<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
For the Five Month Transition Period Ended December 31, 1994
Commission File Number 0-4186
CONSOLIDATED TECHNOLOGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
13-1948169
(I.R.S. Employer Identification Number)
160 Broadway, New York, NY 10038
(Address of principal executive offices)
Registrant's telephone number, including area code:(212) 233-4500
Purpose of Amendment:
Part II:
Item 6. Selected Financial data - The selected financial data
is changed to reflect the restated financial statements and to
include five full fiscal years of data in addition to the
transition period data. Additionally, a disclosure of
non-comparable factors is added.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
i) Discussion is changed to reflect the restated financial
statements.
ii) Expanded discussion regarding the restriction of the use
of a subsidiary's cash is added.
iii) Quantification of certain asset write-offs is added.
iv) Expanded discussion of changes in working capital assets
is added, including the proposed refinancing of current
debt obligations.
v) Expanded discussion of prior comparable periods based on
the inclusion of the fiscal year ended July 31, 1992.
vi) Disclosure of the impact of loan defaults is discussed.
(continued)
<PAGE> 2
Purpose of Amendment(continued):
Part IV:
Item 14. Exhibits, Financial Statements Schedules, and Reports
on Form 8-K:
1. Financial Statements - The financial statements are being
restated to reflect the following:
July 31, 1992:
i) The fiscal year ended July 31, 1992 comparable period has
been added.
July 31, 1993:
ii) Reclass classification of losses from
discontinued operations to other expense which relates to
the losses of a discontinuation of a part of a line of
business of $562,361.
July 31, 1994:
iii) Reclass classification of expenses from
unusual to selling, general, and administrative which
relates to noncash stock option expense of $845,000.
iv) Reclass approximately $1,936,000 of
amounts payable to a factor as a current debt in the
liability section of the balance sheet which was
previously shown as a reduction of trade receivables in
current assets.
v) Reclass approximately $972,000 from goodwill to customer
lists.
vi) Increase of expenses and additional paid-in capital of
$5,870,000 which relates to a reduction in the discount
taken on stock option issuances.
December 31, 1993:
vii) Reclass classification of expenses from
unusual to selling, general, and administrative which
relates to noncash stock option expense of $545,000.
viii) Increase of expenses and additional paid-in capital of
$2,330,000 which relates to a reduction in the discount
taken on stock option issuances.
December 31, 1994:
ix) Increase of expenses and additional paid-in capital of
$35,762 which relates to a reduction in the discount
taken on stock option issuances in lieu of cash payment
for services rendered.
x) Increase of expenses and additional paid-in capital of
$337,500 which relates to a reduction in the discount
for stock issued in connection with the purchase of a
subsidiary.
xi) Reclass $284,700 of goodwill write-offs from other expense
to a selling, general and administrative expense.
xii) Shares issued and outstanding is added to the face of the
balance sheet.
(continued)
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Purpose of Amendment(continued):
xiii) Reclass $72,868 of exclusivity rights to other assets
which were previously included with fixed assets.
xiv) 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.
xv) Translation loss is applied directly to specific
transactions in the cashflow statement.
xvi) In the cashflow statement, the cash of a company sold
is moved from financing activities to investing
activities.
xvii) In the cashflow statement, the activity in deferred
offering costs is separately disclosed as a financing
activity.
xviii) The noncash expense of the stock option issuances is shown
separate from the cash exercise price and the noncash
portion of the transaction is supplementally disclosed.
xix) The footnotes to the financial statements are modified for
the following:
a) Accounting Period - Management's representations
regarding the unaudited period have been added.
b) Cash and Cash Equivalents - Expanded discussion on the
restrictions on the use of a subsidiary's cash.
c) Research and Development Costs - Disclosure of the
total amount of such costs is added.
d) Earnings (Loss) per Share - Disclosure regarding the
treatment of convertible preferred stock is added.
e) Investments in Common Stock - Disclosure of proceeds
from sale, gain (loss) on sales and changes in the
unrealized gain (loss) account are added.
f) Long-term Debt - Effective interest rates on all debt
has been added.
g) Income Taxes - Supplemental disclosure of the changes
in the valuation allowance is added.
h) Pro Forma information is changed to reflect the
restated financial statements.
xx) Updated Independent Auditors Report
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PART II
Item 6. Selected Financial Data
Five
Month
Period
Ended
Decem- Fiscal Year Ended July 31,
ber 31, ----------------------------------
1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
(in 000's except per share data)
Selected Statements
of Operations Data:
Revenues $28,305 $15,742 $3,839 $4,533 $4,049 $665
====== ====== ===== ===== ===== ====
Income (Loss)
from Continuing
Operations ($4,112)($10,772) $594 ($122) $537 ($187)
Income (Loss)
from Discontinued
Operations -- -- -- -- -- (290)
Extraordinary Item
- Net of Tax -- -- 146 -- -- --
------ ------ ----- ----- ----- -----
Net Income (Loss) $68,089 ($10,772) $740 ($122) $537 ($477)
====== ====== ===== ===== ===== =====
Income (Loss) from
Continuing Operations
per Common Share ($0.28) ($1.35) $0.18 ($0.03) $0.13 $0.04)
==== ==== ==== ==== ==== ====
Selected Balance Sheet Data:
Total Assets $68,089 $25,070 $7,381 $4,775 $4,200 $3,107
====== ====== ===== ===== ===== =====
Long-term Obligations:
Long-term Debt and
Capital Lease
Obligations $11,218 $298 -- -- -- --
Subordinated Debt 17,926 -- -- -- -- --
------ ---
Total Long-term
Obligations $29,144 298 -- -- -- --
====== ===
Cash Dividends Declared
per Common Share -- -- -- -- -- --
(continued)
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Item 6. Selected Financial Data (continued):
The following factors make the above selected financial data non
comparable for the following indicated periods and reasons:
1) The fiscal year ended July 31, 1993 includes unusual income
of $1,523.
2) The fiscal year ended July 31, 1994 includes expense of
$7,140 from the issuance of stock options to consultants.
3) In December 1993, the Company acquired ARC Acquisition
Group, Inc. and ARC Networks, Inc. and in June 1994, the Company
acquired Creative Socio-Medics, Inc. Such acquisitions resulted
in: (i) an increase in assets of approximately $13,000 as of July
31, 1994; (ii) an increase in revenues of approximately $11,000
for the fiscal year ended July 31, 1994 and $14,400 for the five
months ended December 31, 1994; and (iii) a net increase in net
loss of approximately $173 for the fiscal year ended July 31,
1994 and $1,600 for the five months ended December 31, 1994.
3) In September 1994 the Company acquired International
Magnetic Imaging, Inc. and in November 1994, the Company acquired
Job Shop Technical Services and Computer Engineering Services.
Such acquisitions resulted in: (i) an increase in assets of
approximately $47,200 as of December 31, 1994; (ii) an increase
in revenues of approximately $11,500 for the five months ended
December 31, 1994; and (iii) a net decrease in net loss of
approximately $270 for the five months ended December 31, 1994.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Liquidity and Capital Resources
The Company's principal working capital consists of cash and cash
equivalents. Cash and cash equivalents were $1,726,796 at
December 31, 1994 compared to $1,773,232 at July 31, 1994.
During the five month period ended December 31, 1994, the
Company's principal source of cash was from the operations of IMI
and cash from acquired subsidiaries. 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 December 31, 1994 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. During the same period, the principal use
of cash was to acquire subsidiaries (including the $2,000 in cash
escrow), purchase capital assets and repay scheduled debt
maturities.
The only other significant change in working capital assets was
an increase in receivables of $11,725 of which approximately
$11,350 is due to acquisitions. Working capital liabilities
increased by $14,568. Accounts payable and accrued expenses
increased approximately $4,290 from acquisitions while current
portions of debt and capital lease obligations increased
approximately $9,773 from acquisitions.
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 an acquired subsidiary,
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
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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 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.
Additionally, the Company is in default on loans aggregating
$302 as of December 31, 1994. 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 revenues, gross profit and selling, general and
administrative expenses for the five month period ended December
31, 1994 compared to the five month period ended December 31,
1993 and the fiscal year ended July 31, 1994 compared to the
fiscal year ended July 31, 1993 increased significantly due
primarily to the acquisition of companies in various industry
segments. Consolidated revenues and gross profit for the fiscal
year ended July 31, 1993 compared to the fiscal year ended July
31, 1992 decreased $694 while selling, general and administrative
expenses for the same comparison period increased $1,210. Such
changes are due to activity within existing subsidiaries since no
acquisitions occurred during that time period. 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.
Page 7
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Percentage of Total
-------------------
Five Months Fiscal Year
Ended Ended
December 31, July 31,
------------ ------------------
Segments 1994 1993 1994 1993 1992
- -------- ---- ---- ---- ---- ----
Revenues:
Contract Engineering
Services 53.2% 6.1% 64.9% 15.9% 16.0%
Medical Diagnostics 23.2% -- -- -- --
Electro-Mechanical and
Electro-Optical Products
Manufacturing 6.6% 66.5% 22.1% 79.7% 74.1%
Medical Information
Services 10.3% 0.3% 0.1% 1.3% --
Telecommunications 4.0% -- 7.2% -- --
Three Dimensional Products
and Services 2.6% 6.4% 1.9% 2.1% --
Business Consulting
Services 0.1% 20.7% 3.8% 1.0% 9.9%
Gross Profit:
Contract Engineering
Services 12.6% 4.3% 46.2% 4.4% 7.2%
Medical Diagnostics 52.8% -- -- -- --
Electro-Mechanical and
Electro-Optical Products
Manufacturing 9.0% 43.9% 7.2% 84.8% 74.4%
Medical Information
Services 11.9% 0.6% 0.3% 2.8% --
Telecommunications 7.2% -- 12.7% -- --
Three Dimensional Products
and Services 6.3% 12.5% 5.5% 4.7% --
Business Consulting
Services 0.2% 38.7% 28.1% 3.3% 18.4%
Page 8
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Percentage of Total
-------------------
Five Months Fiscal Year
Ended Ended
December 31, July 31,
------------ ------------------
Segments 1994 1993 1994 1993 1992
- -------- ---- ---- ---- ---- ----
Selling, General and
Administrative Expenses:
Contract Engineering
Services 8.6% 1.6% 8.1% 5.5% 10.8%
Medical Diagnostics 19.3% -- -- -- --
Electro-Mechanical and
Electro-Optical Products
Manufacturing 12.5% 11.8% 9.1% 23.8% 49.7%
Medical Information
Services 19.8% 4.8% 5.4% 8.8% --
Telecommunications 6.5% -- 1.8% -- --
Three Dimensional Products
and Services 15.3% 6.9% 6.9% 6.4% --
Business Consulting
Services 3.3% 1.0% 3.1% 7.2% 6.3%
Corporate and Other 14.7% 73.9% 65.6% 48.3% 33.2%
Discussion of Operations by Segment
Contract Engineering Services - During the five month period
ended December 31, 1994 and the fiscal year ended July 31, 1994,
substantially all of the revenues were from the operations of
Trans Global. Revenues for fiscal years July 31, 1993 and 1992
decreased by $116 or 16% and were from Universal, a subsidiary in
which the Company no longer includes in consolidation due to the
fact that a significant portion of the business was sold. Due to
the change in companies operating in this segment, operating
results from period to period are not comparable. Trans Global
operates in a highly competitive environment with low margins.
Management believes that by combining the resources and expertise
of the two newly acquired companies, this segment will increase
its long-term profitability, however, it is anticipated that
revenues and operating income on an annualized basis will remain
relatively level for 1995.
Medical Diagnostics - This segment consists of a medical
diagnostic imaging company, which primarily performs MRI and
other modalities, that was purchased in September 1994 and as
such all operating results were incurred during the five month
period ended December 31, 1994. Management anticipates that scan
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
volume will increase 5% on an annualized basis; however, due to
decreasing reimbursement rates on MRI's, the revenues of the
medical diagnostic segment will remain level overall in 1995.
The gross margins (as a percentage of revenue) are expected to
decrease since the costs of performing a scan is not anticipated
to decline at the same level as the reimbursement rates.
Management of the medical diagnostics segment has implemented a
cost reduction plan in 1995 which includes the centralization of
billing and collections operations, renegotiation's with
significant vendors and a reduction of overall salary and wage
levels. This cost reduction plan's primary impact will be a
decrease in selling, general and administrative expenses on an
annualized basis for 1995. Overall profitability of the medical
diagnostics segment is expected to incur a moderate increase on
an annualized basis for 1995.
Electro-Mechanical and Electro-Optical Products Manufacturing
revenues for the five month period ended December 31, 1994
compared to the five month period ended December 31, 1993
increased 7.4%, while gross profit decreased 7.6% and
profitability 1042.0%. The profitability of Sequential increased
by approximately $150 due to increased revenues and gross margins
while selling, general and administrative expenses remained
relatively level. The gains made by Sequential Electronic
Systems was offset by the decreased profitability of S-Tech which
incurred losses from operations that were approximately $700
greater than in the prior period. The increased losses were a
result of additional inventory write-downs of approximately $300
due to obsolescence included in direct costs and the write-off of
goodwill of approximately $285 and increased product development
costs approximating $50, both included in selling, general and
administrative expenses. Revenues for the fiscal year ended July
31, 1994 compared to the fiscal year ended July 31, 1993
increased 13.6% while gross profit decreased 84.3% and
profitability decreased 361.1%. During the fiscal year ended
July 31, 1994 an acquired subsidiary (S-Tech) in this segment
became operational which is the primary reason for the increase
in revenues. The decrease in gross margins is due to the fact
that S- Tech had negative gross margins due primarily to the
write-down of obsolete inventories. Additionally, the previously
existing company (Sequential Electronic Systems) in this segment
operated at a lower margin ratio than in the prior comparable
period. S-Tech's selling, general and administrative expenses,
as a percentage of revenues, were significantly higher than
Sequential Electronic Systems which accounts for the significant
increase in such expenditures. Revenues for the fiscal year July
31, 1993 compared to the fiscal year July 31, 1992 decreased 8.9%
while gross margins decreased 6.2% due primarily to a reduction
in governmental revenues. For the same time periods, selling,
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
general and administrative expenses decreased 9.6% which allowed
for overall profitability to remain relatively unchanged. 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 remain relatively stable in this segment.
Medical Information Services - During June 1994, the Company
acquired a subsidiary (CSM) which accounted for all of the
revenues and gross margin in this segment for the five month
period ended December 31, 1994. Since CSM was not a part of the
consolidated operations until July 1, 1994, the prior periods
operating results are not comparable to those of the five months
ended December 31, 1994. For the five months ended December 31,
1993 and for fiscal years ended July 31, 1994, and 1993 the
medical information services segment consisted of a single
development stage subsidiary and revenues and gross margins were
minimal. Prior to the fiscal year July 31, 1993, no companies
operated in this segment. The primary operations of such
subsidiary during these time periods consisted of startup costs
charged to selling, general and administrative expenses. During
1995, management anticipates that the revenues, gross margins and
profitability of the former CSM operations will remain relatively
level.
Telecommunications - In December of 1993 the Company acquired ARC
Networks which is the only entity operating in this segment. As
such, operating results for periods prior to the acquisition date
are not comparable. 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. For 1995 management anticipates that revenues and
overall profitability on an annualized basis will marginally
increase; however, the ultimate profitability of this segment
remains uncertain.
Three Dimensional Products and Services revenues and gross profit
for the five month period ended December 31, 1994 compared to the
five month period ended December 31, 1993 increased 331.7% and
125.9%, respectively, while losses from operations increased
444.6%. In the prior period this segment had minimal revenues,
which accounts for the significant increase in revenues and gross
profit. The increase in operating losses is due to the continued
costs incurred to develop this segments product line. Other
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
income and expenses resulted in a net increase in expenses due
primarily to interest expense incurred on advances from
Consolidated. Revenues for the fiscal year ended July 31, 1994
compared to the fiscal year ended July 31, 1993 increased 264.3%,
while gross profit and loss from operations increased 113.8% and
605.7%, respectively. During the above reported periods the
three dimensional products and services segment has been in the
development stage and as such the revenues and gross margins have
been minimal while the selling, general and administrative
expenses have been significant and account for the majority of
the net operating losses. Prior to the fiscal year July 31,
1993, the Company had no entities that operated in this segment.
During 1995, management anticipates that this segment will begin
to have increasing sales of the three dimensional products and
services which will result in higher gross margins. Selling,
general and administrative expenses are expected to remain
relatively level and overall profitability should become more
favorable. Although the ultimate profitability of this segment
appears favorable; it can not be determined at this time whether
profit levels, if any, will be significant.
Business Consulting Services revenues and gross profit for the
five month period ended December 31, 1994 compared to the five
month period ended December 31, 1993 both decreased 98%. The
significant decrease is due to management's continued decision to
concentrate time and resources managing internal operations of
the preexisting and newly acquired companies. Income from
operations decreased approximately $655 due to a combination of
the decreased revenues and gross margins and increased selling,
general and administrative costs which consist primarily of
indirect costs incurred in relation to the current period
acquisition activity. Income from operations for the fiscal year
ended July 31, 1994 compared to the fiscal year ended July 31,
1993 increased 225.5%. During the fiscal year ended July 31,
1993, consulting fee revenue was minimal and during the fiscal
year ended July 31, 1994 the selling, general and administrative
expenses did not increase at the same rate as revenues, which
accounts for the significant percentage increase in
profitability. Revenues, gross margins, and profitability for
the fiscal year July 31, 1993 compared to July 31, 1992 decreased
91.4%, 85.3% and 184%, respectively. As previously mentioned,
consulting revenues in 1993 were minimal as the Company
concentrated more efforts on internal operations. During 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 five month period ended December 31, 1994 compared to the
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
five month period ended December 31, 1993 increased 63.9% due
primarily to increased legal and accounting fees to outside
firms, increased financial support staff and increased outside
consulting fees. Such increases were necessitated by the
acquisition activity during the current period. Selling, general
and administrative expense for the fiscal year ended July 31,
1994 compared to the fiscal year ended July 31, 1993 increased
572.6%. The most significant portion of this increase is $7,140
of noncash consulting fee expenses incurred upon the issuance of
non employee directors and consultants stock options.
Additionally, costs were incurred as a part of acquiring and
managing the new subsidiaries purchased since July 31, 1993.
For the fiscal year July 31, 1992, corporate expenses were 174.1%
less than during fiscal July 31, 1993. During fiscal July 31,
1992, there was not significant acquisition activity and there
were fewer companies to manage. During 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 which cannot be quantified on a
prospective basis.
Discussion of Other Significant Financial Line Items
Interest Expense for the five month period ended December 31,
1994 compared to the five month period ended December 31, 1993
increased 233.4% and for the fiscal year ended July 31, 1994
compared to the fiscal year ended July 31, 1993 increased 114.2%.
The increased interest expense for both comparable periods is due
to the issuance of debt instruments in connection with the
acquisitions of new companies during the respective periods. For
fiscal year July 31, 1992 interest expense was relatively level
with fiscal July 31, 1993 as the Company carried approximately
the same debt for both periods.
Gain (Loss) from Security Sales - During the five month period
ended December 31, 1994 the loss on sales of securities 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 the current period operations of the
Company and is no longer included in the unrealized loss from
marketable securities in the equity section of the balance sheet.
During the fiscal year ended July 31, 1993, the Company had a
significant gain on the sale of a company's stock that was held
for investment purposes. During July 31, 1992 the Company did
not have any security sales. 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.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Unusual item - For the fiscal year ended July 31, 1993, the
unusual item consists of income of $1,522,878 related to the
settlement of a lawsuit and a gain on the repurchase of the
assets of a subsidiary. See further discussion of this item in
the footnotes to the financial statements.
Income Taxes - The Company's provision for income taxes were
(.6%), 0%, 0%, 4% and 0% of income before taxes for the five
months ended December 31, 1994 and December 31, 1993,
respectively and for the fiscal year ended July 31,1994, July 31,
1993 and July 31, 1992, respectively. The Company will have a
net operating loss carryforward of $16.4 million. The net
operating loss carryforwards expire beginning in 1996 through
2009. Investment tax credit and job tax credit carryforwards of
approximately $105,000 are available to reduce future income
taxes. These credits expire beginning in various years through
1999. These credits have been reduced to reflect changes made by
the "Tax Reform Act of 1986". See Note 11 To the Financial
Statements.
Impact of Inflation
The Company is subject to normal inflationary trends and
anticipates that any increased costs would be passed on to its
customers.
Page 14
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
1. Financial Statements
F-1 Report of Mortenson and Associates, P.C.
Independent Certified Accountants
F-2 & F-3 Consolidated Balance Sheets as of
December 31, 1994 and July 31, 1994
F-4 Consolidated Statements of Operations for the Five
Month Periods Ended December 31, 1994 and 1993
F-5 Consolidated Statements of Operations for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
F-6 - F-9 Consolidated Statements of Shareholders' Equity
for the Five Month Periods Ended December 31,
1994 and 1993
F-10 - F-13 Consolidated Statements of Shareholders' Equity
for the Fiscal Years Ended July 31, 1994, 1993
and 1992
F-14 - F-16 Consolidated Statements of Cash Flows for the Five
Month Periods Ended December 31, 1994 and 1993
F-17 - F-19 Consolidated Statements of Cash Flows for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
F-20 - F-63 Notes to Consolidated Financial Statements
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Consolidated Technology Group, Ltd.
New York, New York
We have audited the accompanying consolidated balance sheets
of Consolidated Technology Group, Ltd. [Formerly Sequential
Information Systems, Inc.] and its subsidiaries as of December
31, 1994 and July 31, 1994 and the related consolidated
statements of operations, shareholders' equity, and cash flows
for the five month period ended December 31, 1994 and each of the
two fiscal years in the period ended July 31, 1994. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Consolidated Technology Group,
Ltd. and its subsidiaries as of December 31, 1994 and July 31,
1994, and the results of their operations and their cash flows
for the five month period ended December 31, 1994 and each of the
two fiscal years in the period ended July 31, 1994, in conformity
with generally accepted accounting principles.
/S/
------------------------------
MORTENSON AND ASSOCIATES, P.C.
Cranford, New Jersey
April 25, 1995
F-1
<PAGE> 17
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(in 000's)
December 31, July 31,
1994 1994
------------ --------
Assets:
Current assets:
Cash and cash equivalents $ 1,727 $ 1,773
Cash escrow -- 2,000
Receivables, net of allowances 16,820 5,095
Inventories 3,466 3,727
Loans receivable 1,363 1,019
Prepaid expenses and
other current assets 412 899
Investments in common stock 151 --
------ ------
Total current assets 23,939 14,513
------ ------
Property, plant and equipment, net 12,911 906
------ ------
Other assets;
Capitalized software development costs 1,064 1,144
Goodwill, net 12,623 5,852
Covenant not to compete, net 3,451 514
Customer lists, net 12,770 972
Deferred offering costs 331 172
Receivables, long-term -- 56
Receivables, related parties 160 491
Investments in common stock, long-term 384 259
Other Assets 456 191
------ ------
Total other assets 31,239 9,651
------ ------
Total Assets $68,089 $25,070
====== ======
See notes to consolidated financial statements.
F-2
<PAGE> 18
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(in 000's)
December 31, July 31,
1994 1994
------------ --------
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $ 6,741 $ 3,277
Accrued payroll and related expenses 1,774 127
Accrued interest 113 151
State taxes payable 20 20
Interim billings in excess of costs
and estimated profits 655 744
Notes payable, related parties 183 183
Current portion of long-term debt 8,096 3,013
Current portion of subordinated debt 3,437 --
Current portion of capitalized
lease obligations 1,256 192
------ ------
Total current liabilities 22,275 7,705
------ ------
Long-term liabilities:
Long-term debt 8,512 242
Capitalized lease obligations 2,671 56
Subordinated debt 17,926 --
------ ------
Total long-term liabilities 29,109 298
------ ------
Commitments and contingencies
Minority interest -- 6
------ ------
Shareholders' Equity:
Preferred stock 81 81
Additional paid-in capital,
preferred stock 311 311
Common stock (50,000,000 shares
authorized, 17,577,260 shares
issued and outstanding) 176 125
Additional paid-in capital, common stock 45,597 41,731
Accumulated deficit (29,288) (24,802)
Unrealized exchange translation (33) --
Net unrealized loss on long-term
investments in common stock (139) (385)
------ ------
Total shareholders' equity 16,705 17,061
------ ------
Total Liabilities and Shareholders' Equity $68,089 $25,070
====== ======
See notes to consolidated financial statements.
F-3
<PAGE> 19
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Operations for the Five
Month Periods Ended December 31, 1994 and 1993
(in 000's except per share data)
1993
1994 (Unaudited)
------------ -----------
Revenues $28,305 $ 2,629
Direct Costs 23,263 1,508
------ ------
Gross Profit 5,042 1,121
Selling, general
and Administrative 8,409 4,615
------ ------
Loss from Operations (3,367) (3,494)
------ ------
Other Income (Expense):
Interest expense (1,023) (307)
Other income (expense) 224 (115)
Gain (loss) from
security sales (299) 13
------ ------
Total other income (expense) (1,098) (409)
------ ------
Income (Loss) Before Income
Taxes and Minority Interest (4,465) (3,903)
Income Taxes (24) --
Minority Interest in Loss
of Subsidiaries 4 74
------ ------
Net Income (Loss) ($ 4,485) ($ 3,829)
====== ======
Net income (loss) per share ($0.30) ($0.80)
====== ======
Weighted average number of
common shares 14,923,796 4,797,818
========== =========
See notes to consolidated financial statements.
F-4
<PAGE> 20
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Operations for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's except per share data)
1994 1993 1992
-------- -------- --------
Revenues $15,742 $ 3,839 $ 4,533
Direct costs 13,560 2,664 3,106
------ ------ ------
Gross profit 2,182 1,175 1,427
Selling, general
and administrative 12,748 2,578 1,368
------ ------ ------
Income (Loss) from operations (10,566) (1,403) 59
------ ------ ------
Other income (expense):
Interest expense (490) (229) (161)
Other income (expense) 69 (46) (20)
Gain (loss) from
security sales 13 694 --
Unusual items -- 1,523 --
------ ------ ------
Total other income (expense) (408) 1,942 (181)
------ ------ ------
Income (Loss) before income
taxes and minority interest (10,974) 539 (122)
Income Taxes -- (21) --
Minority Interest in Loss
of Subsidiaries 202 76 --
------ ------ ------
Income (loss) before
extraordinary item (10,772) 594 (122)
Extraordinary Item -- 146 --
------ ------ ------
Net Income (Loss) ($10,772) $ 740 ($ 122)
====== ====== ======
Earnings (Loss) per Share:
Income (loss) before
extraordinary item ($1.35) $0.14 ($0.03)
Extraordinary item -- 0.04 --
------ ------ ------
Net income (loss) per share ($1.35) $0.18 ($0.03)
====== ====== ======
Weighted average number of
common shares 7,972,594 4,224,260 4,224,260
========= ========= =========
See notes to consolidated financial statements.
F-5
<PAGE> 21
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Five Months Ended December 31, 1994 and 1993
(in 000's except share data)
Five Month Period Ended
December 31, 1994 1993
- ----------------------- -------------------- --------------------
Shares Amounts Shares Amounts
---------- ------- ---------- --------
Preferred stock, $1.00 par value,
6% Series A 77,713 shares
authorized:
Beginning balance 77,713 $ 78 77,713 $ 78
========== ====== ========== ======
Ending balance 77,713 $ 78 77,713 $ 78
========== ====== ========== ======
Preferred stock, $1.00 par value,
$3.50 and $.10 Series B & E
8,000 shares authorized each:
Beginning balance 262 $ 1 262 $ 1
========== ====== ========== ======
Ending balance 262 $ 1 262 $ 1
========== ====== ========== ======
Preferred stock, $1.00 par value,
$8.00 subordinated Series F,
6,000 shares authorized:
Beginning balance 2,700 $ 2 2,700 $ 2
========== ====== ========== ======
Ending balance 2,700 $ 2 2,700 $ 2
========== ====== ========== ======
Total preferred
stock - par 80,675 $ 81 80,675 $ 81
========== ====== ========== ======
(continued)
See notes to consolidated financial statements.
F-6
<PAGE> 22
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Five Months Ended December 31, 1994 and 1993
(in 000's except share data)
Five Month Period Ended
December 31, 1994 1993
- ----------------------- -------------------- --------------------
Shares Amounts Shares Amounts
---------- ------- ---------- --------
Additional paid-in capital,
preferred stock:
Beginning balance $ 311 $ 311
====== ======
Ending balance $ 311 $ 311
====== ======
Common stock, $0.01 par
value, 50,000,000 shares
authorized:
Beginning balance 12,534,260 $ 125 4,224,260 $ 42
Issuance for acquisitions 4,843,000 49 850,000 9
Issuance for exercise
of stock options -- -- 1,500,000 15
Issued in lieu of cash
for services rendered 200,000 2 -- --
---------- ------ ---------- ------
Ending balance 17,577,260 $ 176 6,574,260 $ 66
========== ====== ========== ======
(continued)
See notes to consolidated financial statements.
F-7
<PAGE> 23
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Five Months Ended December 31, 1994 and 1993
(in 000's except share data)
Five Month Period Ended
December 31, 1994 1993
- ----------------------- -------------------- --------------------
Shares Amounts Shares Amounts
---------- ------- ---------- --------
Additional paid-in capital,
common stock:
Beginning balance $41,731 $16,753
Issuance for acquisitions 3,772 2,032
Issuance for exercise
of stock options -- 4,585
Issued in lieu of cash
for services rendered 94 --
------ ------
Ending balance $45,597 $23,370
====== ======
Accumulated deficit:
Beginning balance ($24,803) ($14,030)
Net loss (4,485) (3,829)
------ ------
Ending balance ($29,288) ($17,859)
======
======
Unrealized exchange
translation:
Beginning balance -- --
Unrealized gain (loss) on
exchange translation ($33) --
------ ------
Ending balance ($33) --
====== ======
(continued)
See notes to consolidated financial statements.
F-8
<PAGE> 24
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Five Months Ended December 31, 1994 and 1993
(in 000's except share data)
Five Month Period Ended
December 31, 1994 1993
- ----------------------- -------------------- --------------------
Shares Amounts Shares Amounts
---------- ------- ---------- --------
Net unrealized gain (loss) on
long-term investments in
common stock:
Beginning balance ($385) ($78)
Recognized investment security
(gains) losses 246 (192)
------ ------
Ending balance ($139) ($270)
====== ======
Total shareholders' equity $16,705 $ 5,699
====== ======
(concluded)
See notes to consolidated financial statements.
F-9
<PAGE> 25
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock, $1.00
par value, 6% Series
A 77,713 shares
authorized:
Beginning balance 77,713 $ 78 -- -- -- --
Issuance of Series A -- -- 77,713 $ 78 -- --
---------- ------ ---------- ------ ---------- ------
Ending balance 77,713 $ 78 77,713 $ 78 -- --
========== ====== ========== ====== ========== ======
Preferred stock, $1.00
par value, $3.50 and
$.10 Series B & E 8,000
shares authorized each:
Beginning balance 262 $ 1 262 $ 1 262 $ 1
========== ====== ========== ====== ========== ======
Ending balance 262 $ 1 262 $ 1 262 $ 1
========== ====== ========== ====== ========== ======
Preferred stock, $1.00
par value, $8.00 sub-
ordinated Series F,
6,000 shares authorized:
Beginning balance 2,700 $ 2 2,700 $ 2 2,700 $ 2
========== ====== ========== ====== ========== ======
Ending balance 2,700 $ 2 2,700 $ 2 2,700 $ 2
========== ====== ========== ====== ========== ======
(continued)
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 26
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Total preferred
stock - par 80,675 $ 81 80,675 $ 81 2,962 $ 3
========== ====== ========== ====== ========== ======
Additional paid-in
capital, preferred
stock:
Beginning balance $ 311 -- --
Issuance of Series A -- $ 311 --
------ ------ ------
Ending balance $ 311 $ 311 --
====== ====== ======
Common stock, $0.01
par value,
50,000,000 shares
authorized:
Beginning balance 4,224,260 $ 42 4,224,260 $ 42 4,224,260 $ 42
Issuance for offerings 3,500,000 35 -- -- -- --
Issuance for
acquisitions 1,810,000 18 -- -- -- --
Issuance for exercise
of stock options 3,000,000 30 -- -- -- --
---------- ------ ---------- ------ ---------- ------
Ending balance 12,534,260 $ 125 4,224,260 $ 42 4,224,260 $ 42
========== ====== ========== ====== ========== ======
(continued)
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 27
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Additional paid-in
capital, common stock:
Beginning balance $16,753 $16,753 $16,753
Issuance for offerings 8,330 -- --
Issuance for
acquisitions 4,938 -- --
Issuance for exercise
of stock options 11,710 -- --
------ ------ ------
Ending balance $41,731 $16,753 $16,753
====== ====== ======
Accumulated deficit:
Beginning balance ($14,030) ($14,770) ($14,648)
Net loss (10,772) 740 (122)
------ ------ ------
Ending balance ($24,802) ($14,030) ($14,770)
====== ====== ======
(continued)
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 28
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1994 1993 1992
- ----------------- -------------------- -------------------- --------------------
Shares Amounts Shares Amounts Shares Amounts
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net unrealized gain
(loss) on long-term
investments in
common stock:
Beginning balance ($78) -- --
Recognized investment
security (gains)
losses (307) (78) --
------ ------ ------
Ending balance ($385) ($78) --
====== ====== ======
Total shareholders' equity $17,061 $ 3,079 $ 2,028
====== ====== ======
(concluded)
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 29
Consolidated Technology Group. Ltd. and Subsidiaries
Consolidated Statements of Cash Flows for the Five
Month Periods Ended December 31, 1994 and 1993
(in 000's)
1993
1994 (Unaudited)
------------ -----------
Cash Flows from Operating
Activities:
Net loss ($ 4,485) ($ 3,829)
------ ------
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and Amortization 1,961 67
Write-off goodwill 338 --
Minority interest in loss of
consolidated subsidiaries (6) (74)
Noncash expenses paid with stock 97 --
Noncash expense from exercise
of stock options -- 3,000
Bad debt expense 60 --
Gain on sale of common
stock investments 299 (13)
Change in current assets
and current liabilities:
(Increase) decrease in
current assets:
Receivables (527) 11
Inventories 261 (68)
Prepaid expenses and other
current assets 931 (16)
Increase (Decrease) in
current liabilities:
Accounts payable and
accrued liabilities 1,671 88
Accrued payroll and
related expenses (42) 59
Accrued interest (38) 310
State taxes payable -- 1
Interim billings in excess
of costs and estimated
profits (89) --
------ ------
Total adjustments 4,916 3,365
------ ------
Net cash provided by (used)
in operating activities 431 (464)
------ ------
(continued)
See notes to consolidated financial statements.
F-14
<PAGE> 30
Consolidated Technology Group. Ltd. and Subsidiaries
Consolidated Statements of Cash Flows for the Five
Month Periods Ended December 31, 1994 and 1993
(in 000's)
1993
1994 (Unaudited)
------------ -----------
Cash Flows from Investing
Activities:
Increase in other assets (289) (68)
Capital expenditures (1,609) (17)
Capitalized software
development costs (20) (264)
Investments in common stock (310) (576)
Proceeds from sale of common
stock investments 20 170
Acquisition of subsidiary (7,858) --
Cash of company acquired 2,382 105
Cash escrow 2,000 --
Payments for loans made (559) (260)
Collections from repayment
of loans made 107 --
------ ------
Net cash used in
investing activities (6,136) (910)
------ ------
Cash Flows from Financing
Activities:
Deferred offering costs (158) --
Proceeds from issuance
of long-term debt 7,300 736
Repayment of long-term debt (1,323) (847)
Payments on capital lease
obligations (160) (3)
Exercise of stock options -- 1,600
------ ------
Net cash provided by financing
activities 5,659 1,486
------ ------
Net Increase (Decrease) in
Cash and Cash Equivalents (46) 112
Cash and Cash Equivalents at
Beginning of Period 1,773 174
------ ------
Cash and Cash Equivalents at
End of Period $ 1,727 $ 286
====== ======
(continued)
See notes to consolidated financial statements.
F-15
<PAGE> 31
Consolidated Technology Group. Ltd. and Subsidiaries
Consolidated Statements of Cash Flows for the Five
Month Periods Ended December 31, 1994 and 1993
(in 000's)
1993
1994 (Unaudited)
------------ -----------
Supplemental Disclosures of Cash
Flow Information:
Cash Paid for Interest $ 1,062 --
====== ======
(concluded)
Supplemental Disclosures of Noncash Investing and Financing
Activities:
During the five month period ended December 31, 1994,
the Company:
(1) Purchased equipment in the amount of $137 and assumed
capital lease obligations for the full amount.
(2) Acquired capitalized software costs in the amount of $150
and assumed notes payable for the full amount.
(3) Acquired equipment in the amount of $35 and assumed
notes payable for the full amount.
(4) Acquired a covenant not to compete in the amount of $800 and
assumed notes payable for the full amount.
(5) Acquired International Magnetic Imaging and in connection
therewith assumed subordinated debt approximating
$19,800, long-term debt approximating $12,000, capital
lease obligations approximating $3,700 and issued stock
with a value of $2,920.
(6) Acquired Job Shop Technical Services and Computer
Engineering Services and in connection therewith assumed
subordinated debt approximating $1,500, long-term debt
approximating $2,600 and issued stock with a value of $900.
(7) Issued stock with a discounted value of $97 in lieu of cash
payment for services rendered.
During the five month period ended December 31, 1993:
(1) Acquired ARC Acquisition Corp. and in connection therewith
assumed long-term debt approximating $1,400.
(2) Incurred $3,000 in noncash expense from the issuance and
exercise of 1,500,000 options.
See notes to consolidated financial statements
F-16
<PAGE> 32
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
1994 1993 1992
-------- -------- --------
Cash Flows from Operating
Activities:
Net income (loss) from
continuing operations ($10,772) $ 594 ($ 122)
------ ------ ------
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and Amortization 290 40 31
Minority interest in loss of
consolidated subsidiaries (202) (75) --
Bad debt expense 23 68 35
Deferred charges on option
exercise 7,140 -- --
Additional compensation 135 -- --
Unusual item -- (1,523) --
Extraordinary item -- 146 --
Write-down fixed assets
to fair value 225 -- --
Write-off of loans receivable 279 562 --
(Gain) loss on sale of common
stock investments (13) (694) 25
Change in current assets
and current liabilities:
(Increase) decrease in
in current assets:
Receivables (811) 52 (287)
Inventories 460 (57) (120)
Prepaid expenses and other
current assets (388) (107) (103)
Increase (Decrease) in
current liabilities:
Accounts payable and
accrued liabilities 680 103 182
Accrued payroll and
related expenses (868) 361 167
Accrued interest (184) 76 30
State taxes payable (6) 25 --
------ ------ ------
Total adjustments 6,760 (1,023) (40)
------ ------ ------
Net cash provided by (used)
in operating activities (4,012) ( 429) (162)
------ ------ ------
(continued)
See notes to consolidated financial statements.
F-17
<PAGE> 33
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's except share data)
1994 1993 1992
-------- -------- --------
Cash Flows from Investing
Activities:
(Increase) decrease in
other assets (839) 30 34
Capital expenditures (161) (60) (39)
Capitalized software
development costs (581) (404) --
Investments in common stock (488) (95) --
Proceeds from sale of common
stock investments 25 749 --
Acquisition of subsidiary (500) -- --
Cash of company acquired 145 4 --
Cash of company sold (6) -- --
Cash escrow (2,000) -- --
Payments for loans made (1,194) (320) (44)
Collections from repayment
of loans made -- 31 --
------ ------ ------
Net cash used in
investing activities (5,599) (65) (49)
------ ------ ------
Cash Flows from Financing
Activities:
Deferred offering costs (172) -- --
Proceeds from issuance
of long-term debt 605 752 325
Repayment of long-term debt (1,976) (644) (8)
Payments on capital leases (8) (3) --
Issuance of preferred stock -- 40 --
Issuance of common stock 8,161 -- --
Exercise of stock options 4,600 -- --
------ ------ ------
Net cash provided by financing
activities 11,210 145 317
------ ------ ------
Net Increase (Decrease) in
Cash and Cash Equivalents 1,599 (349) 106
Cash and Cash Equivalents at
Beginning of Period 174 523 417
------ ------ ------
Cash and Cash Equivalents at
End of Period $ 1,773 $ 174 $ 523
====== ====== ======
(continued)
See notes to consolidated financial statements.
F-18
<PAGE> 34
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows for the Fiscal
Years Ended July 31, 1994, 1993 and 1992
(in 000's)
1994 1993 1992
-------- -------- --------
Supplemental Disclosures of
Cash Flow Information:
Cash paid for interest $ 116 $ 143 $ 130
====== ====== ======
Cash paid for income taxes $ -- $ 1 --
====== ====== ======
(concluded)
Supplemental Disclosures of Noncash Investing and Financing
Activities:
During the fiscal year ended July 31, 1994, the Company:
(1) Purchased capital assets in the amount of $49 and assumed
notes payable for the full amount.
(2) Acquired ARC Acquisition Corp. and in connection therewith
assumed long-term debt approximating $1,400.
(3) Acquired Creative Socio-Medics and in connection therewith
assumed long-term debt approximating $530.
(4) Incurred $7,140 in noncash expense from the issuance and
exercise of 3,000,000 options.
During the fiscal year ended July 31, 1993, the Company:
(1) Purchased capital assets in the amount of $48 and assumed
capital lease obligations for the full amount.
(2) Procured insurance coverage valued at $20 and assumed debt
for the full amount.
(3) Through its subsidiary, S-Tech, purchased certain assets of
General Technologies Group, Ltd. which resulted in a one
time gain of $1,523.
(4) Converted debt in the amount of $349 into 69,711 shares of
Series A preferred stock.
See notes to consolidated financial statements.
F-19
<PAGE> 35
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------
(1) Summary of Significant Accounting Policies
General - Effective September 1, 1993, the Company's name was
changed from Sequential Information Systems, Inc. to Consolidated
Technology Group Ltd.
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of the Company and all
of its majority-owned subsidiaries. Investments in 20% to 50%
owned companies are accounted for on the equity method. All
significant intercompany balances and transactions have been
eliminated.
Accounting Period - Effective December 31, 1994, the Company
changed to a calendar year. Prior to 1994 the Company utilized a
fiscal year ending July 31 of each year. The accompanying
financial statements include audited financial statements for the
five-month transition period ended December 31, 1994 and the
previously reported fiscal years ended July 31, 1994, 1993 and
1992. Unaudited financial statements for the five month period
ended December 31, 1993 are presented for comparative purposes
only. In the opinion of the Company, the unaudited statement of
operations for the five month period ended December 31, 1993
contains all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the results of its
operations and cash flows for the five month period ended
December 31, 1993.
Cash and Cash Equivalents - The Company considers all highly
liquid instruments purchased with a maturity of three months or
less to be cash equivalents. IMI's cash balance of $1,471
represents 85% of the Company's cash at December 31, 1994 and the
use of such cash is restricted. 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.
Inventories - Inventories are valued at the lower of cost or
market. Cost is determined by the first-in, first out method.
Costs accumulated under government contracts are net of progress
payments.
Property, Plant and Equipment - Property, plant and equipment are
carried at cost less allowances for accumulated depreciation.
The cost of furniture and equipment held under capital leases is
equal to the lower of the net present value of the minimum lease
payments or the fair value of the leased property at the
F-20
<PAGE> 36
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's, except per share data)
- -----------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
inception of the lease. Depreciation is computed generally by
the straight-line method at rates adequate to allocate the cost
of applicable assets over their expected useful lives.
Amortization of capitalized leases is included with depreciation
expense. Leasehold improvements are amortized over periods not
in excess of applicable lease terms.
Research and Development - The Company's research and product
development activities are conducted by the Electro-Mechanical
and Electro-Optical Manufacturing and Services, Medical Services
and Three Dimensional Products and Services segments. The
Company's research and development expenses for the five months
ended December 31, 1994 approximated $3,336 and for the fiscal
years ended July 31, 1994, 1993 and 1992 approximated $1,902,
$396, and $0. All of the Company's research and development
activities were performed by the subsidiaries and were company
financed.
Capitalized Software Development Costs - Capitalization of
computer software development costs begins upon the establishment
of technological feasibility. Technological feasibility for the
Company's computer software products is generally based upon
achievement of a detail program design free of high risk
development issues. The establishment of technological
feasibility and the ongoing assessment of recoverability of
capitalized computer software development costs requires
considerable judgment by management with respect to certain
external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technology.
Amortization of capitalized software development costs will
commence when the related products become available for general
release to customers. Amortization is provided on a product by
product basis using the straight-line method over the estimated
economic life of the product, estimated to be approximately 2-3
years. Research and development costs incurred to establish
technological feasibility are expensed as incurred. Accumulated
amortization was approximately $261,497 and $12,516 at December
31, 1994 and July 31, 1994, respectively. Amortization expense
was approximately $248,981 for the five month period ended
December 31, 1994 and $12,516 for the fiscal year ended July 31,
1994. There was no amortization in the five month period ended
December 31, 1993 or the fiscal years ended July 31, 1993 and
1992.
F-21
<PAGE> 37
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Intangible Assets - Intangible assets consist of goodwill,
covenants not to compete and customer lists. Goodwill represents
the excess of the cost of companies acquired over the fair value
of their net assets at dates of acquisition and is being
amortized over a twenty year period on the straight-line method.
Management of the Company evaluates the period of goodwill
amortization to determine whether latter events and circumstances
warrant revised estimates of useful lives. This evaluation is
done by comparing the carrying value of goodwill to the value of
projected discounted net cash flows from related operations.
Impairment is recognized if the carrying value of goodwill is
greater than the projected discounted cash flows from related
operations. The capitalized value of covenants not to compete
are being amortized on the straight-line basis over their
contractual lives which range from three to five years. Customer
lists are being amortized over fifteen years on the straight-line
basis. The Financial Accounting Standards Board has issued
Statement 121 addressing the accounting for the impairment of
long-lived assets that will be held and used, including certain
identifiable intangibles, and the goodwill related to those
assets. The statement is effective for calendar-year 1996
financial statements.
Deferred Offering Costs - Deferred offering costs represent
amounts paid or accrued for costs associated with anticipated
public offerings for a subsidiary of the Company. These costs
will be recorded as a reduction of the net proceeds of the
anticipated offerings or they will be expensed if the offerings
are not consummated.
Investments in Common Stock -The Company adopted Statement of
Financial Accounting Standards ("SFAS") 115 "Accounting for
Certain Investments in Debt and Equity Securities", in the
five-month period ended December 31, 1994. SFAS 115 requires
certain investments that have readily determinable fair values to
be categorized as either trading, available-for-sale, or
held-to-maturity. All of the Company's equity investments in
common stock are categorized as available-for-sale and are
recorded at fair value with unrealized gains and losses recorded
as a separate component of stockholders' equity. Additionally,
available-for-sale investments that are deemed to be permanently
impaired are written down to fair market value and such write
down is charged to earnings as a realized loss. The adoption of
this standard has not impacted the Company's financial statements
since previous unrealized losses on such investments were already
reflected as a separate component of stockholders' equity.
F-22
<PAGE> 38
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Minority Interest - For consolidated subsidiaries that are not
wholly owned, the allocable losses of such minority interests is
in excess of the Company's investment in such subsidiaries by
approximately $684 at December 31, 1994.
Revenue Recognition - Revenue for the service sector is
recognized as services are provided. Revenue from the
manufacturing sector is recognized primarily under fixed price
type contracts and are accounted for under the unit of delivery
method. Anticipated losses on contracts in progress are charged
to operations as soon as losses can be determined. Revenues from
fixed price software development contracts and revenue under
license agreements which require significant modification of the
software package to the customer's specification, are recognized
on the estimated percentage-of-completion method. Revisions in
cost estimates and recognition of losses on these contracts are
reflected in the accounting period in which the facts become
known. Revenue from the software package license agreements
without significant vendor obligations is recognized upon
delivery of the software. Information processing revenues are
recognized in the period in which the service is provided.
Maintenance contract revenue is recognized on a straight-line
basis over the life of the respective contract. Software
development revenues from time-and-materials contracts are
recognized as services are performed. Contract terms which
provide for billing schedules that differ from revenue
recognition give rise to costs and estimated profits in excess of
billings and billings in excess of costs and estimated profits.
Net patient service revenues are reported at the estimated net
realizable amounts from patients, third-party payors, and others
for services rendered, including provisions for estimated
contractual adjustments under reimbursement agreements with
third-party payors. The Medical Diagnostic Segment has
historically not provided any significant amount of charity care.
Earnings (Loss) Per Share - Earnings (loss) per share are
computed by dividing the net income (loss) for the year 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
F-23
<PAGE> 39
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
number of common shares outstanding because their inclusion would
be anti-dilutive.
Fair Value of Financial Instruments - The fair value of cash and
cash equivalents, accounts receivable and accounts payable is the
carrying amount because of the short maturity of such
instruments. The fair value of investments in common stock is
based on quoted market prices which is also the carrying amount
of such instruments (see Note 1 Investments in Common Stock).
Based on the borrowing rates currently available to the Company
for loans with similar terms and average maturities, the fair
value of notes payable and long-term debt is estimated to
approximate the carrying amount.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
are cash and cash equivalents and accounts receivable arising
from normal business activities. The Company routinely assesses
the financial strength of its customers and based upon factors
surrounding the credit risk of its customers, establishes an
allowance for uncollectible accounts, and as a consequence,
believes that its accounts receivable credit risk exposure beyond
such allowances is limited. The Company places its cash and cash
equivalents with high credit quality financial institutions. The
amount on deposit in any one institution that exceeds federally
insured limits is subject to credit risk. The Company believes
no significant concentration of credit risk exists with respect
to these cash investments. Revenues from one customer amounted
to $7,163,340 and comprised approximately 25% of the total
revenues for the five month period ended December 31, 1994.
Reclassifications - Certain fiscal year July 31, 1994, 1993 and
1992 items have been reclassified to conform to the December 31,
1994 presentation.
(2) Receivables
Receivables consist of the following:
December 31, July 31,
1994 1994
------------ ------------
Receivables $19,670 $ 5,394
Less: Allowance for bad debts (2,850) (242)
------ ------
Receivables, net 16,820 5,152
F-24
<PAGE> 40
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(2) Receivables (continued)
Less: Receivables, long-term -- (57)
------ ------
Receivables, net of allowances
- current $16,820 $ 5,095
====== ======
The Company finances certain receivables to a factor under
agreements entered into in August 1994. The agreements expire in
one year and have a maximum availability of funds of $5,500.
Funds can be advanced in an amount equal to 85% of the total face
amount of outstanding and unpaid receivables, with the factor
having the right to reserve 15% of the outstanding and unpaid
receivables financed. The interest rate is equal to the base
lending rate of an agreed upon bank, which was 7.65% at December
31, 1994, plus 2% and 4% and a commission of .3% and 1% of the
receivables financed. The factor has a security interest in all
accounts receivables, contract rights, personal property,
fixtures and inventory of the company. At December 31, 1994 the
total amount advanced by the factor was $4,019.
(3) Inventories
Inventories consist of the following:
December 31, July 31,
1994 1994
------------ ------------
Finished goods -- $ 12
Work-in-process $ 1,373 654
Raw materials and parts 2,213 3,061
------ ------
Subtotal 3,586 3,727
Less: Progress payments (120) --
------ ------
Total inventories $ 3,466 $ 3,727
====== ======
The work-in-process represents accumulated costs of raw
materials, direct labor and factory overhead expenses on current
work orders. Finished goods represent computer software
inventory purchased for resale. During the five month period
ended December 31, 1994, approximately $307 of inventory was
written-off due to obsolesence.
F-25
<PAGE> 41
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(4) Loans Receivable
Loans receivable consist of the following:
December 31, July 31,
1994 1994
------------ ------------
Fingermatrix $ 1,439 $ 1,240
Other 275 133
------ ------
Total 1,714 1,373
Less: Allowance for doubtful accounts (351) (354)
------ ------
Loans receivable, net $ 1,363 $ 1,019
====== ======
Fingermatrix was in Chapter 11 pursuant to a petition filed on
September 11, 1993 and whose plan was confirmed in March of 1995.
The bankruptcy court has classified the Company as having a first
security in the assets of the debtor. On March 31, 1995,
Fingermatrix emerged out of bankruptcy and the Company received
its first payment on its secured debt of $250 and its initial
payment on its unsecured debt of $2. The Company received
150,000 common shares and 250,000 warrants equaling 5% of the
emerging debtor upon confirmation.
(5) Investments in Common Stock
Investments in common stock consist of the following:
December 31, July 31,
1994 1994
------------ -----------
Cost basis $ 674 $ 644
Net unrealized loss included as a
reduction of shareholders' equity (139) (385)
------ ------
Market Value 535 259
Less: Current portion (151) --
------ ------
Long-term portion $ 384 $ 259
====== ======
F-26
<PAGE> 42
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(5) Investments in Common Stocks (continued)
The unrealized gain (loss) on investments in common stocks
consists of the following:
December 31, July 31,
1994 1994
------------ -----------
Balance at beginning
of period ($ 386) ($ 78)
Adjustments of invest-
ments to fair market
value (63) (308)
Realization of previously
unrealized (gain) loss 310 --
------ ------
Balance at end of
period ($ 139) ($ 386)
====== ======
Gain (loss) on the sale of securities consists of the following:
Five Months Ended December 31,: 1994 1993
------ ------
Proceeds from security sales $ 20 $ 170
Cost of securities sold 319 157
------ ------
Gain (loss) on security sales ($ 299) $ 13
====== ======
Fiscal Years Ended July 31,: 1994 1993 1992
------ ------ ------
Proceeds from security sales $ 24 $ 749 $ 25
Cost of securities sold 12 55 25
------ ------ ------
Gain (loss) on security
sales $ 12 $ 694 $ --
====== ====== ======
F-27
<PAGE> 43
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(6) Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, July 31,
1994 1994
------------ -----------
Land $ 664 --
Buildings 3,234 --
Medical equipment 15,919 --
Machinery and equipment 2,283 $ 2,562
Tools and dies 145 145
Furniture and equipment 3,502 588
Vehicles 25 47
Leasehold improvements 1,334 273
------ ------
Total 27,106 3,615
Less: Accumulated depreciation (16,842) ( 2,795)
------ ------
Sub-total 10,264 820
------ ------
Equipment held under capital leases 6,227 306
Less: Accumulated depreciation (3,507) (220)
------ ------
Sub-total 2,720 86
------ ------
Property, plant and equipment, net $12,984 $ 906
====== ======
Depreciation expense charged to operations was $887 and $62 for
the five month periods ended December 31, 1994 and 1993,
respectively, and $127, $40 and $31 for the fiscal years ended
July 31, 1994, 1993 and 1992, respectively.
(7) Intangible Assets
Intangible assets consist of the following:
December 31, July 31,
1994 1994
------------ -----------
Goodwill $13,005 $ 5,932
Less: Accumulated amortization (382) (80)
------ ------
Goodwill, net $12,623 $ 5,852
====== ======
F-28
<PAGE> 44
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(7) Intangible Assets (continued)
Covenant not to compete $ 3,954 $ 907
Less: Accumulated amortization (503) (393)
------ ------
Covenant not to compete, net $ 3,451 $ 514
====== ======
Customer lists $13,046 $ 972
Less: Accumulated amortization (276) --
------ ------
Customer lists, net $12,770 $ 972
====== ======
Accumulated amortization for the covenant not to compete includes
$305,520 representing the amount of amortization expensed prior
to the acquisition of a subsidiary of the Company. Amortization
expense charged to operations was $825 and $6 for the five month
periods ended December 31, 1994 and 1993, respectively, and $163,
$0 and $0 for the fiscal years ended July 31, 1994, 1993 and
1992, respectively. During the five month period ended December
31, 1994 the Company wrote-off approximately $623 of goodwill
cost that was deemed to be impaired.
(8) Long-Term Debt
Long-term debt consists of the following:
December 31, July 31,
1994 1994
------------ -----------
Bank loans - payable on demand with
interest at 8% - 9.25%.
Collateralized by the assets and
stock of two subsidiaries of the
Company. $140 is currently in
default. $ 394 $ 454
Former stockholders of an acquired
subsidiary, due September 1996
with interest at 7%. 280 354
Equipment loans - payable in
various monthly installments at
interest rates ranging from
8% to 12%, collateralized by
the related equipment. 1,741 49
F-29
<PAGE> 45
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(8) Long-term Debt (continued)
December 31, July 31,
1994 1994
------------ -----------
Building mortgages - payable in
various monthly installments at
interest rates ranging from 7%
to 12% through September 2004,
collateralized by the related
buildings. 1,940 --
Investor loans - interest at 10%
with $200 due April 30, 1995
and $162 currently in default. 362 162
Loans payable to factor - base
interest rate of 7.65% at December
31, 1994 and July 31, 1994, plus
an additional 2% and 4% for the
respective periods. Collateralized
by accounts receivable, contract
rights, personal property, fixtures
and inventory. 4,019 1,936
Various installment notes -
payable with interest at
10.5%, due September 1999. 6,826 --
Various notes payable, due on
demand at interest rates ranging
from 8% to 12%. 356 299
Note payable - covenants not-to-
compete, payable in monthly
installments of $22. The
notes are non- interest bearing
and mature September 1997. 690 --
------ ------
Total 16,608 3,255
Less: current portion (8,096) (3,013)
------ ------
Long-term $ 8,512 $ 242
====== ======
F-30
<PAGE> 46
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(8) Long-term Debt (continued)
Subordinated debt consists of the following:
December 31, July 31,
1994 1994
------------ -----------
Subordinated notes payable issued
in connection with acquisitions -
payable in various quarterly
installments at interest rates
primarily at 7% through September
1999. The notes are unsecured and
include balloon payments in
September 1996 and September 1997. $19,863 --
Internal Revenue Service for
delinquent taxes, payable in
15 monthly installments of,
$100 and interest at 8%
through July 31, 1996. 1,500 --
------ ------
Total 21,363 --
Less: Current portion (3,437) --
------ ------
Long-term $17,926 --
====== ======
Maturities of long-term debt are as follows:
Years Ended December 31, Amount
------------------------ ------
1995 $11,533
1996 15,252
1997 5,774
1998 2,665
1999 2,219
Thereafter 528
------
Total $37,971
======
(9) Notes Payable - Related Parties
The Company is indebted to stockholders for cash received and
office equipment contributed by these stockholders in 1992. The
loans are noninterest bearing and have no fixed due date. Amount
due at December 31, 1994 and July 31, 1994 was $183.
F-31
<PAGE> 47
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(10) Lease Obligations
Capitalized Lease Obligations - The Company leases equipment
under noncancelable capital leases, the last of which expires in
1999. For some of the leases, a balloon payment representing the
buyout of the leased equipment is due at the end of the lease
term. Capitalized lease obligations are collateralized by leased
equipment which has a net book value of $2,720 at December 31,
1994.
Future minimum payments under capital lease obligations are as
follows at December 31, 1994:
Years Ended December 31, Amount
------------------------ ------
1995 $ 1,556
1996 1,186
1997 876
1998 750
1999 197
Thereafter --
------
Total minimum lease payments 4,565
Less: Amount representing interest (638)
------
Present value of net minimum lease payments 3,927
Less: Current portion of capitalized
lease obligations (1,256)
------
Long-term capitalized lease obligations $ 2,671
======
Operating Lease Obligations - The Company leases real estate for
certain of its operational and administrative facilities under
noncancelable operating leases expiring during the next fifteen
years. The real estate leases contain clauses which permit
adjustments of lease payments based upon changes in the "Consumer
Price Index", options to renew the leases for periods up to an
additional fifteen years and additional payments for a
proportionate share of real estate taxes and common area
operating expenses. The Company's present executive offices are
located at 160 Broadway, New York, New York 10038, which it
occupies pursuant to a lease expiring February 28, 1999. The
current base rent for such premises is $7 per month.
The Company's subsidiaries occupy various facilities pursuant to
leases expiring through 2000. The current base rent for such
premises approximates $100 per month.
F-32
<PAGE> 48
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(10) Lease Obligations (continued)
Minimum future rental payments under noncancelable operating
leases having a remaining term in excess of one year are as
follows:
Years Ended December 31, Amount
------------------------ ------
1995 $ 1,258
1996 929
1997 842
1998 804
1999 459
Thereafter 199
------
Total minimum rental commitments $ 4,491
======
Rent expense for the five month periods ended December 31, 1994,
and 1993 approximated $340 and $128, respectively, and for the
fiscal years ended July 31, 1994, 1993 and 1992 approximated
$357, $258 and $236, respectively.
(11) Income Taxes
Under SFAS No. 109, Accounting for Income Taxes, deferred income
taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards.
The tax effects of significant items composing the Company's net
deferred tax liability as of July 31, and December 31, 1994 are
as follows:
December 31, July 31,
1994 1994
------------ -----------
Deferred Tax Liabilities -- --
====== ======
F-33
<PAGE> 49
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(11) Income Taxes (continued)
December 31, July 31,
1994 1994
------------ -----------
Deferred Tax Assets:
Allowance for doubtful accounts
not currently deductible $ 1,100 --
Difference between book and tax basis
of property, plant & equipment 676 --
Note and loan receivable allowances 253 --
Accrued vacation 82 --
Federal net operating loss and
tax credit carryforwards 5,197 $ 3,837
State net operating loss carryforwards 1,151 863
Other 19 --
------ ------
8,478 4,700
Less: Valuation allowance ($ 8,478) ($ 4,700)
------ ------
Net Deferred Tax Liability -- --
====== ======
The Company's deferred tax asset valuation allowance was $8,478,
$4,700 and $4,700 as of December 31, 1994, December 31, 1993 and
July 31, 1994, respectively. The increase in the valuation
allowance of $3,778 for the five months ended December 31, 1994
is comprised of the following:
Allowance for doubtful accounts not currently
deductible $1,100
Difference between book and tax basis of
property, plant and equipment 676
Note and loan receivable allowances 253
Accrued vacation pay 82
Federal net operating loss and tax credit
carryforwards 1,360
State net operating loss carryforward 288
Reserve for inventory obsolescence 19
------
Total Increase $3,778
=======
There was no valuation allowance as of July 31, 1993 since SFAS
No. 109 was initially adopted for the fiscal year ended July 31,
1994.
F-34
<PAGE> 50
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(11) Income Taxes (continued)
The current and deferred income tax components of the provision
for income taxes consist of the following:
Five Months Ended December 31,: 1994 1993
Current: ------ ------
Federal -- --
State $ 24 --
------ ------
24 --
Deferred -- --
------ ------
Total $ 24 $ --
====== ======
Fiscal Years Ended July 31,: 1994 1993 1992
Current: ------ ------ ------
Federal -- -- --
State -- $ 21 $ --
------ ------
-- 21 --
Deferred -- -- --
------ ------ ------
Total -- $ 21 $ --
====== ====== ======
The Provision for income taxes varies from the amount computed by
applying the statutory rate for the reasons summarized below:
Five Months Ended December 31,: 1994 1993
------ ------
Provision based on
statutory rate 35.0% 35.0%
Benefit of graduated rates (1.0) (1.0)
State taxes (net of
federal benefit) (0.6) --
Valuation allowance (34.0) (34.0%)
------ ------
Actual rate (.06%) --
====== ======
F-35
<PAGE> 51
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(11) Income Taxes (continued)
Fiscal Years Ended July 31,: 1994 1993 1992
------ ------ ------
Provision based on
statutory rate 35.0% 34.0% 34.0%
Benefit of graduated rates (1.0) n/a n/a
State taxes (net of
federal benefit) -- 4.0 --
Valuation allowance (34.0%) -- (34.0%)
Net operating loss n/a (34.0) n/a
------ ------ ------
Actual rate -- 4.0% --
====== ====== ======
The Company will have an operating loss carryforward, after
carrybacks, of approximately $16,400. The net operating loss
carryforwards expire beginning in 1996 through 2009. Investment
tax credit and job tax credit carryforwards of approximately $105
are available to reduce future income taxes. The investment tax
and job tax credits expire in various years through 1999. These
credits have been reduced to reflect the changes made by the
"Tax Reform Act of 1986".
(12) Capital Stock
Common Stock - Effective September 1, 1993, the capitalization of
the Company changed from 300,000,000 shares of common stock, $.01
par value, into 50,000,000 shares of common stock, $.01 par
value. Effective the same time, the presently issued and
outstanding shares of common stock were reverse split on the
basis of (1) new share for each (60) issued and outstanding
shares. All share data has been adjusted retroactively.
In October 1993, January 1994 and March 1994, the Company
registered 1,500,000 shares, 1,000,000 shares and 1,500,000
shares, respectively, pursuant to a stock option plan for
Non-Employee Directors, Consultants and Advisors. Options to
purchase 3,000,000 were granted and were exercised.
F-36
<PAGE> 52
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(12) Capital Stock (continued)
The Company also: (i) issued 850,000 shares in connection with
the acquisitions of Arc Acquisition Group, Inc. and ARC Networks,
Inc., (ii) issued 840,000 in connection with the acquisition of
Creative Socio-Medics Corp., (iii) issued 120,000 shares in
connection with the acquisition of the remaining 20% of S-Tech,
(iv) issued 3,343,000 shares in connection with the acquisition
of the IMI entities, (v) issued 1,500,000 shares in connection
with the acquisition of Job Shop Technical Services, Inc. and
Computer Engineering Services, Inc., and (vi) issued 200,000
shares in connection with financing arrangements.
On December 15, 1994, the board of directors of a subsidiary
approved the sale of 4,000,000 shares of Common Stock owned by
such subsidiary to seven individuals who are officers, directors
and/or key employees of the Company or it subsidiaries. The
purchase price is $.50 per share, which was the fair market value
of such stock on December 15, 1994. An initial payment of $.01
per share is due not later than July 31, 1995, and the balance is
to be represented by the purchasers' nonrecourse 8% promissory
notes due December 31, 1999. Payment may be made in cash or in
securities. Payment of the notes is secured by a pledge of the
shares. The shares are to be issued pursuant to stock purchase
agreements dated as of December 15, 1994 between the subsidiary
and the purchasers.
In addition, pursuant to an offering in March 1994 made under
Regulation S of the Securities Act of 1933, the Company received
net proceeds of $8,162 in conjunction with the issuance of
3,500,000 shares of stock.
Preferred Stock - Effective September 1, 1993, the authorized
number of shares of undesignated preferred stock, par value $1.00
per share, was increased from 1,000,000 to 2,000,000 shares.
The series A convertible preferred stock, which was all issued
during the period April 1993 through July 1993, bears a
cumulative dividend of 6%, is redeemable at any time at the
option of the Company at a redemption price of $10 per share, and
is convertible at the option of the holder at any time commencing
two years from the date of issuance, unless sooner called for
redemption by the Company at the rate of 130.208 (7,812.5 prior
to 60:1 reverse split) shares of common stock for each share of
preferred stock if and when sufficient shares of common stock are
available for issuance. No dividends were declared for the five
month periods ended December 31, 1994 and 1993 and the fiscal
F-37
<PAGE> 53
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(12) Capital Stock (continued)
years ended July 31, 1994, 1993 and 1992. As of December 31,
1994 a $.30 per share dividend totaling $23 is in arrears.
The Series B subordinated preferred stock is redeemable at the
option of the Company at the issue price of $87.50 per share.
The stock is entitled to a $3.50 annual dividend which is
contingent upon after tax earnings in excess of $200. In the
event of involuntary liquidation, the holders may receive $87.50
per share and all dividends. No dividends were declared for the
five month periods ended December 31, 1994 and 1993 and the
fiscal years ended July 31, 1994, 1993 and 1992.
The Series E preferred stock is entitled to an annual dividend of
$.10 per share contingent upon after tax earnings being in excess
of $200,000. No dividends were declared for the five month
periods ended December 31, 1994 and 1993 and the fiscal years
ended July 31, 1994, 1993 and 1992.
As consideration for granting extensions on former debts, the
Company issued, in 1984, 2,700 shares of preferred stock at $1.00
per share. The nonvoting preferred stock, designated Series F,
with a dividend rate of $8.00 per share is redeemable at the
option of the Company after July 1993 for $1.00 per share. One
share will be issued for each $100 (one hundred dollars) of
principal indebtedness owed. The dividend will be noncumulative
and is payable within 100 days from the close of any year where
net income after tax exceeds $500, and all dividends due on the
Series B preferred stock are paid or provided for. No dividends
were declared for the five month periods ended December 31, 1994
and 1993 and the fiscal years ended July 31, 1994, 1993 and 1992.
(13) Stock Options and Warrants
Employee Stock Options
Pursuant to a Board of Directors meeting on December 15, 1994
certain individuals received options to purchase an aggregate of
1,750,000 shares of unregistered common stock. The options have
an exercise price of $.50 per share, being the fair market value
per share of Consolidated common stock on the date of the
meeting, being the date of grant, and being exercisable at any
time and from time to time during the four year period ended
December 14, 1998.
F-38
<PAGE> 54
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(13) Stock Options and Warrants (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, in October 1993, January 1994
and March 1994, the Company registered 1,500,000 shares,
1,000,000 shares and 1,500,000 shares, respectively. During the
same time periods, options for 3,000,000 shares were granted, of
which 1,400,000 were exercised at $1.00 per share and 1,600,000
exercised at $2.00 per share, resulting in $1,270 of expenses
computed as follows:
Shares (in 000's) 1,400 1,600 = 3,000
Value of stock
at date of grant $ 3.625 $ 6.00 $4.8917*
------ ------ ------
5,075 9,600 = 14,675
20% discount (1,015) (1,920) = (2,935)
------ ------ ------
4,060 7,680 11,740
Exercise proceeds (1,400) (3,200) = (4,600)
------ ------ ------
Expense $ 2,660 $ 4,480 = $ 7,140
====== ====== ======
* - Represents weighted average.
In accordance with the agreements relating to the various parties
involved, for the year ended July 31, 1994 and the five months
ended December 31, 1993, $7,140 and $3,000 was charged as
consulting services in the determination of income from
operations. A 20% discount was utilized because the shares
issued represents a large block of stock.
F-39
<PAGE> 55
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(13) Stock Options and Warrants (continued)
Series A Common Stock Purchase Warrant:
On September 30, 1994, in conjunction with the financing of the
IMI acquisition, the Company issued to a financing company, a
warrant to purchase 1,000,000 shares of the Company's common
stock at an exercise price of $0.75 per share. This warrant is
exercisable on or before September 30, 1999 and expires on
October 1, 1999. The number and kind of securities purchasable
upon the exercise of this warrant and the exercise price is
subject to adjustment from time to time upon the happening of (a)
certain stock reclassification, consolidation or merger events;
(b) certain stock split transactions; or (c) certain dividend
declarations, such that the value of shares that would have been
received upon exercise of the warrant immediately prior to the
above events is equivalent to the value of shares receivable upon
exercise of the warrant immediately subsequent to the above
events.
(14) Industry Segments
The Company currently classifies its operations into seven
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 prototype building and reverse engineering; and (vii) 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
F-40
<PAGE> 56
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(14) Industry Segments (continued)
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. Inter segment sales and
sales outside the United States are not material. Information
concerning the Company's business segments is as follows:
Five Months Fiscal Year
Ended Ended
December 31, July 31,
---------------- --------------------------
Segments 1994 1993 1994 1993 1992
- -------- ------ ------ ------ ------ ------
Revenues:
Contract Engin-
eering Services $15,070 $ 161 $10,221 $ 611 $ 727
Medical
Diagnostics 6,557 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing 1,878 1,748 3,475 3,059 3,360
Medical Infor-
mation Services 2,925 7 7 50 --
Telecommuni-
cations 1,138 -- 1,131 -- --
Three Dimensional
Products and
Services 726 168 292 80 --
Business Consult-
ing Services 11 545 616 39 446
------ ------ ------ ------ ------
Total Revenues $28,305 $ 2,629 $15,742 $ 3,839 $ 4,533
====== ====== ====== ====== ======
F-41
<PAGE> 57
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(14) Industry Segments (continued)
Five Months Fiscal Year
Ended Ended
December 31, July 31,
---------------- --------------------------
Segments 1994 1993 1994 1993 1992
- -------- ------ ------ ------ ------ ------
Gross Profit:
Contract Engin-
eering Services $ 633 $ 48 $ 1,007 $ 51 $ 103
Medical
Diagnostics 2,662 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing 455 492 157 996 1,062
Medical Infor-
mation Services 601 7 7 33 --
Telecommuni-
cations 363 -- 277 -- --
Three Dimensional
Products and
Services 317 141 119 56 --
Business Consult-
ing Services 11 433 615 39 262
------ ------ ------ ------ ------
Total Gross
Profit $ 5,042 $ 1,121 $ 2,182 $ 1,175 $ 1,427
====== ====== ====== ====== ======
Income (Loss)
from Operations:
Contract Engin-
eering Services($ 87) ($ 25) ($ 21) ($ 90) (45)
Medical
Diagnostics 1,036 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing (597) (52) (998) 382 383
Medical Infor-
mation Services (1,063) (213) (678) (195) --
Telecommuni-
cations (186) -- 42 -- --
Three Dimensional
Products and
Services (968) (178) (765) (108) --
F-42
<PAGE> 58
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(14) Industry Segments (continued)
Five Months Fiscal Year
Ended Ended
December 31, July 31,
---------------- --------------------------
Segments 1994 1993 1994 1993 1992
- -------- ------ ------ ------ ------ ------
Income (Loss) from
Operations
(continued):
Business Consult-
ing Services (269) 386 225 (148) 176
Corporate and
other (1,232) (3,412) (8,372) (1,245) (453)
------ ------ ------ ------ ------
Total Income
(Loss) from
Operations ($ 3,366) ($ 3,494) ($10,567) ($ 1,404) $ 60
====== ====== ====== ====== ======
Net Income (Loss):
Contract Engin-
eering Services($ 322) ($ 40) $ 69 ($ 129) (66)
Medical
Diagnostics 449 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing (708) (200) (1,021) 394 354
Medical Infor-
mation Services (1,258) (286) (629) (222) --
Telecommuni-
cations (186) -- 37 -- --
Three Dimensional
Products and
Services (1,172) (189) (809) (108) --
Business Consult-
ing Services (274) 384 215 (148) 176
Corporate and
Other (1,014) (3,498) (8,633) 953 (586)
------ ------ ------ ------ ------
Total Net
Income (Loss) ($ 4,485) ($ 3,829) ($10,771) $ 740 ($ 122)
====== ====== ====== ====== ======
F-43
<PAGE> 59
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(14) Industry Segments (continued)
Five Months Fiscal Year
Ended Ended
December 31, July 31,
---------------- --------------------------
Segments 1994 1993 1994 1993 1992
- -------- ------ ------ ------ ------ ------
Identifiable
Assets:
Contract Engin-
eering Services $ 9,984 $ 4,094 $ 5,509 $ 116 $ 180
Medical
Diagnostics 40,912 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing 4,502 4,988 4,647 4,983 3,300
Medical Infor-
mation Services 6,652 600 6,822 374 --
Telecommuni-
cations 1,256 853 1,042 -- --
Three Dimensional
Products and
Services 2,327 1,071 1,446 849 --
Business Consult-
ing Services 1,425 486 444 450 1,033
Corporate and
Other 1,031 721 5,160 609 261
------ ------ ------ ------ ------
Total Identi-
fiable Assets $68,089 $12,813 $25,070 $ 7,381 $ 4,774
====== ====== ====== ====== ======
Depreciation and
Amortization:
Contract Engin-
eering Services $ 184 $ 3 $ 139 $ 1 $ 24
Medical
Diagnostics 1,294 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing 13 32 43 5 5
Medical Infor-
mation Services 370 3 6 2 --
Telecommuni-
cations 15 -- 15 -- --
F-44
<PAGE> 60
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(14) Industry Segments (continued)
Five Months Fiscal Year
Ended Ended
December 31, July 31,
---------------- --------------------------
Segments 1994 1993 1994 1993 1992
- -------- ------ ------ ------ ------ ------
Depreciation and
Amortization
(continued):
Three Dimensional
Products and
Services 80 27 81 29 --
Business Consult-
ing Services 1 1 2 1 --
Corporate and
Other 4 1 4 2 2
------ ------ ------ ------ ------
Total Depreci-
ation and
Amortization $ 1,961 $ 67 $ 290 $ 40 $ 31
====== ====== ====== ====== ======
Capital Expend-
itures[1]:
Contract Engin-
eering Services $ 2 $ 18 $ 18 $ 6 $ 30
Medical
Diagnostics 12,417 -- -- -- --
Electro-Mechani-
cal and Electro-
Optical Products
Manufacturing 1 -- -- 450 --
Medical Infor-
mation Services 116 17 1,004 23 --
Telecommuni-
cations -- -- -- -- --
Three Dimensional
Products and
Services 353 -- 142 255 --
Business Consult-
ing Services -- 2 4 7 --
Corporate and
Other 3 -- 59 -- 9
------ ------ ------ ------ ------
Total Capital
Expenditures $12,892 $ 37 $ 1,227 $ 741 $ 39
====== ====== ====== ====== ======
F-45
<PAGE> 61
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(14) Industry Segments (continued)
[1] For the five month period ended December 31, 1994, capital
expenditures for the contract engineering services, medical
diagnostics, and three dimensional products and services segments
include $2, $12,417 and $208, respectively, for amounts allocated
to property and equipment from the acquisition of certain net
assets of International Magnetic Imaging, Inc., Job Shop
Technical Services, Inc. and Computer Engineering Services, Inc.
For the five month period ended December 31, 1993, capital
expenditures for the technical employee leasing segment, includes
$18 for amounts allocated to property and equipment from the
acquisition of certain net assets of Arc Acquisitions Group, Inc.
For the fiscal year ended July 31, 1994, capital expenditures for
the technical employee leasing and medical information services
segments include $18 and $1,004 for amounts allocated to property
and equipment from the acquisition of certain net assets of Arc
Acquisitions Group, Inc. and Creative Socio-Medics, Inc. For the
fiscal year ended July 31, 1993, capital expenditures for the
electro-mechanical and electro-optical products manufacturing and
three dimensional products and services segments include $450 and
$182, respectively, for amounts allocated to property and
equipment from the acquisition of certain net assets of General
Technologies Group. Ltd. and Robotics and Designs, Inc.
(15) Sale and Reacquisition of Subsidiary
Pursuant to an Agreement dated June 4, 1987, by and among General
Aero Products Corp., now called General Technologies Group Ltd.
("GTG"), the Company, and a subsidiary, Sequential Electronic
Systems, Inc. ("SES"), the Company sold all of the then issued
and outstanding common stock of SES (100 shares) to GTG. The
Company received 1,500,000 shares of GTG common stock and a ten
year, 10.5% promissory note in the principal amount of $2,000
which note was subsequently written down by $500 and the return
by the Company of 500,000 shares of GTG common stock .This write
down and return of shares was in settlement of a fraudulent claim
made by GTG against the Company. The Company also loaned $500 to
GTG evidenced by GTG's 8% Convertible Debenture. Subsequent to
the above transactions, a Chapter 11 petition was filed on
December 14, 1989 by GTG.
During the fiscal year ended July 31, 1993, the Company, through
its wholly-owned subsidiary, SIS Capital Corp., completed a
settlement agreement with a financial institution. The agreement
includes the purchase by the Company of the 100 shares of SES
common stock held by the financial institution for $25 cash and a
note of $75. In addition, S-Tech, Inc., a subsidiary of the
F-46
<PAGE> 62
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(15) Sale and Reacquisition of Subsidiary (continued)
Company acquired from the financial institution, certain net
assets of GTG in the amount of $1,523 (which represents the
appraised value of the assets) for $100 cash and note of $270.
The cost of the purchase of the 100 shares of SES stock is
included in the expenses and losses recovered by the Company
through the acquired assets of GTG. In conjunction with the
agreement, an adversary proceeding, commenced against GTG in its
pending bankruptcy proceedings in the Bankruptcy Court-Eastern
District of New York was settled. The Company's claim for
rescission of the sale of certain SES stock and damages for
fraud, and the financial institution's separate adversary
proceeding for an order voiding issuance of the nine hundred
(900) shares of SES stock have all been discontinued. There are
no other claims either by or against the Company pending in those
proceedings. The Company has paid for its purchase of one
hundred (100) shares of stock to the financial institution as
part of its settlement of all claims by and against the financial
institution.
(16) Related Party Transactions
The Company is indebted to stockholders for cash received and
office equipment contributed by these stockholders in 1992. The
loans are noninterest bearing and have no fixed due date. Amount
due at December 31, 1994 and July 31, 1994 was $184.
During the fiscal year ended July 31, 1994, the Company and
certain of its subsidiaries had outstanding indebtedness to DLB,
Inc. ("DLB"), a corporation owned by the wife of Mr. Lewis S.
Schiller, chairman of the board, president and chief executive
officer of the Company. Mr. Schiller disclaims beneficial
interest in DLB. The obligations were secured by assets and
stock of certain subsidiaries. The largest amount outstanding
during the period was approximately $381. In addition, DLB had
purchased preferred stock in one of the Company's subsidiaries
for $24. In April 1994, the Company paid approximately $343 in
principal and $36 in interest to DLB and issued to DLB shares of
common stock in certain subsidiaries in full payment of all its
and its subsidiaries' obligations to DLB and paid DLB $24 for
DLB's preferred stock in a subsidiary, representing DLB's cost of
such preferred stock. Since such repayment, DLB has not lent
money to, or purchased stock in, the Company or any of its
subsidiaries, except that, in August 1994, DLB advanced the
Company approximately $35, which was paid without interest in
October 1994. The largest amount outstanding during the five
month period ended December 31, 1994 was $35.
F-47
<PAGE> 63
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(16) Related Party Transactions (continued)
Effective January 1, 1994, the Company transferred to four
employees of a subsidiary, including Ms. Grazyna B. Wnuk,
secretary of the Company, 61% of the common stock of the
subsidiary, for nominal consideration. In connection with such
transfers, Ms. Wnuk received a 31% interest in the subsidiary.
The operations of such subsidiary did not represent a significant
portion of the Company's business during the fiscal year ended
July 31, 1994 or the five months ended December 31, 1994.
Trans Global Services, Inc. ("Trans Global") was organized by SIS
Capital Corp. ("SISC") in January 1995 to hold all of the stock
of Avionics Research Holdings, Inc. ("Holdings"), (formerly ARC
Acquisition Group, Inc.), which was acquired by SISC in December
1993, and Resource Management International, Inc.
("RMI"),(formerly ITS Management Corp.), which was acquired by
SISC in November 1994. Trans Global also issued to SISC warrants
to purchase shares of its common stock. The Trans Global stock
and warrants were issued to SISC in consideration for the
transfer of the stock of Holdings and RMI and the advances made
by SISC. All of the Trans Global stock and warrants owned by
SISC are held subject to the right of Mr. Lewis S. Schiller,
chairman of the board and chief executive officer of the Company,
to purchase 10% of SISC's equity position for 110% of SISC's
cost. In connection with the organization of Trans Global, Trans
Global also issued a 3.4% interest to Mr. Joseph G. Sicinski,
president of Trans Global, in exchange for certain rights Mr.
Sicinski has with respect to the stock of Holdings.
In connection with the organization of Trans Global in January
1995, SISC transferred a 5% interest in its common stock and
warrants in Trans Global to DLB in exchange for DLB's 10%
interest in another subsidiary of Consolidated.
At the time of the organization of Trans Global, Trans Global
issued to SISC, in consideration for the equity consideration
issued by Consolidated in connection with the acquisitions of
Holdings and RMI, 500 shares of Series A 5% Redeemable Cumulative
Preferred Stock.
As of March 31, 1995, SISC, DLB, Inc. and Mr. Joseph G. Sicinski,
the stockholders of Trans Global, entered into an agreement (the
"Trans Global Agreement") with Concept Technologies Group, Inc.
("Concept") pursuant to which they would transfer to Concept all
of the issued and outstanding capital stock of Trans Global in
exchange for a controlling equity interest in Concept.
F-48
<PAGE> 64
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(15) Related Party Transactions (continued)
Pursuant to the Trans Global Agreement, Concept will issue to
SISC in respect of its Trans Global Common Stock, preferred stock
and warrants, 850,000 shares of Concept Common Stock, two-year
warrants (the "Concept Warrants") to purchase 475,000 shares of
Concept Common Stock, 23,750 shares of Concept's Series A
Participating Convertible Preferred Stock ("Series A Preferred
Stock"), which are convertible into 1,900,000 shares of Concept
Common Stock upon the filing of an amendment to Concept's
certificate of incorporation which increases its capital stock,
23,750 shares of each of Concept's Series B and C Preferred
Stock, which are convertible into an aggregate of 2,375,000
shares of Concept Common Stock if certain levels of income before
income tax are met, and 25,000 shares of Concept's Series D 5%
Redeemable Cumulative Preferred Stock ("Series D Preferred
Stock"), which is not convertible and which is redeemable after
three years for an aggregate of approximately $1.7 million. The
Series D Preferred Stock is also redeemable from the sale by
Concept of its equity securities, including the sale of stock
upon exercise of options and warrants. The Concept Warrants
become exercisable until the Warrants included in the Units
either expire or are exercised in full. The exercise price of
the Concept Warrants is $3.50 per share or the exercise price of
the warrants included in a proposed private placement by Concept,
whichever is lower.
Pursuant to the Trans Global Agreement, Concept will issue to DLB
in respect of its Trans Global stock and warrants, 50,000 shares
of Concept Common Stock, Concept Warrants to purchase 25,000
shares of Concept Common Stock, 1,250 shares of Concept's Series
A Preferred Stock, which are convertible into 100,000 shares of
Common Stock, and 1,250 shares of each of Concept's Series B and
C Preferred Stock, which are convertible into in aggregate of
125,000 shares of Concept Common Stock if certain levels of
income before income taxes are attained. Pursuant to the Trans
Global Agreement, Concept will issue to Mr. Sicinski in respect
of his Trans Global Stock, 100,000 shares of Concept Common
Stock.
The Trans Global Agreement provides SISC and DLB with certain
registration rights with respect to their Concept warrants and
the underlying common stock and provides Mr. Sicinski with
certain registration rights with respect to the 100,000 shares of
Common Stock issued to him pursuant to the Trans Global
Agreement. Mr. Sicinski's shares are subject to a one-year
lockup agreement, subject to earlier release under certain
conditions.
F-49
<PAGE> 65
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(15) Related Party Transactions (continued)
All of the Trans Global stock and warrants owned by SISC are held
subject to the right of Mr. Lewis S. Schiller, chairman of the
board and chief executive officer of the Company, to purchase 10%
of SISC's equity position for 110% of SISC's cost. In connection
with the transaction contemplated by the Trans Global Agreement,
Mr. Schiller's option will be converted to an option to purchase
10% of SISC's interest in the Concept equity securities at a
price equal to 110% of SISC's cost.
During the fiscal year ended July 31, 1994, the Company made
advances to a company that was acquired on September 30, 1994.
Advances receivable from this company at July 31, 1994 amounted
to $347.
During the fiscal year ended July 31, 1994 the Company made
advances to a 39% owned subsidiary which totaled $289 at December
31, 1994 and July 31, 1994. These advances have no fixed due
dates or terms and $145 of such advances have been written-off as
of December 31, 1994 and July 31, 1994. Ms. Grazyna B. Wnuk, the
Company's secretary, owns a 31% interest in the subsidiary
receiving such advances.
The Company entered into a consulting agreement with Irving Hertz
(now deceased), upon his resignation from the Board and as Chief
Executive Officer of the Company. Under this agreement, all of
the fringes Mr. Hertz had as CEO, including a leased car, would
continue to be provided by the Company. The services to be
performed, for which Mr. Hertz received a monthly retainer, were
investment banking and financial consulting on various situations
in which the Company was interested. The Company paid $66,828 to
Mr. Hertz under this agreement during the fiscal year ended July
31, 1993. Upon Mr. Hertz's death, the Company settled all claims
his estate had against the Company for $175, during the fiscal
year ended July 31, 1994. As of July 31, 1994, all such amounts
were paid in full. In addition, consulting fees were paid to
other individuals and firms that were not related parties at the
time such fees were paid and any such fees are not deemed to be
material.
F-50
<PAGE> 66
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(17) Litigation
Although the Company is a party to certain legal proceedings
which have occurred in the ordinary course of business, the
Company does not believe such proceedings to be of a material
nature with the exception of the following:
The Company has been named as a defendant in a lawsuit filed by a
company it was contemplating acquiring in January 1995 for
alleged unauthorized use of proprietary information specific to
that line of business. Outside counsel handling this case has
advised the Company that it has meritorious defenses to obtain a
dismissal of the lawsuit.
(18) New Authoritative Pronouncements
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
as amended by SFAS No. 118 "Income Recognition and Disclosures",
is effective for fiscal years beginning after December 15, 1994,
and establishes accounting standards for creditors who have
certain impaired loans. The Company believes that the adoption
of SFAS No. 114 as amended by SFAS No. 118 will not result in an
allowance for credit losses materially different than its current
method of evaluating the collectibility of its loans receivable.
(19) Acquisitions
(i) - On December 22, 1993, the Company, acquired for 600,000
shares valued at $1,440 (through a 90% owned subsidiary) Arc
Acquisition Group, Inc., in a business combination accounted for
as a purchase. On the same date, the Company also acquired for
250,000 shares valued at $600 (through a wholly owned subsidiary)
80% of the outstanding voting common stock and 50.1% of the
outstanding non voting stock of ARC Networks, Inc., in a business
combination also accounted for as a purchase. The purchase price
of these two acquisitions exceeded the fair value of the net
assets of ARC Acquisition Group, Inc. and ARC Networks, Inc. by
$2,543, consisting of Goodwill of $543 and Customer Lists of
$2,000. Goodwill and Customer Lists will be amortized over 20
years and 15 years, respectively, under the straight line method.
For accounting purposes, the results of operations of ARC
Acquisition and ARC Networks are included with the results of the
Company from January 1, 1994 onward.
F-51
<PAGE> 67
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(19) Acquisitions (continued)
(ii) - 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 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,
(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.
(iii) - 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 $11,069. The excess purchase
F-52
<PAGE> 68
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(19) Acquisitions (continued)
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 $31,873
======
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 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.
F-53
<PAGE> 69
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(19) Acquisitions (continued)
(iv) - 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.
F-54
<PAGE> 70
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(19) Acquisitions (continued)
The following pro forma unaudited results assume the above four
acquisitions had occurred at the beginning of the indicated
periods:
Five Months Fiscal Year
Ended Ended
December 31, July 31,
---------------- --------------------------
1994 1993 1994 1993 1992
------ ------ ------ ------ ------
Net revenues $52,900 $48,568 $99,539 $85,974 $86,668
====== ====== ====== ====== ======
Net income
(loss) ($ 4,233) ($ 1,684) ($ 7,066) $ 2,027 $ 1,165
====== ====== ====== ====== ======
Income (loss)
per share ($ 0.28) ($ 0.35) ($ 0.09) $ 0.19 $ (0.28)
====== ====== ====== ====== ======
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) Sale of Majority Interest of Subsidiary
Effective January 1, 1994, the Company disposed of 61% if its
interest in Universal International, Inc., ("Universal"), through
its wholly-owned subsidiary, SIS Capital Corp.; which owned 100%
of Universal. The sale was accounted for as a disposal of a
portion of a line of business that is not considered a business
segment. Other subsidiaries continue to operate in the business
segment. The sale resulted in a loss of approximately $33 which
is included in other income (expense). The revenues, gross
profits and net loss of Universal at December 31, 1993 were
approximately $160, $48 and ($40), respectively. Subsequent to
December 31, 1993, the investment in Universal is being accounted
for under the equity method.
F-55
<PAGE> 71
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(20) Sale of Majority Interest of Subsidiary (continued)
Following is a summary of net assets and results of operations of
Universal International, Inc. as of January 31, 1994 and July 31,
1993 and for the periods ended January 31, 1994 and July 31, 1993
and 1992:
January 31, July 31,
----------------------
1994 1993
-------- --------
Cash $ 2 $ 6
Receivables - Net 45 59
Property, Plant and Equipment - Net 20 24
Other Assets 8 28
------ ------
Total Assets 75 117
Accounts Payable and Accrued Expenses $ 41 $ 44
Accrued Payroll Taxes 105 97
Loans Payable 166 170
------ ------
Net Assets ($ 237) ($ 194)
====== ======
Period from
August 1, 1993 For the For the
through Year ended Year ended
January 31, July 31, July 31,
1994 1993 1992
-------- -------- --------
Revenues $ 195 $ 611 $ 727
Costs and Expenses 238 740 793
------ ------ ------
Net [Loss] ($ 43) ($ 129) ($ 66)
====== ====== ======
Net assets of Universal International, Inc. have been separately
classified in the accompanying balance sheet at July 31, 1993.
F-56
<PAGE> 72
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(21) Disposal of a Portion of a Line of Business
On July 31, 1991, the Company sold its 50.1% interest in Trinity
Holding Corp. to one of the minority shareholders (Hugh Murphy)
of the Trinity Holding Corp. in exchange for one dollar and the
waiver of significant emoluments granted by the Company's Board
in 1989. At the date, liabilities exceeded assets by $823. The
excess of net liabilities over the net investment in Trinity
Holding Corp. of $767 has been recorded as a gain on disposal of
a segment. During the fiscal year ended July 31, 1993, $562 in
notes and loans receivable from Trinity Holding Corp. were
written off by the Company.
Following is a summary of net assets of Trinity Holding Corp. as
of July 30, 1991:
Cash $ 37
Receivables - Net 52
Property, Plant and Equipment - Net 7
Other Assets 17
------
Total Assets 113
Accounts Payable and Accrued Expenses 86
Accrued Payroll Taxes 278
Notes Payable - Other 572
------
Net Assets ($ 823)
======
In 1993, $562 in notes and loans receivable from Trinity Holding
Corp. were written off by the Company and included in other
expense.
(22) Extraordinary Item - Debt Restructuring
During the fiscal years ended July 31, 1993, certain creditors
agreed to forgive debt totaling $153. The debt of $285 which was
primarily owed to a related party was included in additional
paid-in capital at July 31, 1991. The $146 forgiven in 1993,
which was due to non-related entities, is reported as an
extraordinary item. In addition, in 1993, debt in the amount of
$348 owed to the above entities, as well as others, was converted
into Series A preferred stock at a price of $5.00 per share
(69,711 shares).
F-57
<PAGE> 73
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(23) Unusual Item
In May 1993, the Company, through its wholly-owned subsidiary,
SISC, completed an agreement with a major financial institution
settling a $6 million lawsuit for damages filed against the
institution and General Technologies Group Ltd., ("GTG"),
pursuant to a RICO action undertaken by Mr. Lewis S. Schiller,
CEO of the Company, alleging ongoing fraud and conspiracy to
(23) Unusual Item (continued)
defraud the Company in connection with the Sequential Electronics
Systems, Inc., ("SES"), transaction of June 3, 1987. The
agreement gives the Company clear title to all the shares of SES
and includes the purchase of certain net assets and the
operations of GTG by S-Tech, Inc., a subsidiary of the Company.
The purchase by S-Tech, Inc. was completed June 30, 1993, and
resulted in the Company acquiring net assets of $1,523
(representing appraised values). To the extent that the Company
recorded losses in prior periods through the write-down of
assets, the write-off of receivables, and other related expenses,
in its prior sale agreement with GTG (in excess of $1,600), the
Company has recorded a one time gain on the acquisition. S-Tech,
Inc. remains liable on a note to the financial institution
arising from the above purchase.
(24) Subsequent Events
Reverse Merger Agreement:
On April 19, 1995, SIS Capital Corp., a wholly-owned subsidiary
of the Company ("SISC"), entered into an agreement among SISC,
DLB, Inc. ("DLB"), Joseph G. Sicinski and Concept Technologies
Group, Inc. ("Concept"), pursuant to which SISC, DLB and Mr.
Sicinski will transfer to Concept all of the issued and
outstanding common stock of Trans Global, in exchange for a
controlling interest in Concept. Concepts common stock and
warrants are traded on the NASDAQ Small Cap Market. Trans
Global's common stock is 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. Mr.
Sicinski is president of Trans Global. Trans Global, which
operates through two subsidiaries, ARC and RMI is engaged in the
business of providing engineers, designers and other technical
personnel to its clients, which include major companies in the
aerospace, electronics and computer industries. Concept owns and
F-58
<PAGE> 74
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(24) Subsequent Events (continued)
operates Klipsch Loudspeaker business, and, through a subsidiary,
is the developer and owner of proprietary technologies with
applications in environmental noise cancellation, medical
monitoring, defense and communications. For the years ended
December 31, 1994 and 1993, Concept had losses of $1.6 million,
or $1.30 per share, and $1.4 million, or $1.95 per share,
respectively, on revenue of $2.4 million and $3.0 million,
respectively. Following consummation of the transaction, the
business of Trans Global will be Concept's principal business.
The consummation of the transaction is subject to customary
closing conditions.
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 shares pursuant to the plan. During the three months
ended March 31, 1995, 3,500,000 shares were granted and exercised
of which 1,500,000 were exercised at $0.25 per share, 1,000,000
were exercised at $0.35 per share and 1,000,000 were exercised at
$0.00 per share, resulting in $1,975 of consulting costs computed
as follows:
Shares (in 000's) 1,500 1,000 1,000 = 3,500
Value of stock
at date of grant $ 1.00 $ 1.00 $ 0.875 $0.9643*
------ ------ ------ ------
1,500 1,000 875 = 3,375
20% discount (300) (200) (175) = (675)
------ ------ ------ ------
1,200 800 700 2,700
Exercise proceeds (375) (350) -- = (725)
------ ------ ------ ------
Total consulting costs 825 450 700 = 1,975
Portion expensed at
issuance 275 $ 450 $ 700 = 725
------ ------ ------ ------
Portion deferred $ 550 -- -- $ 1,250
====== ====== ====== ======
* - Represents weighted average.
F-59
<PAGE> 75
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(24) Subsequent Events (continued)
In accordance with the agreements relating to the various parties
involved, a total of $237, $137, and $1,600 will be charged as
consulting services, public relation services and noncash
compensation, respectively, in the determination of income from
operations over the duration of the related
agreements. A 20% discount was utilized because the shares
issued represents a large block of stock.
(25) Commitments
Mr. Schiller has an employment agreement dated September 1, 1993
with the Company pursuant to which it employs him as chief
executive officer through December 31, 1998 at an annual salary
of $182, subject to an annual cost of living increase. Mr.
Schiller is also entitled to a bonus equal to 10% of the
Company's consolidated income before income taxes in excess of
$250. No bonus was payable for the five month period ended
December 31, 1994. The Company also granted to Mr. Schiller a
five-year option to acquire 10% of the Company's securities
portfolio at 110% of the Company's cost. The value of such
option cannot be determined by the Company. The Company also
provides Mr. Schiller with a company-owned or leased automobile.
Pursuant to a board of director's resolution, Mr. Schiller's
annual salary was increased to $250 and an amended employment
contract will delivered to Mr. Schiller by June 30, 1995. The
Registrant also provides Mr. Schiller with an automobile.
Mr. Mahoney has an employment agreement dated October 1, 1994,
and superseded by an agreement dated March 21, 1995, with the
Company pursuant to which it employs him as chief financial
officer through December 31, 1999. Mr. Mahoney will receive a
base salary of $165, $177, $189, $202 and $220 for the years
ending December 31, 1995, 1996, 1997, 1998 and 1999,
respectively. Additionally, Mr. Mahoney shall also receive
incentive compensation equal to the greater of one percent of the
net pretax profits or net cash flow of the Company, plus the
greater of one percent of the net pre-tax profit or net cashflow
of IMI (a wholly-owned subsidiary of the Company), subject to a
maximum of twice Mr. Mahoney's base salary for the respective
year.
F-60
<PAGE> 76
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(26) Restatements of Prior Period Financial Statements
The fiscal years ended July 31, 1994 and 1993 financial
statements have been restated. The following summarizes and
describes the impact of the restatement.
Fiscal Year Ended July 31,
--------------------------
1994 1993
-------- --------
Income (Loss) from Operations:
As Originally Reported ($ 3,851) ($ 841)
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] (5,870) --
Reclass loss from discontinued
operations to operating
activity [2] -- (562)
Reclass stock option expense
from unusual to selling,
general and administrative
expenses [3] (845) --
------ ------
As restated ($10,566) ($ 1,403)
====== ======
Other Income (Expense):
As Originally Reported ($ 1,253) $ 1,942
Prior Period Adjustments:
Reclass stock option expense
from unusual to selling,
general and administrative
expenses [3] 845 --
------ ------
As restated ($ 408) $ 1,942
====== ======
F-61
<PAGE> 77
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(26) Restatements of Prior Period Financial Statements (continued)
Fiscal Year Ended July 31,
--------------------------
1994 1993
-------- --------
Loss from Discontinued
Operations:
As Originally Reported -- ($ 562)
Prior Period Adjustments:
Reclass loss from discontinued
operations to operating
activity [2] -- ($ 562)
------ ------
As restated -- --
====== ======
Net Income (Loss):
As Originally Reported ($ 4,902) $ 740
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] (5,870) --
------ ------
As restated ($10,772) $ 740
====== ======
Accumulated Deficit:
As Originally Reported ($18,932) ($14,030)
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] (5,870) --
------ ------
As restated ($24,802) ($14,030)
====== ======
Additional Paid-in Capital,
Common Stock:
As Originally Reported $35,861 $16,752
Prior Period Adjustments:
Decrease in discount on
shares issued for stock
options [1] 5,870 --
------ ------
As restated $41,731 $16,752
====== ======
F-62
<PAGE> 78
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(in 000's except per share data)
- -----------------------------------------------------------------
(26) Restatements of Prior Period Financial Statements (continued)
[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.
[2] - The Company originally presented $562 of losses from the
discontinuation of a part of a line of business as a discontinued
item and such losses are now included in income (loss) from
operations.
[3] - The Company originally included $845 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.
F-63
<PAGE> 79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONSOLIDATED TECHNOLOGY GROUP, LTD.
Date: March 30,1996 /S/
------------------------
Lewis S. Schiller
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/S/ President and Director March 30, 1996
- -------------------- (Principal Executive
Lewis S. Schiller Officer)
/S/ Chief Financial Officer March 30, 1996
- -------------------- (Principal Financial and
George W. Mahoney Accounting Officer)
/S/ Director March 30, 1996
- --------------------
Norman J. Hoskin
