UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
The Quarter Ended March 31, 1996
Commission File Number 0-4186
CONSOLIDATED TECHNOLOGY GROUP LTD.
(Exact name of registrant as specified in its charter)
New York 13-1948169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
160 Broadway, New York, NY 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 233-4500
Yes _X_ No____
Number of common shares outstanding as of May 8, 1996: 41,909,640
==========
Purpose of Amendment:
During the three months ended March 31, 1996, a subsidiary of the Company
operating in the Medical Information Services segment issued stock options and
warrants to purchase stock. Subsequent to the initial filing of the March 31,
1996 10-Q, it was determined that the $2,074,500 excess of the fair market value
of underlying securities over the exercise price of the stock options and
warrants to purchase stock at the date of issuance should be recorded as an
expense of the period.
<PAGE>
Consolidated Technology Group, Ltd.
Index
Page
----
Part I: - Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995. 2-3
Consolidated Statements of Operations - Three Months Ended
March 31, 1996 and 1995. 4
Consolidated Statement of Shareholders' Equity - Three Months
Ended March 31, 1996. 5-6
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995. 7-8
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations. 17-24
Part II:
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 25
1
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(dollars in 000's)
March 31, December 31,
1996 1995
----------- ------------
Assets:
Current assets:
Cash and cash equivalents $ 1,546 $ 1,636
Receivables, net of allowances 21,169 19,216
Inventories 3,636 3,701
Loans receivable 398 396
Prepaid expenses and other
current assets 810 436
Excess of accumulated costs over
related billings 1,110 1,002
Investments in common stock -- 20
------ ------
Total current assets 28,669 26,407
------ ------
Property, plant and equipment, net 11,278 11,034
------ ------
Other assets:
Capitalized software development costs 451 502
Goodwill, net 11,533 11,881
Covenant not to compete, net 1,848 2,168
Customer lists, net 11,461 11,684
Deferred offering costs 114 --
Receivables, long-term 217 219
Receivables, related parties 628 544
Trademark, net 379 383
Investments in common stock, long-term 776 405
Other Assets 1,174 1,088
------ ------
Total other assets 28,581 28,871
------ ------
Total Assets $68,528 $66,312
====== ======
See notes to consolidated financial statements.
2
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(dollars in 000's)
March 31, December 31,
1996 1995
----------- ------------
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $10,212 $11,095
Accrued payroll and related expenses 5,064 2,332
Accrued interest 392 284
Income taxes payable 344 269
Interim billings in excess of costs
and estimated profits 1,316 1,701
Notes payable, related parties 279 290
Current portion of long-term debt 8,367 9,080
Current portion of subordinated debt 4,589 13,354
Current portion of capitalized
lease obligations 1,286 1,362
------ ------
Total current liabilities 31,849 39,767
------ ------
Long-term liabilities:
Long-term debt 13,709 6,210
Capitalized lease obligations 1,949 2,198
Subordinated debt 7,434 5,003
------ ------
Total long-term liabilities 23,092 13,411
------ ------
Minority interest 3,974 2,087
------ ------
Shareholders' Equity:
Preferred stock 42 70
Additional paid-in capital,
preferred stock 155 266
Common stock (50,000,000 shares authorized,
35,290,664 and 26,655,071 shares issued and
outstanding as of March 31, 1996 and December
31, 1995, respectively) 353 267
Additional paid-in capital, common stock 51,574 51,020
Accumulated deficit (42,740) (40,648)
Unrealized gain (loss) on exchange translation 23 (17)
Net unrealized gain on long-term
investments in common stock 206 89
------ ------
Total shareholders' equity 9,613 11,047
------ ------
Total Liabilities and Shareholders' Equity $68,528 $66,312
====== ======
See notes to consolidated financial statements.
3
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Operations
(dollars in 000's except per share data)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Revenues $26,513 $28,410
Direct Costs 20,699 23,327
------ ------
Gross Profit 5,814 5,083
Selling, General and Administrative 7,822 6,396
------ ------
Income (loss) from operations (2,008) (1,313)
------ ------
Other Income (Expense):
Interest Expense (963) (984)
Other Income 164 78
Gain (Loss) from Security Sales 37 (120)
------ ------
Total Other Expense- Net (762) (1,026)
------ ------
Loss Before Income Taxes and Minority Interest (2,770) (2,339)
Income Taxes (76) (44)
Minority Interest in (Gain) Loss of Subsidiaries 754 (5)
------ ------
Net Loss ($ 2,092) ($ 2,388)
====== ======
Loss per Common Share ($0.06) ($0.13)
====== ======
Weighted Average Number
of Common Shares 33,671,873 18,766,149
========== ==========
See notes to consolidated financial statements.
4
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1996
(dollars in 000's)
Shares Amounts
---------- -------
Preferred stock, $1.00 par value, 6% Series A
77,713 shares authorized:
Beginning balance 66,596 $ 67
Conversion of Series A to common stock (27,921) (28)
---------- ------
Ending balance 38,675 $ 39
========== ======
Preferred stock, $1.00 par value, $3.50 and
$.10 Series B & E 8,000 shares authorized each:
Beginning balance 262 $ 1
========== ======
Ending balance 262 $ 1
========== ======
Preferred stock, $1.00 par value, $8.00
subordinated Series F, 6,000 shares authorized:
Beginning balance 2,700 $ 2
========== ======
Ending balance 2,700 $ 2
========== ======
Total preferred stock - par 41,637 $ 42
========== ======
Additional paid-in capital, preferred stock:
Beginning balance $ 266
Conversion of Series A to common stock (111)
------
Ending balance $ 155
======
Common stock, $0.01 par value, 50,000,000
shares authorized:
Beginning balance 26,655,071 $ 267
Issuance for offerings 5,000,000 50
Conversion of Series A preferred 3,635,593 36
---------- ------
Ending balance 35,290,664 $ 353
========== ======
Additional paid-in capital, common stock:
Beginning balance $51,020
Issuance for offerings 450
Conversion of Series A preferred 104
------
Ending balance $51,574
======
(continued)
See notes to consolidated financial statements.
5
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1996
(dollars in 000's)
Shares Amounts
---------- -------
Accumulated deficit:
Beginning balance ($40,648)
Net loss (2,092)
------
Ending balance ($42,740)
======
Unrealized exchange translation:
Beginning balance ($ 17)
Unrealized gain on exchange translation 40
------
Ending balance $ 23
======
Net unrealized gain (loss) on long-term investments
in common stock:
Beginning balance $ 89
Net unrealized investment security gains 117
------
Ending balance $ 206
======
Total shareholders' equity $ 9,613
======
(concluded)
See notes to consolidated financial statements.
6
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in 000's)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Cash Flows from Operating Activities:
Net loss ($ 2,092) ($ 2,388)
------ ------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and Amortization 1,626 1,591
Write-off goodwill 192 --
Loss on disposal of assets 99 --
Minority interest in loss of
consolidated subsidiaries (754) --
Bad debt expense 238 232
Noncash expense from a subsidiary's issuance
of stock options and stock purchase warrants 2,075 --
Option exercise expense -- 740
Noncash expenses paid with the issuance of stock -- 67
(Gain) loss on marketable securities (37) 120
Change in current assets and current liabilities:
(Increase) decrease in current assets:
Receivables (2,191) 137
Inventories 65 (11)
Prepaid expenses and other current assets (374) 314
Excess of accumulated costs over
related billings (108) --
Increase (Decrease) in current liabilities:
Accounts payable and accrued expenses (883) 686
Accrued payroll and related expenses 2,732 712
Accrued interest 108 3
Income taxes payable 75 --
Interim billings in excess of costs
and estimated profits (385) (655)
------ ------
Total adjustments 2,478 3,936
------ ------
Net cash provided by operating activities 386 1,548
------ ------
Cash Flows from Investing Activities:
(Increase) decrease in other assets 105 105
Capital expenditures (1,176) (174)
Investments in common stock (325) --
Proceeds from sale of marketable securities 128 165
Capitalized software development costs (1) (63)
Payments for loans made (1,011) (122)
Collections for repayment of loans made 926 77
------ ------
Net cash used in investing activities (1,354) (12)
------ ------
(continued)
See notes to consolidated financial statements.
7
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in 000's)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Cash Flows from Financing Activities:
Deferred offering costs (114) (15)
Net payments to factor (1,179) --
Proceeds from issuance of long-term debt 9,001 --
Repayment of long-term debt (1,046) (690)
Repayment of subordinated debt (6,333) (656)
Payments on capital leases (326) (278)
Issuance of common stock 500 --
Subsidiary's issuance of common stock 375 --
Exercise of stock options -- 725
------ ------
Net cash provided by (used in)
financing activities 878 (914)
------ ------
Net Increase (Decrease) in Cash
and Cash Equivalents (90) 622
Cash and Cash Equivalents at
Beginning of Period 1,636 1,727
------ ------
Cash and Cash Equivalents at
End of Period $ 1,546 $ 2,349
====== ======
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 855 $ 981
====== ======
Income Taxes $ -- $ --
====== ======
(concluded)
Supplemental Disclosures of Noncash Investing and Financing Activities:
During the three month period ended March 31, 1996:
(1) - A subsidiary of the Company issued stock options and warrants to
purchase stock and in connection therewith recorded a noncash expense
of $2,075 which is the amount that the fair market value of the stock
exceeded the exercise price.
During the three month period ended March 31, 1995:
(1) - Acquired equipment under capital lease obligations with a net present
value of $39.
(2) - Issued stock options and received exercise proceeds of $725 and
incurred noncash deferred consulting fees of $1,235 and noncash
consulting fee expenses of $740.
See notes to consolidated financial statements.
8
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of March 31, 1996 and December 31, 1995 and the results of its operations and
changes in cash flows for the three months ended March 31, 1996 and 1995.
(2) The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the December 31, 1995 Form 10-K.
(3) The results of operations for the three months ended March 31, 1996 and 1995
are not necessarily indicative of the results to be expected for the full year.
(4) Loss Per Share - Loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding. For purposes
of computing weighted average number of common shares outstanding the Company
has common stock equivalents consisting of stock options and warrants and Series
"A" Preferred Convertible Stock. The Series "A" Preferred Stock was deemed to be
a common stock equivalent when issued. The common stock equivalents are assumed
converted to common stock, when dilutive. During periods of operations in which
losses were incurred, common stock equivalents were excluded from the weighted
average number of common shares outstanding because their inclusion would be
anti-dilutive.
(5) Industry Segments:
The Company currently classifies its operations into eight business segments:
(i) Contract Engineering Services consists of subsidiaries that provide
engineers, designers and technical personnel on a temporary basis pursuant to
contracts with major corporations; (ii) Medical Diagnostics consists of a
subsidiary that performs magnetic resonance imaging and other medical diagnostic
services; (iii) Electro-Mechanical and Electro-Optical Products Manufacturing
consists of subsidiaries that manufacture and sell products such as devices that
measure distance and velocity, instrumentation devices, debit card vending
machines and industrial lighting products; (iv) Medical Information Services
consists of subsidiaries that provide medical information database services,
health care industry related software packages and the CarteSmart medical
identification cards and related software program; (v) Telecommunications
consists of a subsidiary that, among other things, installs telephonic network
systems and buys and resells local telephone service; (vi) Three Dimensional
Products and Services consists of subsidiaries that provide three dimensional
imaging services that are used in a variety of applications, such as proto-type
building and reverse engineering; (vii) Audio Visual Manufacturing and Services
consists of a subsidiary that manufactures and sells a professional line of
loudspeakers, and (viii) Business Consulting Services consists of subsidiaries
that provide a variety of financial and business related services. Corporate and
Other consists of the operating activities of the holding company entities.
Intersegment sales and sales outside the United States are not material.
Information concerning the Company's business segments is as follows:
9
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(5) Industry Segments (continued):
Three Months Ended
March 31,
---------------------
Segments: 1996 1995
- -------- --------- ---------
Revenues:
Contract Engineering Services $13,471 $17,800
Medical Diagnostics 8,114 7,027
Electro-Mechanical and Electro-Optical
Products Manufacturing 649 1,171
Medical Information Services 2,561 1,427
Telecommunications 742 390
Three Dimensional Products and Services 298 589
Audio Visual Manufacturing and Services 671 --
Business Consulting Services 7 6
------ ------
Total Revenues $26,513 $28,410
====== ======
Gross Profit:
Contract Engineering Services $ 834 $ 612
Medical Diagnostics 3,841 3,393
Electro-Mechanical and Electro-Optical
Products Manufacturing 94 363
Medical Information Services 662 369
Telecommunications 40 57
Three Dimensional Products and Services 200 283
Audio Visual Manufacturing and Services 137 --
Business Consulting Services 6 6
------ ------
Total Gross Profit $ 5,814 $ 5,083
====== ======
Income (Loss) from Operations:
Contract Engineering Services ($ 254) ($ 294)
Medical Diagnostics 1,883 1,496
Electro-Mechanical and Electro-Optical
Products Manufacturing (169) (4)
Medical Information Services (1,873) (436)
Telecommunications (280) (214)
Three Dimensional Products and Services (450) (415)
Audio Visual Manufacturing and Services (143) --
Business Consulting Services (9) (6)
Corporate and other (713) (1,440)
------ ------
Total Income (Loss) from Operations ($ 2,008) ($ 1,313)
====== ======
10
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(5) Industry Segments (continued):
Three Months Ended
March 31,
---------------------
Segments: 1996 1995
- -------- --------- ---------
Net Income (Loss):
Contract Engineering Services ($ 324) $ (574)
Medical Diagnostics 1,196 833
Electro-Mechanical and Electro-Optical
Products Manufacturing (171) (4)
Medical Information Services (1,525) (467)
Telecommunications (301) (222)
Three Dimensional Products and Services (218) (416)
Audio Visual Manufacturing and Services (158) --
Business Consulting Services (9) (8)
Corporate and other (582) (1,530)
------ ------
Total Net Income (Loss) ($ 2,092) ($ 2,388)
====== ======
Depreciation and Amortization:
Contract Engineering Services $ 114 $ 128
Medical Diagnostics 1,242 1,253
Electro-Mechanical and Electro-Optical
Products Manufacturing 16 8
Medical Information Services 109 132
Telecommunications 8 8
Three Dimensional Products and Services 90 59
Audio Visual Manufacturing and Services 41 --
Business Consulting Services 1 1
Corporate and other 5 2
------ ------
Total Depreciation and Amortization $ 1,626 $ 1,591
====== ======
Capital Expenditures:
Contract Engineering Services $ 19 $ 11
Medical Diagnostics 1,121 47
Electro-Mechanical and Electro-Optical
Products Manufacturing -- 4
Medical Information Services 20 4
Telecommunications -- --
Three Dimensional Products and Services -- 90
Audio Visual Manufacturing and Services 12 --
Business Consulting Services -- --
Corporate and other 4 18
------ ------
Total Capital Expenditures $ 1,176 $ 174
====== ======
11
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(5) Industry Segments (continued):
At March 31,
---------------------
Segments: 1996 1995
- -------- --------- ---------
Identifiable Assets:
Contract Engineering Services $ 7,421 $10,287
Medical Diagnostics 42,362 39,989
Electro-Mechanical and Electro-Optical
Products Manufacturing 3,716 4,352
Medical Information Services 7,545 5,929
Telecommunications 1,257 1,094
Three Dimensional Products and Services 1,114 2,330
Audio Visual Manufacturing and Services 1,731 --
Business Consulting Services 257 261
Corporate and other 3,125 2,279
------ ------
Total Identifiable Assets $68,528 $66,521
====== ======
(6) Equity:
Conversion of Series A Preferred Stock - During the three months ended March 31,
1996, the Company issued 3,635,593 shares of common stock upon the conversion of
27,921 shares of series A preferred stock.
Regulation S Offerings - Pursuant to an offering in January 1996 made under
Regulation S of the Securities Act of 1933, the Company received net proceeds of
$500 in conjunction with the issuance of 5,000,000 shares of common stock.
(7) Issuance of Stock Options and Warrant to Purchase Stock of a Subsidiary:
A subsidiary of the Company issued stock options and warrants to purchase stock.
The fair market value of the underlying securities exceeded the exercise price
by $2,075 and this excess was expensed for the three months ended March 31,
1996. The following details the calculation of the expense:
Per share fair market value
of underlying securities at
the date of grant $3.20
Per share exercise price 2.00
----
Excess of fair market value
over the exercise price $1.20
Number of underlying shares 1,728,750
---------
Total Expense (in 000's) $2,075
=========
As a result of recording the above expense, minority interest increased by
$2,075.
12
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(8) Reverse Merger:
On May 8, 1995 SIS Capital Corp. ("SISC"), a wholly-owned subsidiary of the
Company, transferred all of its equity ownership in Trans Global Services, Inc.
("Trans Global") to Concept Technologies Group, Inc. ("Concept"), pursuant to an
agreement dated as of March 31, 1995, among SISC, DLB, Inc. ("DLB"), Joseph G.
Sicinski and Concept in exchange for a controlling interest in Concept.
Concept's common stock and warrants are traded on the Nasdaq SmallCap Market.
Trans Global's common stock was owned by SISC (91.6%), DLB (5.0%) and Mr.
Sicinski (3.4%). DLB is owned by Ms. Carol Schiller, wife of Mr. Lewis S.
Schiller, the Company's chairman of the board, president and chief executive
officer. Mr. Schiller disclaims all beneficial interest in the securities owned
by DLB. The acquisition by Concept of the Trans Global stock in exchange for
Concept's capital stock is referred to as the "Trans Global Transaction".
Pursuant to the Trans Global Transaction:
(i) - Warrants to purchase an aggregate of 500,000 shares of Trans Global
common stock held by SISC (475,000 shares) and DLB (25,000 shares) were
exchanged for Series B Common Stock Purchase Warrants ("Series B Warrants") to
purchase an aggregate of 500,000 shares of Common Stock until May 5, 1997.
(ii) - Concept issued to SISC 850,000 shares of Common Stock, Series B
Warrants to purchase 475,000 shares of Common Stock at $3.50 per share, 23,750
shares of Series A Preferred Stock, which will be converted into 1,900,000
shares of Common Stock upon the filing of the Certificate of Amendment, 23,750
shares of each of Series B and C Preferred Stock, which are convertible into an
aggregate of 2,375,000 shares of Common Stock if certain levels of income before
income tax are met, and 25,000 shares of Concept's Series D Preferred Stock,
which is not convertible and which has a redemption price of approximately
$1,700. SISC has deferred taking the physical delivery of 400,000 of the shares
of Common Stock issuable in order to provide Concept with flexibility in issuing
shares of Common Stock.
(iii) - Concept issued to DLB in respect of its Trans Global stock and
warrants, 50,000 shares of Common Stock, Series B Warrants to purchase 25,000
shares of Common Stock, 1,250 shares of Series A Preferred Stock, which are
convertible into 100,000 shares of Common Stock upon the filing of the
Certificate of Amendment, and 1,250 shares of each of Series B and C Preferred
Stock, which are convertible into an aggregate of 125,000 shares of Common Stock
if certain levels of income before income taxes are attained.
(iv) - Concept issued to Mr. Sicinski, 100,000 shares of Common Stock.
As a result of the Trans Global Transaction, SISC owned, at the closing,
approximately 32.2% of the outstanding Common Stock, and 59.3% of the voting
rights on all matters, including the election of directors, except where the
holders of Common Stock are required by law to vote as a single class. Upon the
filing of the Certificate of Amendment, based on outstanding Common Stock as of
the closing date, SISC would own 59.3% of the outstanding Common Stock.
13
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(9) Pro Forma Results:
The following pro forma unaudited results assume that the reverse merger in Note
(8) had occurred at the beginning of the indicated periods:
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Net revenues $ 26,513 $ 29,000
======= =======
Net income (loss) ($ 2,092) $ (1,987)
======= =======
Income (loss) per share ($ 0.06) $ (0.11)
======= =======
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 indicated periods or of the future results of operations.
(10) Subsequent Events
Regulation S Offerings:
Pursuant to an offering in April 1996 made under Regulation S of the Securities
Act of 1933, the Company received net proceeds of $250 in conjunction with the
issuance of 5,000,000 shares of common stock.
Conversion of Series A Preferred Stock:
From the period April 1, 1996 through May 8, 1996, the Company issued
approximately 1,418,976 shares of common stock upon the conversion of 23,650
shares of series A preferred stock.
14
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(10) Subsequent Events (continued):
Non-Employee Directors, Consultants and Advisors Stock Options:
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. Pursuant to the plan during
April 1996, 200,000 shares were issued for no cash consideration, resulting in
$45 of consulting costs computed as follows:
Shares 200,000
Value of stock at date of grant $0.28125
-------
Full value of stock 56
20% discount (11)
-------
Discounted value of stock 45
Exercise proceeds --
-------
Total consulting costs 45
=======
Sale of Common Stock Investments to an Officer:
During April 1996, the chief executive officer of the Company exercised an
option to purchase common stock investments held by the Company at 110% of the
book value of such investments. The purchase of such investments was consummated
in a noncash transaction and such officer is to issue a note in favor of the
Company without interest and payable within five years from the date of the
purchase. Total receivables outstanding under such sale approximates $445 of
which $72 relates to such exercises that occurred during the year ended December
31, 1995.
Restated Employment Agreement:
During May 1996, the chief executive officer's ("CEO") employment contract was
restated, effective as of January 1996, and supersedes the contract dated
October 1, 1994. Per the terms of the amended contract the CEO shall receive a
salary of $250 per year through the year 2000, the expiration date of the
contract. The annual compensation may be increased from time to time by the
Board of Director's of the Company and commencing January 1, 1996 and on each
January 1 thereafter during the term of the contract, the CEO shall receive an
increase in annual compensation equal to the greater of (A) 5% of his salary in
effect prior to the increase or (B) the cost of living increase as determined
per the Consumers Price Index as published by the Bureau of Labor Statistics of
the United States Department of Labor. In addition, the CEO is entitled to a
bonus equal to 10% of the amount by which the greater of (A) the Company's
consolidated income before taxes, determined in accordance with generally
accepted accounting principles or (B) the Company's consolidated net cash flow
exceeds $350. Net cash flow is calculated as consolidated net income, plus
depreciation, amortization and other noncash items of expense, minus payments of
principal amounts of indebtedness, all determined in accordance with generally
accepted accounting principles. Additional
15
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(10) Subsequent Events (continued):
benefits to be received by the CEO include: (a) four weeks paid vacation; (b)
disability insurance providing for the payment to the CEO of a minimum of 60% of
his salary; (c) life insurance with a face value of $2,000, payable to the CEO's
designated beneficiary; (d) health, vision and dental insurance; and (e) an
automobile to be provided to the CEO by the Company. Furthermore, the restated
employment agreement confirms the grant to the CEO of option to purchase 10% of
any equity interest now held by the Company or any of its subsidiaries. The
option shall be exercisable during the 5 year period commencing on the later of
the date of this agreement or the date the Company acquires the securities. The
exercise price of the option shall be equal to 110% of the Company's cost of
such securities as determined i accordance with generally accepted accounting
principles. Payment of the option exercise price shall be made by the CEO within
5 years from the date of the exercise, without interest.
. . . . . . . . . . . . . . . . . . . . . . . . . .
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
FINANCIAL CONDITION
LIQUIDITY:
As of December 31, 1995, it was determined that the ability of the Company to
continue as a going concern was dependent upon the success of the Company's
subsidiary's marketing efforts and their efforts to obtain sufficient funding to
enable them to continue operations. Management believes that the Company has
made progress in achieving these goals during the quarter based on the
following:
Improved Operating Results:
The Company has a significant reduction in loss for the 1996 quarter compared to
1995 in five of the eight segments and also shows a significant reduction in
corporate and other expenses. On an overall basis, the net loss for the quarter,
which included $2,075 of noncash expense related to a subsidiaries issuance of
stock options and stock purchase warrants in the medical information services
segment, was $297 less than in the prior comparable period.
Debt Refinancing:
In January 1996, the Company refinanced a significant portion of the current
subordinated debt that was to be paid in 1996. Such financing consisted of a
term loan of $2,000, a revolver loan of $6,000 and the extension of
approximately $7,600 of subordinated balloon payments from a 1996 due date to a
2001 due date. At the time of the refinancing, the effect was a reduction of
current debt of approximately $8,363.
Improved Working Capital Condition:
As of December 31, 1995, the Company had a working capital deficit of $13,360.
As of March 31, 1996, this working capital deficit has been reduced to $3,180,
in large part to the aforementioned debt refinancing. The Company's continued
ability to reduce the working capital deficit relies primarily on the success of
continuing efforts to increase the profitability of the underlying subsidiaries
and a proposed additional refinancing of current debt which would result in a
shift $4,000 of current debt, due in September 1996, to a long-term maturity in
the Medical Diagnostics segment. As further explained in the following "Sources
of Cash" discussion, restrictions exist with regards to the Company's use of the
Medical Diagnostics segment's cash.
Proposed Equity Offerings:
The Company currently has filed a registration statement for the sale of
securities of a subsidiary in the medical services segment. Such subsidiary
received a loan of $500 during the quarter with respect to a proposed offering
which is payable in January of 1997 or earlier at the completion of the
offering. Additionally, a subsidiary operating in the contract engineering
services segment (which is already publicly held), has received a letter of
intent to raise additional capital. No assurances can be given, however, that
such offerings will be ultimately consummated.
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
FINANCIAL CONDITION:
LIQUIDITY (continued):
CAPITAL RESOURCES:
Sources of Cash:
The Company's principal working capital consists of cash and cash equivalents.
Cash and cash equivalents were $1,546 at March 31, 1996 compared to $1,636 at
December 31, 1995. During the three months ended March 31, 1996, the Company's
operations generated $386 of cash from operations of which the medical
diagnostics segment company, International Magnetic Imaging, ("IMI") generated
approximately $275 from operations while the remaining segments generated
approximately $111 from operations. Pursuant to an IMI financing agreement with
a creditor, restrictions exist on the distributions of IMI funds whereby IMI may
not make payments out of the ordinary course of IMI operations and specifically,
not to the parent company, (Consolidated), or any subsidiary or affiliate. The
other segments are thereby required to operate on their own cash flows and as of
March 31, 1996 the most significant impact from these restrictions is on the
Three Dimensional Products and Services segment which is currently unable to
operate without cash infusions from the parent company, (Consolidated). It is
imperative that this segment obtain alternative sources of funding (i.e. equity
offerings, creditor financing or increased volume), in order to continue as an
operating segment. The remaining segments were relatively unaffected by the
restrictions on IMI's cash since they operated substantially with their own cash
flows. Other significant sources of cash includes proceeds from the issuance of
long-term debt of $9,001, proceeds from the issuance of stock of $875,
collections on repayments of notes receivable of $926 and proceeds from the sale
of marketable securities of $128.
Uses of Cash:
Uses of cash includes the repayment of long-term and subordinated debt of
$7,379, capital expenditures of $1,176, payments on capital leases of $326,
advances on notes receivables of $1,011, purchases of investments of $325 and
net repayments to factors of $1,179. Other net sources and uses of cash amounted
to $10.
Changes in Other Working Capital Assets and Liabilities:
The other significant changes in working capital includes an increase in
accounts receivable of $2,191 (primarily from increased revenues of the medical
diagnostics segment) and an increase in accounts payable, accrued expenses and
accrued payroll and related expenses of approximately $1,849 (primarily from an
increase in payroll and payroll related obligations of the contract engineering
services segment).
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
FINANCIAL CONDITION:
CAPITAL RESOURCES (continued):
Effect of Loan Defaults:
The Company is in default on loans approximating $1,000 as of March 31, 1996.
Such defaults have not had, and are not expected to have a significant impact on
the operations of the related segments. The creditors have not called such loans
and are working under extended repayment terms.
RESULTS OF OPERATIONS:
Consolidated operating losses increased by $695 from an operating loss of $1,313
for the 1995 quarter to an operating loss of $2,008 for the 1996 quarter. The
operating loss for the 1996 quarter includes $2,075 of noncash expenses related
to a subsidiaries issuance of stock options and stock purchase warrants in the
medical information services segment. Excluding, the noncash expenses in the
medical information services segment, an overall improvement in operating
results was achieved by an increase in overall gross margins of $731 and a
reduction in operating costs of $649. Such advances in profitability were
achieved in spite of a $1,897 decrease in revenues. The decrease in revenues is
attributed to the contract engineering services segment which on January 1, 1996
lost a contract with one of its significant customers. By the end of the quarter
this segment had recovered approximately 60% of such lost revenues with new
customers. This segments decline in revenues was partially offset by revenues in
the audio visual manufacturing and services segment which was not a part of the
Company's operations in the 1995 quarter. On an overall basis, the consolidated
net loss for the 1996 quarter compared to 1995 decreased by $297 or 12%.
The percentage of relative contribution to revenues, gross profit, and selling
general and administrative expenses by industry segment is shown in the
following tables. Changes within the individual industry segments themselves is
discussed further within the respective industry segment discussions.
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
---------------------
Three Months Ended
March 31,
Segments 1996 1995
- -------- --------- ---------
Revenues:
Contract Engineering Services 50% 62%
Medical Diagnostics 30% 25%
Electro-Mechanical and Electro-Optical
Products Manufacturing 2% 4%
Medical Information Services 10% 5%
Telecommunications 3% 1%
Three Dimensional Products and Services 1% 2%
Audio Visual Manufacturing and Services 3% --
Business Consulting Services 1% 1%
---------------------
---------------------
Three Months Ended
March 31,
Segments 1996 1995
- -------- --------- ---------
Gross Profit:
Contract Engineering Services 14% 12%
Medical Diagnostics 66% 66%
Electro-Mechanical and Electro-Optical
Products Manufacturing 2% 7%
Medical Information Services 11% 7%
Telecommunications 1% 1%
Three Dimensional Products and Services 3% 6%
Audio Visual Manufacturing and Services 2% --
Business Consulting Services 1% 1%
---------------------
---------------------
Three Months Ended
March 31,
Segments 1996 1995
- -------- --------- ---------
Selling, General and Administrative Expenses:
Contract Engineering Services 14% 14%
Medical Diagnostics 25% 29%
Electro-Mechanical and Electro-Optical
Products Manufacturing 3% 6%
Medical Information Services 32% 13%
Telecommunications 4% 4%
Three Dimensional Products and Services 8% 10%
Audio Visual Manufacturing and Services 4% --
Business Consulting Services 1% 1%
Corporate and Other 9% 23%
---------------------
20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
Discussion of Operations by Segment:
(References to 1996 and 1995 correspond to the three month periods then ended)
Contract Engineering Services - This segment is engaged in the business of
providing engineers, designers and technical personnel on a temporary basis to
major corporations. Comparing 1996 to 1995, revenues decreased 24% while gross
margins increased 36%. The decrease in revenues is attributed to the loss of a
contract on January 1, 1996, from one of the segment's significant customers. By
the end of the quarter, the segment had recovered approximately 60% of the lost
revenue. The increase in the gross margin is due to the fact that the remaining
customers, as well as the newly acquired customers, generated higher margins
than the significant customer that was lost. Selling, general and administrative
expenses increased 20%. This increase primarily resulted from $250 in accrued
penalties on late payroll tax withholding obligations and $80 of noncash
expenses associated with the issuance of stock for consulting services. Other
income and expense items decreased 75% as a result of lower interest expense
from more favorable financing terms than those that existed in the prior period.
Management believes that with this segment's current selling, general and
administrative structure, it can improve its operating results through revenue
growth. However, such growth is inherently dependent upon its ability to obtain
adequate funding and accordingly, no assurance can be given about the ultimate
profitability of this segment.
Medical Diagnostics - This segment is engaged in the business of performing MRI
and other diagnostic modality procedures in the health industry. Comparing 1996
to 1995 revenues and gross margins increased 16% and 13%, respectively. The
increase in revenues is due to increases in scan procedure volume which was
partially offset by decreasing reimbursement rates. Selling, general and
administrative expenses remained relatively level, increasing only 3%. Other
income and expense items remained relatively level and net income increased by
44% as a result of maintaining level operating costs while revenues were
increasing. Typically, this segment has its greatest revenue activity in the
first quarter and management anticipates that revenues and gross margin in the
remaining quarters of 1996 will be moderately less while operating expenses will
remain relatively level, which is consistent with the past performance of this
segment.
Electro-Mechanical and Electro-Optical Products Manufacturing - This segment
consists of three companies, Sequential Electronic Systems, ("Sequential"),
which manufactures optical encoders, encoded motors and limit programmers,
S-Tech, which manufactures debit card vending machines and various avionics
instrumentation devices and Televend which markets telephone debit cards and
certain products manufactured by S-Tech. Comparing 1996 and 1995, revenues and
gross profit decreased 44% and 74%, respectively. The significant decrease in
revenues and gross margins is attributed to the government shutdown that
effected the 1996 quarter which resulted in the segment not being able to ship
orders to defense department customers. Gross margins went from 30% of revenues
in 1995 to 15% of revenues in 1996 which was primarily a result of decreased
volume from the government shutdown that occurred in the second half of 1995
which impacted shipments in 1996, while certain inherent
21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's) RESULTS OF OPERATIONS (continued):
fixed costs were still incurred. Selling, general and administrative expenses
decreased 28% which was the result of planned cutbacks in such costs. Net losses
increased from $4 for 1995 to $171 for 1996, which again is primarily attributed
to the decrease to government sector sales. Management has placed more emphasis
on sales to the private sector through the marketing of the debit card vending
machines and the telemarketing efforts of Televend. Management anticipates that
revenues and profitability will improve in the remaining quarters of 1996 if the
proper financing is found, but is currently unable to estimate the amount of
such improvement.
Medical Information Services - This segment is engaged in developing, marketing
and supporting computer software designed to enable health service as well as
financial related organizations to provide a range of services in a network
computing environment. This segment has developed proprietary network technology
utilizing smart cards in financial network systems. Comparing 1996 to 1995,
revenues and gross margins increased 79% and 80%, respectively, while selling,
general and administrative expenses increased 215% due to a noncash expense
resulting from the issuance of stock options and stock purchase warrants. During
the prior period this segment had relied primarily on revenues of previously
existing customers and software programs and services. During 1996, the segment
has increased its revenues and gross margins through contracts with new
customers using the new technologies that it has spent significant amounts of
money in the past developing. These positive developments were more than offset
by the noncash expense from the previously mentioned stock options and stock
purchase warrants which resulted in operating losses of $1,872 in 1996 compared
to operating losses of $467 in 1995. Additionally, an increase in interest
expense of $83 was incurred due to additional debt, of which $500 was incurred
during 1996. Management estimates continued improvement in this segment's
operating results in the future quarters of 1996.
Telecommunications - This segment is engaged in the business of marketing a wide
range of telecommunications services including the design and implementation of
telecommunications programs in addition to reselling local line service.
Comparing 1996 to 1995, revenues increased 90% while gross margins decreased
30%. During 1996, this segment's revenues consisted of a greater proportion of
network installations which generate lower margins than the reselling of phone
services. Selling, general and administrative expenses remained relatively level
while net losses increased $80. The telecommunications segment operates in a
highly competitive industry and management believes that in order for this
segment to become profitable, it will have to distinguish itself from other
telecommunications service companies. Additionally, this segment needs to
significantly increase its volume in order to cover its operating costs. This
segment currently has a backlog of approximately $4,000, and management
estimates that revenues will increase throughout the remainder of the year, and
if operating costs are maintained at the current level, this segment could
breakeven during the fourth quarter.
Three Dimensional Products and Services - This segment is engaged in the
business of developing and marketing products and services in the three
dimensional imaging and digitizing technology which the segment categorizes in
three primary market groups: 1) surfacer imaging products, 2) CAD/CAM
22
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
software products and services and 3) laser scanning products. Comparing 1996 to
1995, revenues and gross margins decreased 49% and 30%, respectively. The
primary reason for such decreases is due to the closure of one of the companies
operating in this segment which produced revenues and gross margins in 1995 of
$185 and $35, respectively. The decision to close such operations was based on
the fact that such companies operations did not align with the planned future
for this segment and was not producing margins at a level sufficient to cover
its operating costs. Selling, general and administrative expenses remained
relatively level, however, the 1996 expenses includes $192 in noncash expense
for the write-off of goodwill that could not be supported by the segment's
current cash flow under generally accepted accounting principles. Excluding the
goodwill write-off, ongoing expenses decreased approximately $221 because of
planned expense cut backs as well as a decrease in product development costs. On
an overall basis, the net loss for 1996 was $218 which is an improvement of $198
from 1995. Management currently anticipates that revenues and operating profits
will significantly improve for this segment if the proper financing can be
obtained which would allow this segment to acquire a European partner to market
and expand its existing product lines. However, no assurances can be made that
such financing will be obtained and the ultimate profitability of this segment
is significantly dependent on the success of such financing.
Audio Visual Manufacturing and Services - This segment is engaged in the
business of manufacturing and marketing a professional line of loudspeakers.
This segment was acquired during the second quarter of 1995 and therefore there
is no comparable period. During 1996 this segment generated $671 in revenues of
which $481 were from domestic sales and $190 were from European and Far East
sales. Gross margins were $137 or 20% of revenues compared to 10% for the time
period from acquisition in the second quarter of 1995 through December 31, 1995.
This increase in gross margin percentage is due primarily to increased sales
volume which reduced the idle capacity related to the manufacturing process.
This segment continually evaluates and improves its product line and management
believes that if this segment is able to find an appropriate financing package,
it will be able to significantly increase its revenues and overall profitability
during 1996.
Business Consulting Services operations were not significant for 1996 or 1995
and management anticipates that consulting revenues and related expenses will
not be a significant portion of the Company's future operations in the near
term.
Corporate and Other selling, general and administrative expenses for 1996
compared to 1995 decreased 50%. Such decrease is due primarily to noncash
expense from the exercise of stock options for payment of consulting services
which amounted to $740 in 1995. Included in selling, general and administrative
expenses was approximately $80 in a bonus paid to the Company's Chief Financial
Officer as a part of renegotiating the subordinated debt of the Medical
Diagnostics segment. Corporate and other selling, general and administrative
expense, other than that related to the exercise of stock options remained
relatively level and it is currently anticipated that such costs will remain
level throughout 1996. However, in the event that the
23
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
Company negotiates additional acquisitions, such costs would increase
accordingly.
Discussion of Other Significant Financial Line Items
Interest Expense for 1996 remained relatively level compared to 1995. The
Company's debt financing activity during 1996 was primarily refinancing activity
which effectively extended current debt to long-term and relatively the same
interest rates and therefore there was not a significant impact on the level of
interest expense.
Gains and (Losses) on Investment Securities - During 1996 the Company's
investment purchasing and sales activity was not significant while in 1995 the
Company incurred losses on investments of $120 which consisted primarily of the
recognition of investments that were determined to have a permanent decline in
market value and as such, the decline was recognized in that period. Security
sales vary from period to period based on, among other things, market activity
and cash needs, and management cannot estimate the amount of future security
sales gains or losses, if any, that will be generated from such transactions.
Minority Interest in Loss of Subsidiaries - For the quarter ended 1996 compared
to the 1995 quarter, the minority interest in loss of subsidiaries increased by
approximately $759. $462 of this increase relates to the minority issuance of
stock options and stock purchase warrants in the medical information services
segment and the increase in losses from such issuance. The remaining increase
results from an increase in the minority ownership in the contract engineering
services segment.
Impact of Inflation
The Company is subject to normal inflationary trends and anticipates that any
increased costs would be passed on to its customers.
. . . . . . . . . . . . . . . . . . . . . . . . . .
24
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. EX-10.1 Restated Employment Agreement Dated January 1996 between the
Company and Mr. Lewis S. Schiller (incorporated by reference
to the original March 31, 1996 10-Q filed May 10, 1996)
2. EX-11.1 Calculation of earnings per share.
3. EX-27 Financial Data Schedule
. . . . . . . . . . . . . . . . . . . . . . . . . .
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED TECHNOLOGY GROUP, LTD.
/S/ President and Director August 15, 1996
- -------------------- (Principal Executive
Lewis S. Schiller Officer)
/S/ Chief Financial Officer August 15, 1996
- -------------------- (Principal Financial and
George W. Mahoney Accounting Officer)
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Index to Exhibits
March 31, 1996
1. EX-10.1 Restated Employment Agreement Dated January 1996 between the
Company and Mr. Lewis S. Schiller (incorporated by reference
to the original March 31, 1996 10-Q filed May 10, 1996)
2. EX-11.1 Calculation of earnings per share.
3. EX-27 Financial Data Schedule
(filed in electronic format only with the SEC)
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
March 31, 1996
EX-11.1 Calculation of Earnings per Share
- --------------------------------------------------------------------------------
For the Three Months Ended March 31, 1996:
Net Loss ($2,092,000)
=========
Loss per Share:
Loss per share - Note 1 $(0.06)
====
Loss per Share - assuming full
dilution - Note 2 $(0.06)
====
Note 1:
Computed by dividing the net loss for the period by the weighted average number
of common shares outstanding (33,671,843). No stock options, warrants or
preferred convertible stock are assumed to be exercised because they are
anti-dilutive for the period. The weighted average number of common shares
outstanding is calculated by weighting common shares issued during the period by
the actual number of days that such shares are outstanding during the period.
Note 2:
(i) Assumes that a warrant to purchase 1,000,000 common shares at $0.75 per
share was exercised at the beginning of the year, and that all proceeds from
such exercise were used to purchase treasury stock at a price equal to the
average market price of the Company's common shares for the period as quoted on
the NASD.
(ii) Assumes that the current year conversions of preferred stock into 3,635,593
shares of common stock occurred at the beginning of the year.
(iii) Assumes that at the beginning of the year, the 38,675 remaining shares of
preferred convertible shares were converted to common shares at the conversion
rate of 130.2083 shares of common for each share of convertible preferred stock.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,546,000
<SECURITIES> 776,000
<RECEIVABLES> 24,425,000
<ALLOWANCES> 3,256,000
<INVENTORY> 3,636,000
<CURRENT-ASSETS> 28,669,000
<PP&E> 34,661,000
<DEPRECIATION> 23,383,000
<TOTAL-ASSETS> 68,528,000
<CURRENT-LIABILITIES> 31,849,000
<BONDS> 0
<COMMON> 353,000
0
42,000
<OTHER-SE> 9,218,000
<TOTAL-LIABILITY-AND-EQUITY> 68,528,000
<SALES> 1,618,000
<TOTAL-REVENUES> 26,513,000
<CGS> 1,187,000
<TOTAL-COSTS> 20,699,000
<OTHER-EXPENSES> 7,585,000
<LOSS-PROVISION> 238,000
<INTEREST-EXPENSE> 963,000
<INCOME-PRETAX> (2,016,000)
<INCOME-TAX> 76,000
<INCOME-CONTINUING> (2,092,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,092,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
