, 1996
- --------------------
Norman J. Hoskin
