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
For Quarter Ended June 30, 1995
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
Former Fiscal Year was July 31, New Fiscal Year is December 31 Former name,
former address and formal fiscal year, if changed since last report.
Number of common shares outstanding as of August 14, 1995: 23,707,264
Purpose of Amendment:
Part I. - Financial Information:
Item 1. Financial Statements - The financial statements are restated to reflect
the following changes:
1) Increase additional paid-in capital and accumulated deficit to reflect an
increase in the fiscal year ended July 31, 1994 expense of approximately
$5,870,000 relating to a reduction in the discount taken on stock option
issuances.
2) Increase additional paid-in capital and accumulated deficit to reflect an
increase in the five month period ended December 31, 1994 expense of
approximately $36,000 relating to a reduction in the discount taken on
stock issued in lieu of cash for services rendered.
3) Increase additional paid-in capital and accumulated deficit to reflect an
increase in the five month period ended December 31, 1994 expense of
approximately $338,000 relating to a reduction in the discount taken on
stock issued for an acquisition.
4) Reclass $72,868 of exclusivity rights to other assets which were previously
included with fixed assets as of December 31, 1994 Related changes were
also made to the cash flow statement.
5) Reclass the current and long-term portions of debt and capital lease
obligations and reclass amounts between debt and capital lease obligations
to the proper amounts related to the Three Dimensional Products and
Services segment.
<PAGE>
Purpose of Amendment (continued):
6) For the six months ended July 31, 1994 statement of operations,
reclass approximately $115,000 of expense related to the issuance of
stock options from unusual expense to selling, general and
administrative expense and increase selling, general and administrative
expenses by approximately $2,450,000 relating to a reduction in the
discount taken on stock option issuances. Related changes were also
made to the cash flow statement.
7) In the cash flow statement for the six months ended June 30, 1995 and July
31, 1994 the following changes were made:
a) The noncash portions of the reverse merger are removed from the cash
flow statement and are included in the supplemental disclosures of
noncash investing activities
b) Added supplemental disclosures of noncash investing and financing
activities for the six months ended July 31, 1994.
8) Disclosed the number of common shares authorized, issued and outstanding
on the face of the balance sheet.
9) Expanded the discussion regarding the computation of earnings per share in
the footnotes to describe the Company's treatment of the convertible
preferred stock in calculating weighted average number of shares
outstanding.
10) Added additional footnote disclosure regarding the restatement of prior
period financial statements.
11) Added full disclosure of acquisitions that affect all periods presented in
the financial statements.
12) Adjusted the segment analysis to reflect the increase in Corporate and
Other selling, general and administrative expenses.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
13) Liquidity and Capital Resources
a) Expanded discussion regarding the restriction of the use of a
subsidiary's cash is added.
b) Expanded discussion of changes in working capital assets/liabilities
is added, including the proposed refinancing of current debt
obligations.
c) Disclosure of the impact of loan defaults is added.
14) Results of Operations
a) Adjusted the segment percentage tables to reflect the increase in
the Corporate and Other segment's selling, general and
administrative expenses.
b) Discussion is changed to reflect the changes made to the six months
ended July 31, 1994, of approximately $115,000 of expense related to
the issuance of stock options from unusual expense to selling, general
and administrative expense and the $2,450,000 increase in selling,
general and administrative expense relating to a reduction in the
discount taken on the stock option issuances.
<PAGE>
CONSOLIDATED TECHNOLOGY GROUP LTD.
INDEX
Part I - Financial Information: Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1995
and December 31, 1994 2-3
Consolidated Statements of Operations -
Three Month Periods Ended June 30, 1995
and July 31, 1994 4
Consolidated Statements of Operations -
Six Month Periods Ended June 30, 1995
and July 31, 1994 5
Consolidated Statement of Shareholders'
Equity - June 30, 1995 6-9
Consolidated Statements of Cash Flows -
Six Month Periods Ended June 30, 1995
and July 31, 1994 10-12
Notes to Consolidated Financial Statements 13-20
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21-27
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 28
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
June 30,
1995 December 31,
(Unaudited) 1994
----------- -----------
Assets:
Current assets:
Cash and cash equivalents $ 2,804,173 $ 1,726,796
Receivables, net of allowances 18,809,796 16,819,356
Inventories 4,227,077 3,466,328
Loans receivable 301,367 1,363,249
Prepaid expenses and other current assets 235,574 412,243
Investments in common stock 6,468 150,892
---------- ----------
Total current assets 26,384,455 23,938,864
---------- ----------
Property, plant and equipment, net 12,548,922 12,911,437
---------- ----------
Other assets:
Capitalized software development costs 928,499 1,064,418
Equipment leased to others 133,800 --
Goodwill, net 12,199,837 12,622,620
Covenants not to compete, net 2,809,505 3,450,665
Customer lists, net 12,346,548 12,770,200
Deferred offering costs 419,469 331,334
Receivables, long-term 742,140 --
Receivables, related parties 189,896 159,824
Trademark, net 385,837 --
Investments in common stock, long-term 462,660 383,345
Other assets 599,195 455,837
---------- ----------
Total other assets 31,217,386 31,238,243
---------- ----------
Total Assets $70,150,763 $68,088,544
========== ==========
See notes to consolidated financial statements.
2
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
June 30,
1995 December 31,
(Unaudited) 1994
----------- -----------
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $ 7,892,437 $ 6,741,080
Accrued payroll and related expenses 3,011,260 1,774,160
Accrued interest 233,751 112,524
Income taxes payable 158,764 20,000
Interim billings in excess of costs and
estimated profits 205,619 654,961
Notes payable, related parties 183,496 183,496
Current portion of long-term debt 8,139,871 8,095,272
Current portion of subordinated debt 3,850,284 3,437,050
Current portion of capitalized lease
obligations 1,439,389 1,256,236
---------- ----------
Total current liabilities 25,114,871 22,274,779
---------- ----------
Long-term liabilities:
Long-term debt 8,672,687 8,512,002
Capitalized lease obligations 2,764,977 2,671,171
Subordinated debt 15,997,385 17,925,868
---------- ----------
Total long-term liabilities 27,435,049 29,109,041
---------- ----------
Minority Interest 2,001,615 --
---------- ----------
Shareholders' equity:
Preferred stock 80,675 80,675
Additional paid-in-capital, preferred stock 310,852 310,852
Common stock (50,000,000 shares authorized,
23,707,264 and 17,577,260 shares issued and
outstanding as of June 30, 1995 and
December 31, 1994, respectively) 237,073 175,773
Additional paid-in-capital, common stock 50,337,873 45,597,653
Accumulated deficit (33,395,642) (29,287,714)
Unrealized exchange translation 166,421 (33,200)
Deferred consulting fees (2,197,657) --
Net unrealized gain (loss) on long-term
investments in common stock 59,633 (139,315)
---------- ----------
Total shareholders' equity 15,599,228 16,704,724
---------- ----------
Total Liabilities and Shareholders' Equity $70,150,763 $68,088,544
========== ==========
See notes to consolidated financial statements.
3
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Operations
For the Three Month Periods
Ended June 30, 1995 and July 31, 1994
(Unaudited)
Three Month Periods Ended
---------------------------
June 30, July 31,
1995 1994
---------- ----------
Revenues $27,733,511 $ 6,837,490
Direct Costs 22,611,341 6,516,365
---------- ----------
Gross Profit 5,122,170 321,125
Selling, General and Administrative 5,534,706 2,731,723
---------- ----------
Loss from Operations (412,536) (2,410,598)
---------- ----------
Other Income (Expense):
Interest expense (1,169,927) (30,909)
Other income (expense) (174,077) (48,326)
Losses on investment securities (10,232) (520)
---------- ----------
Total other income (expense) (1,354,236) (79,755)
---------- ----------
Loss from Continuing Operations Before
Income Taxes and Minority Interest (1,766,772) (2,490,353)
Income Taxes (65,361) --
Minority Interest 112,812 147,806
---------- ----------
Net Loss ($ 1,719,321) ($ 2,342,547)
========== ==========
Net loss per share ($0.08) ($0.29)
==== ====
Weighted average number of common shares 21,927,099 7,972,594
========== ==========
See notes to consolidated financial statements.
4
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Operations
For the Six Month Periods
Ended June 30, 1995 and July 31, 1994
(Unaudited)
Six Month Periods Ended
---------------------------
June 30, July 31,
1995 1994
---------- ----------
Revenues $56,143,712 $13,259,096
Direct Costs 45,938,122 12,281,611
---------- ----------
Gross Profit 10,205,590 977,485
Selling, General and Administration 11,931,593 6,614,543
---------- ----------
Loss from Operations (1,726,003) (5,637,058)
---------- ----------
Other Income (Expense):
Interest expense (2,154,021) (341,335)
Other income (expense) (96,143) 366,332
Losses on investment securities (130,515) (520)
Unusual items -- --
---------- ----------
Total other income (expense) (2,380,679) 24,477
---------- ----------
Loss from Continuing Operations Before
Income Taxes and Minority Interest (4,106,682) (5,612,581)
Income Taxes (109,228) --
Minority Interest 107,982 113,838
---------- ----------
Net Loss ($ 4,107,928) ($ 5,498,743)
========== ==========
Net loss per share ($0.20) ($0.69)
==== ====
Weighted average number of common shares 20,360,328 7,972,594
========== ==========
See notes to consolidated financial statements.
5
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Shareholders' Equity
For the Six Month Period Ended June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Stock
Issued Unreal- Amort- Recog-
in Lieu ized ization nized
Balance of Cash Gain on of Def- Invest- Balance
at Stock for Exchange erred ment at
December Options Services Net Trans- Consult- Security June 30,
31, 1994 Exercised Rendered Loss lation ing Fees Losses 1995
-------- --------- -------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock, $1.00 par value, 6%
series "A", 77,713 shares authorized:
Shares 77,713 -- -- -- -- -- -- 77,713
======= ======= ======= ======= ======= ======= ======= =======
Amount $ 77,713 -- -- -- -- -- -- $ 77,713
======= ======= ======= ======= ======= ======= ======= =======
Preferred stock, $3.50 and $0.10 par
value, series "B" and "E", 8,000
shares authorized each:
Shares 262 -- -- -- -- -- -- 262
======= ======= ======= ======= ======= ======= ======= =======
Amount $ 262 -- -- -- -- -- -- $ 262
======= ======= ======= ======= ======= ======= ======= =======
Preferred stock, $1.00 par value, $8.00
subordinated, series "F", 6,000
shares authorized:
Shares 2,700 -- -- -- -- -- -- 2,700
======= ======= ======= ======= ======= ======= ======= =======
Amount $ 2,700 -- -- -- -- -- -- $ 2,700
======= ======= ======= ======= ======= ======= ======= =======
Total preferred stock:
Shares 80,675 -- -- -- -- -- -- 80,675
======= ======= ======= ======= ======= ======= ======= =======
Amount $ 80,675 -- -- -- -- -- -- $ 80,675
======= ======= ======= ======= ======= ======= ======= =======
Additional Paid-in capital, preferred
stock $310,852 -- -- -- -- -- -- $310,852
======= ======= ======= ======= ======= ======= ======= =======
(continued)
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Shareholders' Equity
For the Six Month Period Ended June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Stock
Issued Unreal- Amort- Recog-
in Lieu ized ization nized
Balance of Cash Gain on of Def- Invest- Balance
at Stock for Exchange erred ment at
December Options Services Net Trans- Consult- Security June 30,
31, 1994 Exercised Rendered Loss lation ing Fees Losses 1995
-------- --------- -------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock, $0.01 par value,
50,000,000 shares authorized:
Shares 17,577,260 6,000,000 130,004 -- -- -- -- 23,707,264
========== ========= ======= ======= ======= ======= ======= ==========
Amount $175,773 $ 60,000 $ 1,300 -- -- -- -- $237,073
======= ======= ======= ======= ======= ======= ======= =======
Additional paid-in capital,
common stock $45,597,653 $4,627,500 $112,720 -- -- -- -- $50,337,873
========== ========= ======= ======= ======= ======= ======= ==========
Accumulated deficit ($29,287,714) -- -- ($4,107,928) -- -- -- ($33,395,642)
========== ======= ======= ========= ======= ======= ======= ==========
Unrealized exchange translation ($ 33,200) -- -- -- $199,621 -- -- $166,421
======= ======= ======= ======= ======= ======= ======= =======
Deferred consulting fees -- ($2,312,500) -- -- -- $114,843 --($2,197,657)
======= ========= ======= ======= ======= ======= ======= ==========
Unrealized gain(loss) on long-term
investments in common stock ($139,315) -- -- -- -- -- $198,948 $ 59,633
======= ======= ======= ======= ======= ======= ======= =======
Total $16,704,724 $2,375,000 $114,020 ($4,107,928)$199,621 $114,843 $198,948 $15,599,228
========== ========= ======= ========= ======= ======= ======= ==========
(concluded)
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Month Periods
Ended June 30, 1995 and July 31, 1994
(Unaudited)
Six Month Periods Ended
---------------------------
June 30, July 31,
1995 1994
---------- ----------
Cash Flows from Operating Activities:
Net loss ($ 4,107,928) ($5,498,743)
---------- ---------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,507,095 265,488
Minority interest in loss of
consolidated subsidiaries (107,982) (113,838)
Bad debt expense 427,471 22,940
Value of stock issued in lieu of cash
payments for services rendered 114,020 --
Deferred charges on option exercise 1,264,843 2,870,000
Other compensation -- 135,000
Loss on common stock investments 130,515 13,044
Unrealized gain on exchange translation 199,621 --
Write-down of fixed assets to fair value -- 225,000
Change in assets and liabilities:
(Increase) decrease in assets:
Receivables (2,124,868) 950,341
Inventories 50,754 611,954
Prepaid expenses and other current assets 192,016 (310,601)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 464,725 (263,888)
Accrued payroll and related expenses 1,237,100 (1,331,905)
Income taxes payable 138,764 (5,550)
Accrued interest 121,227 (270,438)
Interim billings in excess of costs
and estimated profits (449,342) --
---------- ----------
Total adjustments 5,165,959 2,797,547)
---------- ----------
Net cash provided by (used in)
operating activities 1,058,031 (2,701,196)
---------- ----------
Cash Flows from Investing Activities:
Increase in other assets 34,414 (239,210)
Capital expenditures (337,133) (157,662)
Capitalized software development costs (86,995) (317,311)
Investments in common stock (7,406) (488,173)
Proceeds from sale of common
stock investments 358,110 --
Payments for loans made (1,226,384) (1,221,069)
Collections for repayment of loans made 1,378,436 --
(continued)
See notes to consolidated financial statements.
8
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Month Periods
Ended June 30, 1995 and July 31, 1994
(Unaudited)
Six Month Periods Ended
---------------------------
June 30, July 31,
1995 1994
---------- ----------
Cash Flows from Investing Activities
(continued):
Acquisition of subsidiary -- (500,000)
Cash of companies acquired and merged 504,210 144,752
Cash of company sold -- (5,945)
Cash escrow -- (2,000,000)
---------- ----------
Net cash provided by (used in)
investing activities 617,252 (4,784,618)
---------- ----------
Cash flows from financing activities:
Increase in deferred offering costs (88,135) (56,500)
Net advances from (payments to) a factor (707,451) --
Proceeds from issuance of long-term debt 1,686,247 22,851
Repayment of long-term debt (1,801,345) (2,108,589)
Payments on capital lease obligations (541,373) (5,743)
Repayment of subordinated debt (1,515,249) --
Issuance of common stock -- 8,161,500
Exercise of stock options 1,225,000 2,050,000
Subsidiaries issuance of common stock 453,900 --
Subsidiaries issuance of stock options 690,500 --
---------- ----------
Net cash provided by (used in)
financing activities (597,906) 8,063,519
---------- ----------
Net Increase in Cash and Cash Equivalents 1,077,377 577,705
Cash and Cash Equivalents
at Beginning of Period 1,726,796 1,195,527
---------- ----------
Cash and Cash Equivalents
at End of Period $ 2,804,173 $ 1,773,232
========== ==========
(continued)
See notes to consolidated financial statements
9
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Month Periods
Ended June 30, 1995 and July 31, 1994
(Unaudited)
Six Month Periods Ended
---------------------------
June 30, July 31,
1995 1994
---------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest $ 2,032,794 $ 611,773
========== ==========
Income taxes $ -- $ --
========== ==========
(concluded)
During the six month period ended June 30, 1995:
Non-Cash Investing Activities:
- - acquired equipment under capital lease obligations with a net present value
of $758,815.
- - received common stock in lieu of cash payments for notes and accrued
interest receivable with a book value of $217,162.
- - pursuant to an acquisition of another entity by one of the Company's
subsidiaries, in a transaction accounted for as a reverse merger (see the
notes to the consolidated financial statements):
- reduced the Company's equity ownership in such subsidiary which resulted
in an increase in minority interest of $2,109,597.
- acquired net assets with a book value of $982,822
Non-Cash Financing Activities:
- - issued stock options and received exercise proceeds of $1,225,000 and
incurred non-cash deferred consulting costs of $2,197,657 and non-cash
consulting fee expenses of $1,264,843.
- - issued common stock with a value of $114,020 in lieu of cash payment for
services rendered
During the six months ended July 31, 1994:
Non-Cash Financing Activities:
- - issued stock options and received exercise proceeds of $2,050,000 and
incurred non-cash consulting fee expenses of $2,870,000.
See notes to consolidated financial statements
10
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Basis of Presentation
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 June 30, 1995 and
December 31, 1994 and the results of its operations for the three and six months
ended June 30, 1995 and July 31, 1994 and the changes in cash flows for the six
months ended June 30, 1995 and July 31, 1994.
(2) Periods Reported
Effective December 31, 1994, the Company changed to a calendar year. Prior to
December 31,1994 the Company utilized a fiscal year ending July 31 of each year.
The accompanying financial statements include interim period results for the
three months and six months ended June 30, 1995, the first and second quarter of
the new calendar year, and for the three months and six months ended July 31,
1994, the third and fourth quarter of the prior fiscal year. The Company's
operations are not affected by significant seasonal fluctuations that would make
the periods reported herein not comparable.
(3) Accounting Policies
The accounting policies followed by the Company are set forth in Note 1 to the
Company's financial statements in the December 31, 1994 Form 10-K transition
report. The following additional disclosure of accounting policies reflects
items that were added during the current quarter and as such were not disclosed
in the December 31, 1994 Form 10-K.
Equipment Leased to Others - The Company's audio/visual manufacturing and
services segment leases editing equipment. Such equipment is recorded at the net
realizable value of such equipment.
Trademark - The trademark gives the Company's audio/visual manufacturing and
services segment a nonexclusive trademark license for the use of a brand name in
connection with the marketing and selling of professional loudspeakers. The
trademark is valued based on fair value and is being amortized on a
straight-line basis over 25 years.
(4) Interim Results
The results of operations for the three and six months ended June 30, 1995 and
July 31, 1994 are not necessarily indicative of the results to be expected for
the full year.
(5) Loss Per Share
Earnings (loss) per share are computed by dividing the net income (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"
11
<PAGE>
(5) Loss Per Share (continued)
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.
(6) Income Taxes
The Company's provision for income taxes for the three and six month periods
ended June 30, 1995 is related to state income and franchise taxes. Federal and
state tax benefits have not been recognized for the current losses for the three
and six months ended June 30, 1995 due to the fact that all potential loss carry
backs have been fully utilized and, under SFAS No. 109, "Accounting for Income
Taxes", the Company has determined that it is more likely than not that the tax
asset will not be realized.
(7) 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) Audio/Visual Manufacturing and Services consists of subsidiaries
that develop digital signal processing and market and sell loudspeakers and
random access video tape editing technologies; (iv) 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; (v) 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; (vi) Telecommunications consists of a subsidiary that, among other
things, installs telephonic network systems and buys and resells local telephone
service; (vii) 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; (viii)
Audio/Visual Manufacturing and Services consists of a subsidiary that
manufactures and sells a professional line of loudspeakers and (ix) 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. Previously, the segmentation
consisted of (i) Manufacturing, which is now included in the Electro- Mechanical
and Electro-Optical segment; (ii) Fees and Services, which included the
subsidiaries that are now classified in the Contract Engineering Services,
Telecommunications and Business Consulting Services segments; and (iii)
Development Stage which previously included Medical Information Services and
Three Dimensional Products and Services. Intersegment sales and sales outside
the United States are not material. Information concerning the Company's
business segments is as follows:
12
<PAGE>
(7) Industry Segments (continued)
Three Months Six Months
Ended Ended
------------------------ ------------------------
June 30, July 31, June 30, July 31,
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Contract Engineering
Services $15,433,972 $ 5,158,848 $33,233,759 $10,221,120
Medical Diagnostics 7,052,149 -- 14,078,601 --
Audio/Visual Manufact-
uring and Services 815,351 -- 815,351 --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 1,368,345 861,017 2,539,518 1,727,422
Medical Information
Services 1,920,229 -- 3,347,259 --
Telecommunications 707,171 729,439 1,097,185 1,130,971
Three Dimensional
Products and Services 429,794 56,321 1,019,039 123,600
Business Consulting
Services 6,500 31,865 13,000 55,983
---------- ---------- ---------- ----------
Total Revenues $27,733,511 $ 6,837,490 $56,143,712 $13,259,096
========== ========== ========== ==========
Gross Profit:
Contract Engineering
Services $ 1,265,755 $ 712,775 $ 1,877,758 $ 946,469
Medical Diagnostics 2,914,429 -- 6,306,992 --
Audio/Visual Manufact-
uring and Services 152,149 -- 152,149 --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 54,568 (528,209) 417,546 (279,748)
Medical Information
Services 526,064 -- 894,716 --
Telecommunications 119,952 174,006 176,920 276,210
Three Dimensional
Products and Services 82,753 (69,312) 366,509 (21,429)
Business Consulting
Services 6,500 31,865 13,000 55,983
---------- ---------- ---------- ----------
Total Gross Profit $ 5,122,170 $ 321,125 $10,205,590 $ 977,485
========== ========== ========== ==========
13
<PAGE>
(7) Industry Segments (continued)
Three Months Six Months
Ended Ended
------------------------ ------------------------
June 30, July 31, June 30, July 31,
1995 1994 1995 1994
---- ---- ---- ----
Income (Loss) from
Operations:
Contract Engineering
Services $ 512,270 $ (141,336) $ 217,888 $ (188,111)
Medical Diagnostics 1,346,014 -- 2,842,305 --
Audio/Visual Manufact-
uring and Services (66,202) -- (66,202) --
Electro-Mechanical and
Electro- Optical
Products Manufacturing (120,673) (790,425) (124,593) (782,617)
Medical Information
Services (196,675) (380,342) (632,599) (467,302)
Telecommunications (196,962) 16,783 (411,156) 26,939
Three Dimensional
Products and Services (412,122) (461,773) (827,101) (578,822)
Business Consulting
Services (11,797) (140,580) (18,044) (157,598)
Corporate and Other (1,266,389) (512,925) (2,706,501) (3,489,547)
---------- --------- ---------- ----------
Total loss
from operations $ (412,536)$(2,410,598) $(1,726,003) $(5,637,058)
========== ========= ========= =========
Net Income (Loss):
Contract Engineering
Services $ 105,377 $ (69,283) $ (468,681) $ (97,987)
Medical Diagnostics 627,774 -- 1,461,272 --
Audio/Visual Manufact-
uring and Services (88,690) -- (88,690) --
Electro-Mechanical and
Electro- Optical
Products Manufacturing (122,314) (941,760) (126,514) (659,180)
Medical Information
Services (309,338) (313,034) (776,034) (429,159)
Telecommunications (209,532) 24,786 (431,214) 26,939
Three Dimensional
Products and Services (471,856) (487,261) (887,354) (611,235)
Business Consulting
Services (12,403) (143,990) (21,000) (164,425)
Corporate and Other (1,238,339) (412,005) (2,769,713) (3,563,696)
---------- ---------- ---------- ----------
Total net loss $(1,719,321) $(2,342,547) $(4,107,928) $(5,498,743)
========== ========== ========== ==========
14
<PAGE>
(7) Industry Segments (continued)
Three Months Six Months
Ended Ended
------------------------ ------------------------
June 30, July 31, June 30, July 31,
1995 1994 1995 1994
---- ---- ---- ----
Depreciation and
Amortization:
Contract Engineering
Services $ 128,053 $ 73,127 $ 256,089 $ 142,244
Medical Diagnostics 1,237,083 -- 2,490,273 --
Audio/Visual Manufact-
uring and Services 75,061 -- 75,061 --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 7,647 14,707 15,295 28,282
Medical Information
Services 133,519 17,524 264,987 19,535
Telecommunications 7,552 7,495 15,047 14,989
Three Dimensional
Products and Services 322,961 40,911 381,918 56,057
Business Consulting
Services 528 710 1,056 1,057
Corporate and Other 3,745 2,827 7,369 3,324
---------- --------- ---------- ----------
Total depreciation
and amortization $ 1,916,149 $ 157,301 $ 3,507,095 $ 265,488
========== ========= ========== ==========
Capital Expenditures (I):
Contract Engineering
Services $ 9,243 $ -- $ 19,764 $ --
Medical Diagnostics 54,922 -- 102,252 --
Audio/Visual Manufact-
uring and Services 56,159 -- 56,159 --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 2,946 -- 6,473 23,191
Medical Information
Services 26,743 1,003,940 31,080 1,003,940
Telecommunications -- -- -- --
Three Dimensional
Products and Services 60,803 129,877 100,747 144,458
Business Consulting
Services -- -- -- 3,628
Corporate and Other 2,458 37,668 20,658 56,838
---------- ---------- ---------- ----------
Total capital
expenditures $ 213,274 $ 1,171,485 $ 337,133 $ 1,232,055
========== ========== ========== ==========
(I) - For the three and six month periods ended July 31, 1994, capital
expenditures includes approximately $1,075,000 for amounts allocated to property
and equipment from the acquisitions of companies.
15
<PAGE>
(7) Industry Segments (continued)
At At
June 30, July 31,
1995 1994
---- ----
Identifiable Assets:
Contract Engineering
Services $10,685,061 $ 5,508,858
Medical Diagnostics 40,863,889 --
Audio/Visual Manufact-
uring and Services 2,396,511 --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 4,760,250 4,646,551
Medical Information
Services 6,316,741 6,822,124
Telecommunications 1,225,056 1,041,712
Three Dimensional
Products and Services 2,017,129 1,445,557
Business Consulting
Services 287,095 444,204
Corporate and Other 1,599,031 5,161,357
---------- ----------
Total identifiable
assets $70,150,763 $25,070,363
========== ==========
(8) Capital Stock Transactions
During the period reported, the following capital stock transactions occurred:
Stock Issued for Services Rendered:
On February 28, 1995 and April 10, 1995, the Company issued 75,000 and 25,004
common shares, respectively, pursuant to a financing agreement with a creditor
of the Company. The value of the stock ($88,520) was expensed.
On April 10, 1995, the Company issued 30,000 common shares in lieu of cash
payment for services rendered to the Company. The value of the stock ($25,500)
was expensed.
16
<PAGE>
(8) Capital Stock Transactions (continued)
Non-Employee Directors, Consultants and Advisors Stock Plan:
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. At various times, the Company
has registered and granted options pursuant to the plan. During the six months
ended June 30, 1995, options to purchase 3,500,000 shares were granted and
exercised of which 1,000,000 were exercised at $0.50 per share, 1,000,000 were
exercised at $0.35 per share and 1,500,000 were exercised at $0.25 per share.
Additionally, 2,500,000 shares were granted for which no cash consideration was
received. The above transactions resulted in $3,462,500 of consulting costs,
computed as follows:
Shares 6,000,000
Value of stock at date of grant
(weighted average) $ 0.9766
---------
Aggregate fair market value of stock issued 5,859,375
20% discount (1,171,875)
---------
Discounted value of stock issued 4,687,500
Exercise proceeds (1,225,000)
---------
Total consulting costs 3,462,500
Portion expensed at the time of exercise 1,150,000
---------
Portion deferred at the time of exercise $2,312,500
=========
In accordance with the agreements relating to the various parties involved,
$662,500, $137,500, and $350,000 were charged as consulting services, public
relation services and non-cash compensation, respectively, in the determination
of income from operations for the six months ended June 30, 1995. Additionally,
amortization of the deferred portion in the amount of $114,843 was charged to
income from operations for the six months ended June 30, 1995. The unamortized
deferred consulting expense is recorded in the equity section of the balance
sheet. Such deferred charges are being amortized over four years, the term of
the related contracts. A 20% discount was utilized because the shares issued
represent large blocks of stock.
(9) Acquisitions:
(i) - On June 16, 1994, a subsidiary of the Company, Carte Medical Holdings
("CMH"), through a wholly-owned subsidiary, CSM Acquisition Corp. ("Acquisition
Corporation"), acquired the assets and assumed liabilities of Creative
Socio-Medics Inc. ("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 CMH. 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,
17
<PAGE>
(9) Acquisitions (continued):
(ii) CMH transferred the stock of Acquisition Corporation to Carte, (iii) in
consideration for the transfer of the Acquisition Corporation stock, Carte is to
issue to CMH 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 CMH 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 purchase
price of this acquisition included $3,851 for customer lists of CSM which will
be amortized over 15 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.
(ii) - As of September 30, 1994, the Company acquired International Magnetic
Imaging, Inc. and its affiliated entities ("IMI, Inc.") in a business
combination accounted for as a purchase. The principal operations of IMI, Inc.
Are in the establishment and operation of outpatient diagnostic centers
providing MRI services and other modalities. The results of operations of IMI,
Inc. are included in the accompanying combined financial statements since the
date of acquisition. The total cost of the acquisition was $31,872 which
exceeded the fair value of net assets of IMI, Inc. By $11,068. The excess
purchase price, or goodwill, will be amortized by the straight-line method over
20 years.
The other intangibles, specifically restrictive covenants and customer lists,
will be amortized by the straight-line method over 3 years and 15 years,
respectively.
The following summarizes the purchase price allocated to acquired assets at fair
value.
Cash $ 6,960
Subordinated Debt 19,863
Stock (3,343,000) 2,920
Notes [Covenants] 800
Acquisition Costs 1,329
------
Purchase Cost $31,872
======
Allocated to:
Cash $ 2,350
Other Assets 421
Covenants-Not-to-Compete 3,303
Property, Plant and Equipment 10,903
Accounts Receivable 7,379
Managed Care Contracts - Customer Lists 5,656
Liabilities Assumed ( 9,208)
Goodwill 11,068
------
Total $31,872
======
18
<PAGE>
(9) Acquisitions (continued):
The cash portion of the purchase price was subsequently refinanced through DVI.
The notes issued in connection with the acquisition of the centers balloon
primarily in September 1996, with notes in the principal amount of $860 maturing
in September 1997. The notes issued to acquire IMI and MD Corp. balloon and
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. For accounting purposes, the results
of operations of IMI are included with the results of the Company from October
1, 1994 onward.
(iii) - In November 1994, the Company acquired the assets of two businesses, Job
Shop Technical Services, Inc. ("Job Shop") and Computer Engineering Services,
Inc. ("CES"). Job Shop provides engineers, designers and technical personnel on
a temporary basis, which is similar to the business performed by Avionics
Research Corporation, a subsidiary of the Company. CES is engaged in the
business of performing CAD (computer aided design) and CAM (computer aided
manufacturing) related services and the marketing and sale CAD/CAM software.
(a) - Pursuant to an asset purchase agreement dated as of August 19, 1994 among
ITS Management Corp., a Delaware Corporation and wholly-owned subsidiary of the
Company ("ITS"), Job Shop and the sole stockholder of Job Shop, ITS acquired
substantially all of the assets of Job Shop in exchange for 750,000 shares of
the Company's common stock valued at $450, and the assumption of certain
scheduled liabilities. The principal liability assumed was a $2 million
obligation due to the Internal Revenue Service pursuant to a settlement
arrangement which Job Shop had negotiated. The initial $500 payment was made in
November, 1994. The balance is due in 15 monthly installments of $100,
commencing May, 1995.
(b) - Pursuant to a plan and agreement of reorganization among CDS Acquisition
Corp. ("CDS"), a Delaware corporation and wholly-owned subsidiary of the
Company, CES and the sole stockholder of CES, CDS acquired substantially all of
the assets of CES in exchange for 750,000 shares of the Company's common stock
valued at $450, and the assumption of certain scheduled liabilities.
Prior to the acquisition, the businesses of Job Shop and CES were operated as
divisions of the same company, along with one other division which was not
acquired by the Company. For accounting purposes the results of operations of
ITS and CDS are included with the results of the Company from November 22, 1994
onward.
(10) 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. The transaction was accounted for as a
reverse merger, with Trans Global being the surviving company. As a result of
the transaction, the Company's ownership in Trans Global decreased which
increased minority interest by $2,109,597. The statement of operations for the
three and six month periods ended June 30,
19
<PAGE>
(10) Reverse Merger (continued)
1995 and the cash flow statement for the six month period ended June 30, 1995
reflect the operations of Trans Global from the beginning of the respective
periods and Trans Global includes Concept's operations from the date of the
reverse merger. The consolidated balance sheet as of June 30, 1995 includes the
net book value of Concept's assets and liabilities. The net assets of Concept at
the date of the reverse merger were as follows:
Cash $ 504,210
Receivables, net 293,043
Inventories, net 811,503
Prepaid expenses and other assets 94,891
Property, plant and equipment, net 373,473
Equipment leased to others, net 171,600
Trademark, net 389,389
Other long-term assets 68,695
Accounts payable and accrued expenses (686,632)
Long-term debt (1,027,833)
Capital lease obligations (9,517)
---------
Net assets at book value $ 982,822
=========
(11) Pro Forma Results
The following pro forma unaudited results assume that the reverse merger with
Concept Technologies (as disclosed in footnote (10)) and the acquisitions of
Creative Socio-Medics, International Magnetic Imaging, Inc., Job Shop Technical
Services and Computer Engineering Services (as disclosed in footnote (9) had
occurred at the beginning of the indicated periods:
Three Months Six Months
Ended Ended
------------------ ------------------
June 30, July 31, June 30, July 31,
1995 1994 1995 1994
---- ---- ---- ----
(in 000's except per share data))
Net revenues $27,734 $26,070 $56,800 $52,010
====== ====== ====== ======
Net loss $(1,719) $(2,227) $(4,170) $(3,720)
====== ====== ====== ======
Loss per share $ (0.08) $ (0.16) $ (0.20) $( 0.26)
====== ====== ====== ======
The pro forma information is not necessarily indicative of either the results of
operations that would have occurred had the acquisition been effective at the
beginning of the indicated periods or of the future results of operations.
20
<PAGE>
(12) Restatements of Prior Period Financial Statements
The years ended December 31, 1994 and July 31, 1994 financial statements have
been restated. The following summarizes and describes impact of the restatement
on the periods included as a part of these financial statements.
Three Months Ended Six Months Ended
--------------------- ---------------------
June 30, July 31, June 30, July 31,
1995 1994 1995 1994
--------- --------- -------- --------
(in 000's)
Income (Loss) from Operations:
Prior to Restatement ($ 413) ($2,411) ($1,726) ($3,072)
Prior Period Adjustments:
Decrease in discount on shares
issued for stock options [1] -- -- -- (2,450)
Reclass stock option expense
from unusual to selling, general
and administrative expenses [2] -- -- -- (115)
------ ------ ------ ------
As restated ($ 413) ($2,411) ($1,726) ($5,637)
====== ====== ====== ======
Other Income (Expense):
Prior to Restatement ($1,354) ($ 80) ($2,381) ($ 91)
Prior Period Adjustments:
Reclass stock option expense from
unusual to selling, general and
administrative expenses [2] -- -- -- 115
------ ------ ------ ------
As restated ($1,354) ($ 80) ($2,381) $ 24
====== ====== ====== ======
Net Income (Loss):
Prior to Restatement ($1,719) ($2,343) ($4,108) ($3,049)
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] -- -- -- (2,450)
------ ------ ------ ------
As restated ($1,719) ($2,343) ($4,108) ($5,499)
====== ====== ====== ======
21
<PAGE>
(12) Restatements of Prior Period Financial Statements (continued)
As of As of
June 30, December 31,
1995 1994
--------- ------------
Accumulated Deficit:
Prior to Restatement ($27,152) ($23,044)
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] (5,870) (5,870)
Decrease in discount on shares
issued in lieu of cash payment
for services rendered [3] (36) (36)
Decrease in discount on shares
issued for acquisitions [4] (338) (338)
------ ------
As restated ($33,396) ($29,288)
====== ======
Additional Paid-in Capital,
Common Stock:
Prior to Restatement $44,094 $39,353
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] 5,870 5,870
Decrease in discount on shares
issued in lieu of cash payment
for services rendered [3] 36 36
Decrease in discount on shares
issued for acquisitions [4] 338 338
------ ------
As restated $50,338 $45,597
====== ======
[1] - The Company originally used a 60% discount for valuing shares issued and
exercised pursuant to a Non Employee Directors, Consultants and Advisors Stock
Plan and it was subsequently determined that only a 20% discount should be used
resulting in an increase in noncash expenses of $5,870 in prior periods of which
$2,450 relates to the six months ended July 31, 1994. Such change did not impact
the operating statement for the three and six months ended June 30, 1995 and the
three months ended July 31, 1994.
[2] - The Company originally included $115 of noncash expenses from the issuance
and exercise of stock options pursuant to a Non Employee Directors, Consultants
and Advisors Stock Plan as an unusual expense in other income and expense. Such
expense has been reclassified as an operating expense for the six months ended
July 31, 1994 but did not impact the three and six months ended June 30, 1995
and the three months ended July 31, 1994.
22
<PAGE>
(12) Restatements of Prior Period Financial Statements (continued)
[3] - The Company originally used a 50% discount for valuing shares issued in
lieu of cash payment for services rendered and it was subsequently determined
that only a 20% discount should be used resulting in an increase in noncash
expenses of $36 in prior periods. Such change did not impact the three and six
months ended June 30, 1995 or July 31, 1994.
[4] - The Company originally used a 50% discount for valuing shares issued in
connection with the acquisition of a subsidiary and it was subsequently
determined that only a 20% discount should be used resulting in an increase in
noncash expenses of $338 in prior periods. Such change did not impact the three
and six months ended June 30, 1995 and July 31, 1994.
. . . . . . . . . . . . . . . . .
23
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition:
Liquidity and Capital Resources:
As of June 30, 1995 working capital at June 30, 1995 was $1,269,584 compared to
$1,698,927 at December 31, 1994. The Company's principal working capital
consists of cash and cash equivalents which was $2,804,173 at June 30, 1995
compared to $1,726,796 at December 31, 1994. During the six months ended June
30, 1995, the Company's principal source of cash was from the operations of the
medical diagnostics segment company, International Magnetic Imaging, ("IMI"),.
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 June 30, 1995 the most
significant impact from these restrictions is on the Three Dimensional Products
and Services and Medical Information Services segments which are currently
unable to operate without cash infusions from the parent company,
(Consolidated). If these segments do not obtain alternative sources of funding
(i.e. equity offerings, creditor financing or increased volume), it is uncertain
whether these segments will continue as operating groups. The remaining segments
are relatively unaffected by the restrictions on IMI's cash since they operate
substantially with their own cash flows. Other sources of cash were proceeds
from the issuance of long-term debt and proceeds from the exercise of stock
options. During the same period, the principal use of cash was to purchase
capital assets and to repay scheduled debt maturities.
Other significant changes in working capital include an increase in accounts
receivable of approximately $2,125,000, due primarily to increased revenue
volumes in the medical diagnostics and contract engineering services segments,
an increase in accounts payable and accrued expenses of approximately $467,000,
the result of extending trade payables, an increase in accrued payroll and
related taxes of approximately $1,237,000 the result of the timing of payroll
payments in the contract engineering services segment and a decrease in interim
billings in excess of costs and estimated profits of approximately $450,000, the
result of billings made on uncompleted projects in the medical services segment.
The Company has significant current portions of debt obligations that will
require cash payment in 1996. In 1996, subordinated debt, payable to the former
owners of IMI, require principal and interest payments of approximately
$2,500,000 and balloon payments due in September of 1996 of approximately
$10,500,000. It is not expected that the Company will generate funds from
operations in order to cover these impending obligations and funding will have
to come from a third party source. As a result, management is currently
negotiating terms with financing sources to extend the repayment terms on the
subordinated debt prior to the due date of the balloon payments, however it
cannot be currently determined whether such negotiation efforts will be
successful. Debt service due on the subordinated debt subsequent to 1996
approximates $5,250,000 of which approximately $3,900,000 is due in 1997 and the
remainder in 1998 and 1999. Management anticipates that if the
24
<PAGE>
Managements Discussion and Analysis (continued):
refinancing negotiations are successful that debt service related to these years
will also be extended over a longer time period. If the Company is not
successful in refinancing the subordinated debt, it will be in default on these
commitments and as of December 31, 1994, the Company has no other plan of action
to rectify the impending default.
Results of Operations:
Consolidated revenues, gross profit and selling, general and administrative
expenses for the three and six months ended June 30, 1995 compared to the three
and six months ended July 31, 1994 increased significantly due primarily to the
acquisition of companies in various industry segments. 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.
Percentage of Total
-------------------
Three Months Ended Six Months Ended
---------------------- ---------------------
June 30, July 31, June 30, July 31,
Revenues: 1995 1994 1995 1994
- -------- ---- ---- ---- ----
Contract Engineering
Services 55.7% 75.4% 59.1% 77.1%
Medical Diagnostics 25.4% -- 25.0% --
Audio/Visual Manufact-
uring and Services 2.9% -- 1.5% --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 4.9% 12.6% 4.5% 13.0%
Medical Information
Services 6.9% -- 6.0% --
Telecommunications 2.5% 10.7% 2.0% 8.5%
Three Dimensional
Products and Services 1.5% 0.8% 1.8% 0.9%
Business Consulting
Services 0.2% 0.5% 0.1% 0.5%
25
<PAGE>
Managements Discussion and Analysis (continued):
Percentage of Total
-------------------
Three Months Ended Six Months Ended
---------------------- ---------------------
June 30, July 31, June 30, July 31,
Gross Profit: 1995 1994 1995 1994
- ------------ ---- ---- ---- ----
Contract Engineering
Services 24.7% 222.0% 18.4% 96.8%
Medical Diagnostics 56.9% -- 61.8% --
Audio/Visual Manufact-
uring and Services 3.0% -- 1.5% --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 1.1% (164.5%) 4.1% (28.6%)
Medical Information
Services 10.3% -- 8.8% --
Telecommunications 2.3% 54.2% 1.7% 28.3%
Three Dimensional
Products and Services 1.6% (21.6%) 3.6% (2.2%)
Business Consulting
Services 0.1% 9.9% 0.1% 5.7%
Percentage of Total
-------------------
Three Months Ended Six Months Ended
---------------------- ---------------------
Selling, General and June 30, July 31, June 30, July 31,
Administrative Expenses 1995 1994 1995 1994
- ------------------------ ---- ---- ---- ----
Contract Engineering
Services 13.6% 31.3% 13.9% 17.2%
Medical Diagnostics 28.3% -- 29.0% --
Audio/Visual Manufact-
uring and Services 3.9% -- 1.8% --
Electro-Mechanical and
Electro- Optical
Products Manufacturing 3.2% 9.6% 4.5% 7.6%
Medical Information
Services 13.1% 13.9% 12.8% 7.1%
Telecommunications 5.7% 5.8% 4.9% 3.8%
Three Dimensional
Products and Services 8.9% 14.4% 10.0% 8.4%
Business Consulting
Services 0.4% 6.2% 0.4 3.1%
Corporate and Other 22.9% 18.8% 22.7% 52.8%
26
<PAGE>
Managements Discussion and Analysis (continued):
Discussion of Operations by Segment:
Contract Engineering Services - This segment consists of two companies, ARC
Acquisition and Resource Management International, ("RMI"), which are a part of
Trans Global Services. Revenues and gross profit increased 199% and 78%,
respectively, when comparing the three month periods ended June 30, 1995 and
July 31, 1994, and increased 225% and 98%, respectively, when comparing the six
month periods ended June 30, 1995 and July 31, 1994. These significant increases
are attributed to the operations of RMI, which was acquired in November 1994.
Income (loss) from operations went from a loss of ($141,336) and ($188,111),
respectively, for the three and six month periods ended July 31, 1994 to income
of $512,270 and $217,888, respectively, for the three and six month periods
ended June 30, 1995. These increases in profitability are due primarily to
significantly increased volume trends while selling, general and administrative
expenses have increased only marginally. Interest expense has increased
significantly for both comparative periods due to the higher debt balances at
RMI. During the current period, the companies operating in this segment have
negotiated more favorable terms for trade receivable financing, which will
reduce interest expense in the remaining quarters of 1995. This segment operates
in a highly competitive environment with low margins. However, management
anticipates that the reduced cost of the receivable financing along with an
increase in volume will allow this segment to increase profitability for the
remainder of 1995. The ultimate long-term profitability of this segment cannot
be determined and if the current quarter's trends were to continue, combined
with the significant losses in the first quarter, profitability would only
marginally increase from prior periods.
Medical Diagnostics - This segment consists of a medical diagnostic imaging
company, which performs MRI and other diagnostic modalities, that was 41% and
45%, purchased in September 1994 and as such there is no comparable period of
operations for this filing. During the three and six month periods ended June
30, 1995, this segment operated at a gross margin percent of approximately
respectively, and generated income from operations of approximately $1,346,000
and $2,842,000, respectively. Selling, general and administrative expense for
the three and six month periods ended June 30, 1995 approximated $1,568,000 and
$3,465,000, respectively, and interest expense approximated $671,000 and
$1,325,000, for the same respective periods. Revenue in the second quarter
remained relatively level from the first quarter while gross margins decreased
14%. The decrease in gross margin is due to the fact that scans performed in the
second quarter carried lower reimbursement rates than those in the first quarter
while direct costs remained constant. Interest expense remained relatively
level; however, additional interest expense will be incurred during the
remainder of the year due to financing of equipment upgrades for some of the MRI
equipment. The profitability of this segment for the remaining quarters of 1995
will depend heavily on the ability of management to perform scans with higher
reimbursement rates than those in the second quarter. Overall, management
anticipates that overall revenue and expense levels will remain relatively level
with the second quarter.
27
<PAGE>
Managements Discussion and Analysis (continued):
Audio/Visual Manufacturing and Services - This segment consists of three
companies, Audio Animation, Inc., which has developed certain unique digital
signal processing technologies, WWR Technology, Inc. (d/b/a Klipsch
Professional), which markets and sells loudspeakers and Prime Access, Inc. which
leases and/or rents a variety of post-production video editing equipment. This
segment was acquired via a reverse merger in the second quarter and as such
there is no comparable period of operations for this filing. During the three
month period ended June 30, 1995, WWR Technology, Inc. was the only company in
this group to have significant operating activity. During the three months ended
June 30, 1995, WWR Technology, Inc. had revenues and gross margins of
approximately, $811,000 and $191,000, respectively, while the other entities in
this segment had revenues of only $4,000 and other direct costs of $43,000,
which consisted primarily of depreciation and amortization of equipment leased
to others. Overall, this segment had losses from operations and net losses of
approximately, $66,202 and $88,690, respectively, although WWR Technology, Inc.
had income from operations and net income of approximately, $38,000 and $17,000,
respectively. The ability of this segment to become profitable on an overall
basis would require a significant increase in sales volume or the closure of the
inactive companies, and it cannot be determined at this time whether future
profitability will, if ever, be realized.
Electro-Mechanical and Electro-Optical Products Manufacturing - This segment
consists of three companies, Sequential Electronic Systems, ("Sequential"), S-
Tech and Televend. Televend, which started in 1995, markets telephone debit
cards and products manufactured by S-Tech. Revenues and gross profit increased
59% and 110%, respectively, when comparing the three month periods ended June
30, 1995 and July 31, 1994, and increased 47% and 249%, respectively, when
comparing the six month periods ended June 30, 1995 and July 31, 1994. The
increase in revenues is due in large part to S-Tech which in itself accounts for
approximately 66% of the total increase for the six months. In prior periods
S-Tech was in a development period, designing and marketing its new debit card
vending machines, and has recently started to increase sales of its telephone
debit card machines and instrumentation devices. The significant increase in
gross margin is due to large inventory obsolescence write-offs that occurred in
the prior comparable periods, while such write-offs in the current period were
not as significant. During both, the three and six month periods ended June 30,
1995, losses from operations decreased by 85% from the comparable periods
because while revenues and margins increased, operating costs remained level. A
portion of the revenues in this segment are generated from government sales and
while there exists a possibility that there will be reversals in government
spending cutbacks, it is more likely that defense and military spending will
remain sluggish through 1995. Management plans to continue placing more emphasis
on sales to the private sector and overall it is anticipated that revenues and
operating profits will incur a modest increase in the remaining quarters for
1995.
Medical Information Services - This segment's operations are accounted for in
one group referred to as CSMC which consists of two companies, CSMC and Creative
Socio-Medics, ("CSM"), which was acquired in June 1994. This segment did not
have revenue or gross profit activity in the prior comparable period. Revenues
during the three and six months ended June 30, 1995 approximated $1,920,229 and
$3,347,259, respectively, and generated gross profits of approximately $526,064
and $894,716. Of such revenues, the Smart Card generated $91,000 and $104,000
for the three and six months ended
28
<PAGE>
Managements Discussion and Analysis (continued):
June 30, 1995 from three different projects. The first project consisted of
add-on work from a prior existing contract, the second project consisted of
initial funds received on a signed contract which will generate revenues in the
remaining quarters of 1995, and the third project consisted of initial funds
collected pursuant to a letter of intent which the Company anticipates will lead
to the signing of a final agreement which could generate future revenues for
this segment. All other revenues and gross profits were generated from the
on-going operations of CSM. Selling, general and administrative expenses for the
three and six month periods ended June 30, 1995 included approximately $179,000
and $335,000, respectively, of product enhancement expenses incurred by CSM and
approximately $21,000 and $91,000, respectively, of financing costs and $53,000
and $105,000, respectively, of amortized software development costs incurred by
Carte. For the three and six month periods ended July 31, 1994 all operations in
this segment related to Carte's start-up costs which were charged to selling,
general and administrative expenses. During the remainder of 1995, management
anticipates that the revenues and gross margins of CSM will remain relatively
level.
Telecommunications - In December of 1993 the Company acquired ARC Networks which
is the only entity operating in this segment. Comparing the three and six months
ended June 30, 1995 to the three and six months ended July 31, 1994, revenues
remained relatively level while gross profit decreased 31% and 36%. Selling,
general and administrative expenses, which consist primarily of salaries and
commissions, increased approximately $160,000 and 340,000 from the prior
comparable periods. 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. In order to become profitable this
segment's volume will need to increase significantly and although management
anticipates that revenues and overall profitability on an annualized basis will
marginally increase during the remainder of 1995, the ultimate profitability of
this segment remains uncertain.
Three Dimensional Products and Services - This segment consists of three
companies, 3D Technology, Inc., ("3D Tech"), 3D Imaging International, Inc.,
("3DI") and Computer Design Services, ("CDS"), which was acquired in November
1994. For the three and six months ended June 30, 1995 compared to the three and
six months ended July 31, 1994, revenues have increased 663% and 725%,
respectively, and gross profits have increased 219% and 1,810%, respectively,
due to the addition of CDS and increased revenues of 3D Tech of approximately
$127,000 and $464,000 for the respective periods. Losses from operations
approximated $412,000 and $827,000, respectively for the three and six months
ended June 30, 1995. Although this segment has significantly increased revenues
and gross profit, they have not yet reached a level to cover selling, general
and administrative expenses. Additionally, included in selling, general and
administrative expense is approximately $118,000 of amortized software
development costs. During the remainder of 1995, management anticipates that
this segment will continue to have increasing sales based on current sales
orders for the segment's surfacer software, optical laser scanner and lazer
tracer and visicam and visicad products which will result in higher gross
margins. Additionally, selling, general and administrative expenses are expected
to decrease based on a reduction of overhead costs from the combining of
resources functions of 3D Tech and CDS.
29
<PAGE>
Managements Discussion and Analysis (continued):
Although the current trend is expected to result in a higher level of revenues
and gross margins, it can not be determined at this time whether profit levels,
if any, will be significant on a long-term basis.
Business Consulting Services operations were not significant for the three and
six months ended June 30, 1995 and July 31, 1994 which is consistent with
management's decision to concentrate time and resources managing internal
operations of the pre-existing and newly acquired companies. During the
remainder of 1995, management anticipates that consulting revenues and related
expenses will not be a significant portion of the Company's operations.
Corporate and Other selling, general and administrative expenses for the three
months ended June 30, 1995 compared to the three months ended July 31, 1994
increased $754,000 and for the six months ended June 30, 1995 compared to the
six months ended July 31, 1994 decreased $783,000. Included in corporate and
other selling, general and administrative expense is noncash expense from the
exercise of stock options for payment of consulting fees. Such expenses for the
indicated periods are as follows:
Noncash
Consulting
Expenses
----------
Three Months Ended June 30, 1995 $ 740,000
Three Months Ended July 31, 1994 --
---------
Increase in Noncash Consulting Expense $ 740,000
=========
Six Months Ended June 30, 1995 $1,264,843
Six Months Ended July 31, 1994 2,870,000
---------
Decrease in Noncash Consulting Expense ($1,605,157)
=========
For the three months ended June 30, 1995 compared to the comparable period for
July 31, 1994, selling, general and administrative expenses other than noncash
consulting expense remained relatively level. For the six month comparable
periods ended June 30, 1995 and July 31, 1994, selling, general and
administrative expenses, other than noncash consulting expense, increased
approximately $822,00. This increase was due to increased legal and accounting
fees to outside firms related to the reverse merger with Concept Technologies
and an increase in the number of financial support staff. During the remainder
of 1995, it is anticipated that corporate selling, general and administrative
expense levels will be a factor of the activity of additional acquisitions and
capitalization activities. The Company will need to raise additional capital in
the short-term and it is anticipated that corporate and other costs will
increase.
30
<PAGE>
Managements Discussion and Analysis (continued):
Discussion of Other Significant Financial Line Items
Interest Expense for the three and six months ended June 30, 1995 compared to
the three and six months ended July 31, 1994 increased by approximately,
$1,139,000 and $1,813,000 which is primarily attributed to the issuance of debt
instruments in connection with the acquisition of IMI. During the three and six
month periods ended June 30, 1995, interest expense related to IMI was
approximately, $671,000 and $1,325,000, respectively. The remaining increase in
interest expense is from the contract engineering services segment which, for
the three and six month periods ended June 30, 1995, had interest expense of
approximately $295,000 and $582,000.
Income taxes - The Company has not provided for income taxes for the three and
six month periods ended June 30, 1995 due to current period losses. Federal and
state tax benefits have not been recognized for the three and six month periods
ended June 30, 1995 due to the fact that all potential loss carry backs have
been fully utilized and, under SFAS No. 109, "Accounting for Income Taxes", the
Company has determined that it is more likely than not, that the deferred tax
asset will not be realized.
Impact of Inflation
The Company is subject to normal inflationary trends and anticipates that any
increased costs would be passed on to its customers.
. . . . . . . . . . . . . . . . . . . . . . . . . .
31
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
1. EX-11 Calculation of earnings per share.
2. EX-27 Financial Data Schedule (filed only to the SEC in electronic
format.
(b)The following reports on Form 8-K were reported during the quarter:
1. On April 26, 1995, the Company filed a Form 8-K, dated April 19, 1995,
reporting as Item 2. and Item 7., the reverse merger between Trans Global
Services, Inc., (a subsidiary of the Company) and Concept Technologies including
terms of agreement and related financial statements and Exhibits. On May 9,
1995, the Company filed Amendment No. 1 to the above 8-K.
32
<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.
(Registrant)
Date: August 15, 1996 /S/ Lewis S. Schiller
---------------------
LEWIS S. SCHILLER
(President & Chief Executive Officer)
Date: August 15, 1996 /S/ George W. Mahoney
---------------------
GEORGE W. MAHONEY
(Chief Financial Officer)
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Index to Exhibits
June 30, 1995
EX-11 Calculation of earnings per share.
EX-27 Financial Data Schedule
(filed only to the SEC in electronic format)
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
EX-11 Calculation of Earnings per Share
- --------------------------------------------------------------------------------
Three Six
Month Month
Period Period
Ended Ended
June 30, June 30,
1995 1995
---- ----
Net Loss $(1,719,321) $(4,107,928)
========= =========
Loss per Share:
Loss per share - Note 1 $(0.08) $(0.20)
==== ====
Loss per Share - assuming full
dilution - Note 2 $(0.05) $(0.12)
==== ====
Note 1:
Computed by dividing the net loss for the period by the weighted average number
of common shares outstanding (21,927,099 and 20,360,328 for the three and six
months ended June 30, 1995). No stock options, warrants or preferred convertible
stock are assumed to be exercised because they are anti-dilutive for the
periods. 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 for the period.
Note 2:
(I) Assumes that the 6,000,000 common shares issued pursuant to the exercise of
stock options were outstanding as of the beginning of the respective periods.
(ii) Assumes that a warrant to purchase 1,000,000 common shares at $0.75 per
share was exercised at the beginning of the respective periods, 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
respective period as quoted on the NASD.
(iii) Assumes that at the beginning of the respective periods, the 77,713 shares
of preferred convertible stock, were converted to common shares at the
conversion rate of 130.20833 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,804,173
<SECURITIES> 469,128
<RECEIVABLES> 22,824,526
<ALLOWANCES> 2,971,223
<INVENTORY> 4,227,077
<CURRENT-ASSETS> 26,384,455
<PP&E> 18,010,465
<DEPRECIATION> 5,461,543
<TOTAL-ASSETS> 70,150,763
<CURRENT-LIABILITIES> 25,114,871
<BONDS> 0
<COMMON> 237,073
0
80,675
<OTHER-SE> 15,281,480
<TOTAL-LIABILITY-AND-EQUITY> 70,150,763
<SALES> 4,373,908
<TOTAL-REVENUES> 56,143,712
<CGS> 3,437,704
<TOTAL-COSTS> 45,938,122
<OTHER-EXPENSES> 12,158,251
<LOSS-PROVISION> 427,471
<INTEREST-EXPENSE> 2,154,021
<INCOME-PRETAX> (4,106,682)
<INCOME-TAX> 109,228
<INCOME-CONTINUING> (4,215,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,107,928)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
