Sagemark Companies Ltd – ‘10-K’ for 12/31/97

As of:  Thursday, 4/16/98   ·   For:  12/31/97   ·   Accession #:  89041-98-22   ·   File #:  0-04186

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Form 10-K - December 31, 1997                         84    503K 
 2: EX-27       Financial Data Schedule                                1      7K 

10-K   —   Form 10-K – December 31, 1997
Document Table of Contents

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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-K

(Mark One)                                                                      
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE   
ACT OF 1934 [Fee Required]  For the fiscal year ended December 31, 1997.        

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required] For the transition period from ______________ to  
_____________.                                                                  

 Commission file Number 0-4186

CONSOLIDATED TECHNOLOGY GROUP LTD.
(Exact name of registrant as specified in its charter)

New York                                   13-1948169       
(State or other jurisdiction           (I.R.S. Employer Identification Number)  
of incorporation or organization)                                               

160 Broadway, New York, NY                          10038         
(Address of principal executive offices)                 (Zip Code)             

Registrant's telephone number, including area code: (212) 233-4500

Securities registered pursuant to Section 12(b) of the Act: None

 Securities registered pursuant to Section 12(g) of the Act:

       Title of Each Class             Outstanding shares as of April 14, 1998
      -------------------             --------------------------------------

Common Stock, par value 0.01 per share              49,910,996                  

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days. Yes X  No                                    
      ---    ---

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the    
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]                                                                  

DOCUMENTS INCORPORATED BY REFERENCE                                             

Item III is incorporated by reference from the Registrant's definitive proxy    
statement relating to its 1998 Annual Meeting of Shareholders.                  

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PART I                                                                          

ITEM 1. BUSINESS                                                                

Introduction                                                                    

        Consolidated Technology Group Ltd. (the "Company", the "Registrant" or
"Consolidated"), through its wholly owned or controlled subsidiaries, is engaged
in various businesses classified into four business segments which consist of   
subsidiaries that are indirectly controlled or owned through SIS Capital Corp., 
("SISC"), a wholly owned subsidiary of Consolidated. During the year ended      
December 31, 1997, the Company discontinued five of its operating segments,     
Three Dimensional Products and Services, Medical Diagnostics, Electro-Mechanical
and Electro-Optical Products Manufacturing, Audio Products Manufacturing and    
Business Consulting Services. Additionally, during the year ended December 31,  
1997, the Company is reporting a new segment called Development Stage, which    
includes a subsidiary that has not yet developed a salable or marketable        
product. During the years ended December 31, 1997, 1996 and 1995, (referred to  
herein as 1997, 1996 and 1995, respectively), segment revenues as a percentage  
of total were as follows:                                                       

                                   1997              1996             1995
                                   ----              ----             ----
Contract Engineering Services          82%               82%               86%  
Medical Information Services            8%               11%               10%  
Telecommunications                     10%                7%                4%  
Development Stage                      --                --                --   

   Additional financial information regarding the Company's business
segments is presented in the Company's financial statements (see Part IV, Item  
14) including revenues, gross profit or loss, income or loss from operations,   
net income or loss and identifiable assets attributable to each of the Company's
business segments. Consolidated provides its subsidiaries with management,      
marketing, accounting, administrative support and financing. Consolidated's     
revenue and net loss reflect the consolidated revenue and results of operations 
of its subsidiaries. Set forth below is a description of the Company's business 
segments.                                                                       

Organization and Changes in Management of the Company                           

     Consolidated is a New York corporation, organized in 1961 under the
name Sequential Information Systems, Inc. Its corporate name was changed to     
Consolidated Technology Group, Ltd. in 1993. In April 1998, all of the members  
of the Company's board of directors resigned as officers and directors of the   
Company and its subsidiaries. Mr. Lewis S. Schiller, who was chairman of the    
board, chief executive officer and a director of Consolidated and other         
subsidiaries of Consolidated, including its two public subsidiaries, Trans      
Global Services, Inc. ("Trans Global") and Netsmart Technologies, Inc.          
("Netsmart"), resigned as an officer and director of Consolidated and such      
subsidiaries, including Trans Global and Netsmart. Ms. Grazyana B. Wnuk, who was
a director and secretary of the Company and secretary of Trans Global, resigned 
from such positions. Mr. Norman J. Hoskin, who was a director of the Company,   
Trans Global and Netsmart, Mr. E. Gerald Kay, who was a director of the Company 
and Trans Global, resigned from such positions. Contemporaneously with the      
effectiveness of such resignations, Messrs. Edward D. Bright, Seymour Richter   
and Don Chaifetz were elected as directors to fill the vacancies created by the 
resignation of Messrs. Schiller, Hoskin and Kay and Ms. Wnuk. Messrs. Bright and
Richter were elected as directors of Netsmart.                                  

    Pursuant to the agreements, as previously reported by the Company:

       1.       Schiller, Wnuk, Kay and Hoskin agreed to resign as directors
    and officers of the Company and its subsidiaries
     contemporaneously with the closing of the sale by
           International magnetic Imaging, Inc. and certain of its
              subsidiaries (collectively, "IMI") of substantially all of
             their assets pursuant to an asset purchase agreement (the
                  "Asset Purchase Agreement") dated January 28, 1998 between IMI
                  and Comprehensive Medical Imaging, Inc. IMI is a subsidiary of
                  the Company. The sale by IMI is referred to as the "IMI sale".

         2.       In consideration for payments of an aggregate of approximately
                $4 million to Mr. Schiller and Ms. Wnuk, Consolidated agreed
         to purchase from them all of their rights under their
                respective employment agreements and their stock interest in
                IMI. Such payments represent a significant discount from the
             amounts due under their respective employment agreements.

    3.        Mr. Schiller agreed to transfer to the Company 1,190,000
        shares of the Company's Common stock owned by him.

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4.       The Company agreed to transfer to Mr. Schiller or his
                 designees, for nominal consideration, certain subsidiaries of
                the Company. Such subsidiaries are included in the Company's
         1997 financial statements as discontinued operations.

    5.       Mr. Schiller agreed to enter into a three year consulting
                agreement with the Company, for which he will receive annual
compensation of $100,000.                   

      6.       The Company, its subsidiaries and Messrs. Schiller, Kay and
                  Hoskin and Ms. Wnuk agreed to execute mutual releases, and the
               Company agreed to provide them with certain indemnification
rights.                                     

           The negotiations were conducted with representatives of
       shareholders who are not affiliated either with present management or
       with the plaintiffs in certain recent litigation against the Company,
 which was disclosed in the Company's prior filings on Form 8-K.

On April 15, 1998, Mr. George W. Mahoney gave the Company notice that he was    
exercising his right under his employment agreement with Consolidated to        
terminate his employment on 90 days' notice.  Mr. Mahoney has advised the       
Company that in his view the agreement requires the company to pay him a lump   
sum payment equal to his salary for the balance of the term of the agreement    
which is approximately $2.4 million.  The Company's board of directors is       
evaluating the Company's and Mr. Mahoney's respective rights under his          
employment contract.                                                            

Forward Looking Statements                                                      

      Statements in this Form 10-K that are not descriptions of historical
facts may be forward-looking statements that are subject to risks and           
uncertainties. Actual results could differ materially from those currently      
anticipated due to a number of factors, including those identified in this Form 
10-K and in other documents filed by the Company with the Securities and        
Exchange Commission.                                                            

CONTRACT ENGINEERING SERVICES                                                   

      The contract engineering services segment reflects the operations of
Trans Global Services, Inc. ("Trans Global"). Trans Global is a Delaware        
corporation, which was incorporated in January 1995 to hold the stock of its two
subsidiaries, Avionics Research Holdings, Inc. ("Avionics") and Resource        
Management International, Inc. ("RMI"). Prior to the formation of Trans Global, 
Avionics, which was acquired in December 1993, and RMI, which was organized to  
acquire the assets of Job Shop Technical Services, Inc. in November 1994, were  
directly owned by SISC. The revenues of the contract engineering services       
segment for 1997, 1996 and 1995 were $75.7 million, $62.6 million and $63.2     
million, respectively. Net income and losses of the contract engineering        
services segment during 1997, 1996 and 1995 approximated $1 million, ($607,000) 
and ($4.7 million), respectively.                                               

   Trans Global is engaged in providing technical temporary staffing
services. In performing such services, Trans Global addresses the current trend 
of major corporations in "downsizing" and "outsourcing" by providing engineers, 
designers and technical personnel on a temporary contract assignment basis      
pursuant to contracts with major corporations. The engagement may relate to a   
specific project or may cover an extended period based on the client's          
requirements. Trans Global believes that the market for outsourcing services    
such as those offered by Trans Global results from the trend in employment      
practices by major corporations in the aircraft, aerospace, electronics, energy,
engineering and telecommunications industries to reduce their permanent employee
staff and to supplement their staff with temporary personnel on an as-needed    
basis. Trans Global seeks to offer its clients a cost-effective means of work   
force flexibility and the elimination of the inconvenience associated with the  
employment of temporary personnel, such as advertising, initial interviewing,   
fringe benefits and record keeping. Although the employees provided by Trans    
Global are on temporary contract assignment, they work with the client's        
permanent employees; however, they receive different compensation and benefits  
than permanent employees. In providing its services, Trans Global engages the   
employees, pays the payroll and related costs, including FICA, worker's         
compensation and similar Federal and state mandated insurance and related       
payments. Trans Global charges its clients for services based upon the hourly   
payroll cost of the personnel. Each temporary employee submits to Trans Global a
weekly time sheet with work hours approved by the client. The employee is paid  
on the basis of such hours, and the client is billed for those hours at agreed  
upon billing rates.                                                             

       Although Trans Global has eight offices, including its main office in
Long Island, NY, throughout the United States, there is no limited geographic   
market for Trans Global's services. Trans Global has in the past established    
offices in new locations when it receives a contract in the area and it cannot  
effectively service such contract from its existing offices. Trans Global       
intends to continue to establish new offices as necessary to meet the needs of  
its customers.                                                                  

   A client will utilize contract engineering services such as those
provided by Trans Global when it requires a person with specific technical      
knowledge or capabilities which are not available from the client's permanent   
staff or to supplement its permanent staff for a specific project or to meet    
peak load requirements. When the client requires personnel, it provides Trans   
Global with a detailed job description. Trans Global then conducts an electronic
search in its computerized resume database for candidates matching the job      
description. In addition, each branch office maintains a file of active local   
resumes for candidates available for assignment in the vicinity of the branch   
office. The candidates are then contacted by telephone by Trans Global's        
recruiters, who interview interested candidates. If a candidate is acceptable to
Trans Global and interested in the position, Trans Global refers the candidate  
to the client. An employment agreement is executed with Trans Global prior to   
the commencement of employment.                                                 

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       Trans Global also offers its clients a range of integrated logistical
support services, which are performed at Trans Global's facilities. These       
services, which are ancillary to a project, include the management of technical 
documents involving technical writing, preparation of engineering reports, parts
provisioning documents and test equipment support documents, establishing       
maintenance concepts and procedures, and providing manpower and personnel       
support. In performing these services, Trans Global hires the necessary         
employees for its own account and may work with the client in developing and    
preparing the documentation. Payments are made pursuant to a purchase order from
the client on a project basis and not as a percentage of the cost of the        
employees. To date, the integrated logistics support business has not generated 
more than nominal revenue, and no assurance can be given that Trans Global will 
generate any significant revenue or profit from such services.                  

      Trans Global's strategy has been directed at increasing its customer
base and providing additional services, such as integrated logistics support, to
its existing customer base. Trans Global believes that the key to profitability 
is to provide a range of services to an increased customer base. In this        
connection, Trans Global is increasing its marketing effort both through its own
personnel and in marketing efforts with other companies that offer complementary
services.                                                                       

Markets and Marketing                                                           

The market for Trans Global's services is comprised of major  
corporations in such industries as aircraft, aerospace, electronics, energy,    
engineering, computer services and telecommunications, where "downsizing" and   
"outsourcing" have become an increasingly important method of cost reduction.   
Typically, a client enters into an agreement with one or a small number of      
companies to serve as employer of record for its temporary staff, and its       
agreements are terminable by the client without significant notice.             

        Trans Global maintains a computerized data base of technical personnel
based upon their qualifications and experience. The data base, which contains   
more than 100,000 names, is generated through employees previously employed by  
Trans Global, referrals and responses to advertisements placed by Trans Global  
in a variety of local media, including newspapers, yellow pages, magazines and  
trade publications. Part of Trans Global's responsibilities for any engagement  
is the recruitment and initial interviewing of potential employees, with the    
client conducting any final interviews it deems necessary. The majority of work 
performed by Trans Global employees is performed at the client's premises and   
under the client's direction, although Trans Global is the employer of record.  

    Trans Global markets its services to potential clients through its
officers, management and recruitment personnel who seek to provide potential    
clients with a program designed to meet the client's specific requirements. The 
marketing effort utilizes referrals from other clients, sales calls, mailings   
and telemarketing. Trans Global also conducts an ongoing program to survey and  
evaluate the clients' needs and satisfaction with Trans Global's services, which
it uses as part of its marketing effort.                                        

       Trans Global serves primarily the aircraft, aerospace and electronics
industries as well as the telecommunications, banking and computer science      
industries and public utilities along with numerous manufacturing companies.    
Trans Global is expanding its effort to address the general trend of            
"downsizing" and "outsourcing" by major corporations on a national basis. To    
meet this goal, Trans Global has commenced a national sales campaign addressing 
a broad spectrum of Fortune 500 companies, offering a managed staffing service  
to those companies in the process of downsizing and outsourcing specific        
functions. Since a company engaged in downsizing seeks to focus on its core     
business needs with its in-house staff, Trans Global seeks to identify and      
address the needs of a specific task or department not part of the core business
for which outsourcing would be an appropriate method of addressing those needs. 
In addressing these needs, Trans Global has conducted marketing efforts with    
Manpower International, Inc., Adecco and Olsten Corporation.                    

    Trans Global's contracts are generally terminable by the client on
short notice. Trans Global Services' largest customers for 1997 were Boeing,    
Northrop Grumman, Lockheed, Gulfstream Aerospace and Bell Helicopter Textron    
which accounted for approximately $20 million, $15 million, $13 million, $7     
million and $6 million or 26%, 20%, 17%, 9% and 8% of revenue, respectively. No 
other client accounted for 5% or more of Trans Global's revenues in either the  
year ended December 31, 1997 or the years ended December 31, 1996 and 1995.     

  Trans Global's largest customers for 1996 were Boeing, Lockheed,
Northrop Grumman, Gulfstream Aerospace Corp. and Bell Helicopter Textron, which 
accounted for approximately $16 million, $13 million, $9 million, $5 million and
$4million, or 26%, 21%, 14%, 8% and 6% of revenue, respectively. For the year   
ended December 31, 1995, Northrop Grumman, Lockheed and Boeing accounted for    
$19.4 million, $10.2 million and $9.6 million, or 30.7%, 16.1% and 15.2% of     
revenue, respectively.                                                          

     Avionics' largest clients for 1994 were Northrop Grumman and Martin
Marietta Corp., which accounted for approximately $14.5 million and $2.0        
million, respectively, which represented approximately 57% and 8% of Trans      
Global's revenue for 1994.                                                      

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        RMI was formed in 1994 to acquire assets of Job Shop in November 1994.
RMI conducts business under the name The RMI Group. During 1994, six clients of 
RMI and Job Shop accounted for aggregate revenues of $32 million or             
approximately90% of their combined revenue for the year. Boeing and Lockheed Ft.
Worth Company, which accounted for revenues of $10 million and $7.5 million, or 
22%and 17% of such combined revenue for 1994, were the only clients which       
accounted for more than 10% of the combined revenue of RMI and Job Shop. Four   
other clients, three of which are in the aerospace industry, accounted for      
aggregate revenue of $14.7 million, or 51% of the combined revenue of RMI and   
Job Shop for1994.                                                               

Competition                                                                     

        The business of providing employees on either a permanent or temporary
basis is highly competitive and is typically local in nature. Trans Global      
competes with numerous technical service organizations, a number of which are   
better capitalized, better known, have more extensive industry contacts and     
conduct extensive advertising campaigns aimed at both employers and job         
applicants. Trans Global believes that the ability to demonstrate a pattern of  
providing reliable qualified employees is an important aspect of developing new 
business and retaining existing business. Furthermore, the ability of Trans     
Global to generate revenues is dependent not only upon its ability to obtain    
contracts with clients, but also to provide its clients with qualified          
employees. The market for qualified personnel is highly competitive, and Trans  
Global competes with other companies in attracting employees.                   

Government Regulations                                                          

     The technical temporary staffing industry, in which Trans Global is
engaged, does not require licensing as a personnel or similar agency. However,  
as a provider of personnel for other corporations, Trans Global is subject to   
Federal and state regulations concerning the employment relationship, including 
those relating to wages and hours and unemployment compensation. Trans Global   
also maintains a 401-(k) plan for its employees and is subject to regulations   
concerning such plan.                                                           

    Trans Global does not have contracts with any government agencies.
However, Trans Global does have contracts with clients, including major defense 
contractors that have contracts with government agencies. Trans Global's        
contracts with its clients are based on hourly billing rates for each technical 
discipline. Many of the clients' contracts with government agencies are subject 
to renegotiations or cancellation for the convenience of the government. Since  
the manpower needs of each of Trans Global's clients are based on the clients   
own requirements and the client's needs are affected by any modification in     
requirements, any reduction in staffing by a client resulting from cancellation 
or modification of government contracts could adversely impact the business of  
Trans Global.                                                                   

Employees                                                                       

         At December 31, 1997, Trans Global had 931 employees, of which 879 were
contract service employees who performed services on the clients' premises and  
52 were executive and administrative employees. Each of Trans Global's offices  
is staffed by recruiters and sales managers. Each contract service employee     
enters into a contract with Trans Global, which sets forth the client for whom  
and the facility at which the employee's services are to be performed and the   
rate of pay. If an employee ceases to be required by Trans Global's clients for 
any reason, Trans Global has no further obligation to the employee. Although    
assignments can be for as short as 90 days, in some cases, they have been for   
several years. The average assignment is in the range of six to nine months.    
Trans Global's employees are not represented by a labor union, and Trans Global 
considers its employee relationship to be good.                                 

MEDICAL INFORMATION SERVICES                                                    

   The medical information services segment reflects the activity of
Netsmart Technologies, Inc., ("Netsmart"). Netsmart is a Delaware corporation,  
organized in September 1992 under the name Medical Services Corp., a holding    
company, whose operations were conducted by its wholly owned subsidiary, Carte  
Medical Corp. In October 1993, Medical Services Corp. merged its subsidiary into
itself and changed its name to Carte Medical Corporation. In June 1995, Carte   
Medical Corporation's name was changed to CSMC Corporation, and in February     
1996, Netsmart's name was changed to Netsmart Technologies, Inc. Substantially  
all of Netsmart's revenue through 1997 has been generated by its health         
information systems and related services which are marketed by its subsidiary   
Creative Socio Medics, Corp. ("CSM") which was acquired by Carte Medical        
Holdings, Inc., a wholly owned subsidiary of SISC. In September of 1995 Carte   
Medical Holdings, Inc. transferred the stock of CSM to Netsmart. The revenues of
the medical information services segment for 1997, 1996 and 1995 were $7.9      
million, $8.5 million and $7.4 million, respectively. Net losses of the medical 
information services segment during 1997, 1996 and 1995 approximated $3.5       
million, $6.6 million and $2.8 million, respectively.                           

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        Netsmart develops, markets and supports health information systems and
computer software designed to enable behavioral health care organizations to    
manage their administrative, clinical and billing requirements in a network     
computing environment. Netsmart has also developed proprietary technology       
utilizing smart cards. A smart card is a plastic card about the size of a       
standard credit card, which contains a single embedded microprocessor chip with 
both data storage and computing capabilities.                                   

         Except for revenue from one customer, Netsmart's revenue from its smart
card technology has not been significant. Netsmart believes that it may be in   
its best interests to dispose of the smart card business. As a result, Netsmart 
is engaged in negotiations with respect to the possible sale of its smart card  
business to two directors of Netsmart, one of whom is also an officer of        
Netsmart. However, if Netsmart cannot negotiate such a sale on reasonable terms,
Netsmart may discontinue such operations.                                       

Health Information Systems and Services                                         

  Since the June 1994 acquisition of CSM, Netsmart has offered its
customers a range of products and services principally based upon the health    
information systems, which were developed and marketed by CSM prior to the      
acquisition. Users typically purchase one of the health information systems, in 
the form of a perpetual license to use the system, as well as contract services,
maintenance and third party hardware and software which Netsmart offers pursuant
to arrangements with the hardware and software vendors. The contract services   
include project management, training, consulting and software development       
services, which are provided either on a time and material basis or pursuant to 
a fixed-price contract. The software development services may require CSM to    
adapt one of its health information systems to meet the specific requirements of
the customer.                                                                   

        Although the health information systems constituted the basis of CSM's
business, revenue from the license of such systems has not represented a major  
component of its revenues. The typical price for a license for CSM's health     
information systems ranges from $10,000 to $30,000. For 1997, 1996 and 1995, CSM
installed health information systems licensing of such systems representing     
revenues of approximately $737,000, $329,000 and $162,000, respectively,        
accounting for approximately 9%, 4% and 2% of revenue for such periods.         

      A customer's purchase order may also include third party hardware or
software. For 1997, 1996 and 1995, revenue from hardware and third party        
software accounted for approximately $1 million, $1.1 million and $2.1 million, 
representing 14%, 13% and 29%, respectively, of revenues in such periods.       

         In addition to its health information systems and related services, CSM
offers specialty care facilities a data center, at which its personnel perform  
data entry and data processing and produce operations reports. These services   
are typically provided to smaller substance-abuse clinics. For 1997, 1996 and   
1995, CSM's service bureau operation generated revenue of approximately $2.2    
million, $2.2 million and $1.7 million, respectively, representing approximately
28%, 26% and 24% of CSM's revenues for such periods.                            

         Maintenance services have generated increasing revenue and are becoming
a more significant portion of CSM's business. Since purchasers of health        
information system licenses typically purchase maintenance service. Maintenance 
revenue increases as new customers obtain licenses for its health information   
services. Under its maintenance contracts, which are executed on an annual      
basis, CSM maintains its software and provides certain upgrades. Its obligations
under the maintenance contract may require CSM to make any modifications        
necessary to meet new Federal reporting requirements. CSM does not maintain the 
hardware and third party software sold to its customers, but does provide a     
telephone help line service for certain of the third party software, which it   
relicenses.                                                                     

The CarteSmart System                                                           

 Although the initial applications of the CarteSmart System were
designed to meet the needs of managed care organizations and entitlement        
programs and Netsmart developed a smart card interface to its health management 
systems, Netsmart was not successful in implementing such a program on more than
a modest scale and revenue from such applications were not substantial.         

     To date, Netsmart has licensed its CarteSmart software as part of a
pilot project for San Diego County, which involved the issuance of smart cards  
to approximately 1,200 mental health patients participating in the California   
Medical Managed Care Initiative. Netsmart is presently contracted to develop a  
plan for an expansion of the program to include substance abuse and acute care  
as well as mental health for the county's total health care population. Netsmart
is also marketing its CarteSmart System to other entitlement programs and       
managed care organizations; however, except for the pilot project in San Diego  
County, Netsmart has not entered into any agreements with any such              
organizations, and no assurance can be given that Netsmart will enter into any  
such agreements.                                                                

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        Netsmart believes that a major market for its smart card technology is
the financial services industry, including banks and credit card issuers.       
Commencing in May 1995, Netsmart entered into a series of letter agreements with
IBN for services and CarteSmart software licenses for the implementation of a   
satellite based distributed network of automatic teller machines and off-line   
point of sale terminals using smart cards for the former Soviet Union. Netsmart 
entered into a definitive agreement to develop the system and license the system
to IBN. IBN is a New York-based company, which has rights to install such       
systems in the former Soviet Union. In late 1997, Netsmart learned that IBN has 
not been successful in marketing its system in the former Soviet Union and as a 
result Netsmart wrote-off approximately $1.5 million of assets related to the   
IBN project.                                                                    

  Netsmart is currently evaluating its CarteSmart business and the
investment which it would be required to make to further develop and enhance its
CarteSmart System to succeed in the increasingly competitive smart card market. 
At the current time it is largely continuing to market its CarteSmart System    
only in the health and human services market. In the event of a disposition of  
the CarteSmart business, Netsmart would seek to obtain certain rights to the    
CarteSmart technology.                                                          

Markets and Marketing                                                           

         The market for CSM's health information systems and related services is
comprised of various providers of specialty care involving long-term treatment  
of a repetitive nature rather than short-term critical care, such as medical and
surgical hospitals or clinics. CSM believes that there are approximately 15,000 
providers of such treatment programs in the United States, including public and 
private hospitals, private and community-based residential facilities and       
Federal, state and local governmental agencies. Of these facilities,            
approximately 200 are customers of CSM.                                         

      Many of the long-term health care facilities which are potential CSM
customers are operated by government entities and include entitlement programs. 
During the 1997, 1996 and 1995, approximately %, 31% and 54%, respectively, of  
revenues was generated from contracts with government agencies. Contracts with  
government agencies generally include provisions, which permit the contracting  
agency to cancel the contract at its convenience.                               

        During 1997, no one customer accounted for more than 10% of Netsmart's
revenue. For 1996, IBN generated revenue of approximately $1.9 million          
representing 22% of Netsmart's 1996 revenue.                                    

      Netsmart may enter into negotiations with other companies which have
business, product lines or products which are compatible with Netsmart's        
business objectives. However, no assurance can be given as to the ability of    
Netsmart to enter into any agreement with such a company or that any agreement  
will result in licenses of the CSM behavioral care system or the CarteSmart     
System.                                                                         

  At December 31, 1997 and 1996, Netsmart had a backlog of orders,
including ongoing maintenance and data center contracts, in the aggregate amount
of $4.8 million and $3.7 million respectively. Substantially the entire backlog 
at December 31, 1997 is expected to be filled during 1998. Such orders and      
contracts relate substantially to health information sales and services.        

Product Development                                                             

    During 1997 Netsmart incurred $201,000 of research and development
expenses, principally to enhance its software systems. During 1996, personnel   
assigned to work on the IBN contract and the development of Smart Card products 
resulting in $279,000 in capitalized software costs. During 1995 research and   
development expenses were $699,000 relating primarily to enhancements in the    
CarteSmart System.                                                              

Competition                                                                     

  Netsmart's principal business is marketing of health information
systems and related services to specialty care institutions and managed care    
organizations, who have a need for access to a distributed data network and     
marketing health information systems software to specialty care organizations.  
The software industry in general is highly competitive, in addition, with       
technological developments in the communications industry, it is possible that  
communications as well as computer and software companies may offer similar or  
compatible services. Although Netsmart believes that it can provide a health    
care facility or managed care organization with software to enable it to perform
its services more effectively, other companies, including major computer and    
communications companies have the staff and resources to develop competitive    
systems, and users, such as insurance companies, have the ability to develop    
software systems in house. Because of the large subscriber base participating in
the major managed care organizations, the inability of Netsmart to license any  
such organizations could have a materially adverse effect upon its business.    
Furthermore, various companies have offered smart card programs, by which a     
person can have his medical records stored and                                  

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software vendors and insurance companies have developed software to enable a    
physician or other medical care provider to have direct access to the insurer's 
computer and other software designed to maintain patient health and/or          
medication records. Many of Netsmart's potential customers include government   
agencies and major specialized health care providers. Netsmart's marketing      
effort with respect to such potential customers has been adversely affected by  
its negative working capital and its continuing losses.                         

       The health information systems business is highly competitive, and is
serviced by a number of major companies and a larger number of smaller          
companies, many of which are better capitalized, better known and have better   
marketing staffs than Netsmart, and no assurance can be given that Netsmart will
be able to compete effectively with such companies. Major vendors of health     
information systems include Shared Medical Systems Corp. and HBO Corp.          

     In order to market Netsmart's CarteSmart System, it must be able to
demonstrate that it meets the technical and pricing requirements of its         
potential customers and that it has the financial capability to be able to      
provide the ongoing support and development which may be required. In marketing 
systems such as the CarteSmart System, Netsmart must be able to demonstrate the 
ability of the network sponsor to provide enhanced services at a lower effective
cost. Major systems and consulting vendors, such as Unisys, AT&T Corp. and      
Anderson Worldwide may offer packages which include smart cards and other       
network services. No assurance can be given that Netsmart will be able to       
compete successfully with such competitors or that it will continue to offer    
software or services based on its CarteSmart System other than in connection    
with its health information systems and such business may be sold or            
discontinued.                                                                   

Government Regulations                                                          

     The Federal and State governments have adopted numerous regulations
relating to the health care industry, including regulations relating to the     
payments to health care providers for various services. The adoption of new     
regulations can have a significant effect upon the operations of health care    
providers and insurance companies. Although Netsmart's business is aimed at     
meeting certain of the problems resulting from government regulations and from  
efforts to reduce the cost of health care, the effect of future regulations by  
governments and payment practices by government agencies or health insurers,    
including reductions in the funding for or scope of entitlement programs, cannot
be predicted. Any change in, the structure of health care in the United States  
can have a material effect on companies providing services, including those     
providing software. Although Netsmart believes that one likely direction which  
may result from the current study of the health care industry would be an       
increased trend to managed care programs, which is the market to which Netsmart 
is seeking to license its CarteSmart System. No assurance can be given that     
Netsmart's business will benefit from any changes in the industry structure.    
Even if the industry does evolve toward more health care being provided by      
managed care organizations, it is possible that there will be substantial       
concentration in a few very large organizations, which may seek to develop their
own software or obtain software from other sources. To the extent that the      
health care industry evolves with greater government sponsored programs and less
privately run organizations, Netsmart's business may be adversely affected.     
Furthermore, to the extant that each state changes its own regulations in the   
health care field, it may be necessary for Netsmart to modify its health        
information systems to meet any new record-keeping or other requirements imposed
by changes in regulations, an no assurance can be given that Netsmart will be   
able to generate revenues sufficient to cover the costs of developing the       
modifications.                                                                  

     A substantial percentage of CSM's business has been with government
agencies, including specialized care facilities operated by, or under contract  
with, government agencies. The decision on the part of a government agency to   
enter into a contract is dependent upon a number of factors, including economic 
and budgetary problems affecting the local area, and government procurement     
regulations, which may include the need for approval by more than one agency    
before a contract is signed, and the financial condition and earnings history of
the potential vendor. In addition, contracts with government agencies generally 
include provisions, which permit the contracting agency to cancel the contract  
at its convenience.                                                             

Intellectual Property Rights                                                    

      The CarteSmart System is a proprietary system developed by Netsmart.
Netsmart has no patent rights for the CarteSmart System or health information   
system software, but it relies upon non-disclosure and secrecy agreements with  
its employees and third parties to whom Netsmart discloses information. No      
assurance can be given that Netsmart will be able to protect its proprietary    
rights to its system or that any third party will not claim rights in the       
system. Disclosure of the codes used in the CarteSmart System or in any         
proprietary product, whether or not in violation of a non-disclosure agreement, 
could have a materially adverse affect upon Netsmart, even if Netsmart is       
successful in obtaining injunctive relief. Furthermore, Netsmart may not be able
to enforce its rights in the CarteSmart System in certain foreign countries.    

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Source of Supply                                                                

        Since Netsmart does not provide any of the hardware or the smart cards
it is the responsibility of the licensee to obtain the hardware smart cards and 
other supplies. Netsmart's software operates on computer hardware and smart     
cards manufactured by a number of suppliers.                                    

Employees                                                                       

    As of December 31, 1997, Netsmart had 85 employees, including five
executive, four marketing and marketing support, 69 technical and seven clerical
and administrative employees. The chief executive officer and the president of  
Netsmart devote only a portion of their time to the business of Netsmart.       

TELECOMMUNICATIONS                                                              

         The telecommunications segment reflects the operations of ARC Networks,
Inc. ("ARC"). ARC's primary business provides local and long-distance telephone 
services and data cable installation services to commercial customers. The      
revenues of the telecommunications segment for 1997, 1996 and 1995 were $9.6    
million, $5.6 million and $3.3 million, respectively. Net losses of the         
telecommunications segment during 1997, 1996 and 1995 approximated $2.7 million,
$1.1 million and $543,000, respectively.                                        

         ARC Networks, Inc. (ARC) is a Delaware corporation organized on January
15, 1997 to acquire all of the issued and outstanding stock of A.R.C. Networks, 
Inc., a New York corporation ("ARC-NY"), which commenced operations in January  
1994. The acquisition of Arc-NY is referred to as the "Arc Reorganization."     
Pursuant to an agreement and plan of reorganization dated January 17, 1997, the 
stockholder of ARC-NY transferred their stock in ARC-NY to ARC for 100%         
ownership in ARC. From 1993 until the organization of Arc-NY in 1994, the       
business of the Company was conducted as a division of Avionics Research        
Corporation, a New York corporation ("Avionics") and a wholly owned subsidiary  
of Trans Global Services, Inc., a publicly-held subsidiary of Consolidated.     
References to ARC include ARC, Arc-NY and the operations as a division of       
Avionics, unless the content indicates otherwise.                               

        ARC offers local and long-distance telephone services to, and provides
data cable installation services for computer systems for, commercial customers.
The market for the telecommunication services offered by ARC results from a     
combination of the trends toward competition and deregulation together with     
technological developments which enable telecommunications service providers to 
offer a range of services to commercial and, to a lesser extent, residential    
users.                                                                          

Telephone Services                                                              

Local Telephone Service                                                         

     Local telephone services, which are provided by the Incumbent Local
Exchange Carriers ("ILEC's") and Competitive Local Exchange Carrier's ("CLEC's")
include (i) local telephone exchange service, by which local telephone services,
such as dial tone and local phone calls, are provided to end users, (ii)        
dedicated telephone service, which includes private lines and special access    
services, (iii) switched access services, which consist of charges received by  
the local exchange carriers from long-distance carriers, and (iv) toll services,
which include intra-LATA long-distance calls. All of these services, other than 
switched-access service are resold by the Company as a switchless reseller. As  
such, the Company does not maintain any telephone lines or switching equipment, 
but, rather, uses the lines and switches of the underlying carriers.            

ARC currently offers local telephone services in six states,  
principally to commercial users in New York City and long-distance, including   
international, telephone services in a total of 15 states. The local telephone  
services offered by ARC includes all of the local telephone service, which are  
offered by the CLEC's from which ARC purchases services and all services offered
by Bell Atlantic. In New York, Chicago and South Florida, ARC offers telephone  
service provided by Teleport Communications Group ("TCG") and Frontier          
Communications. In New York City, ARC also offers service provided by three     
other CLEC's and Bell Atlantic.                                                 

         ARC has a ten-year agreement with TCG, pursuant to which ARC may resell
TCG's local telephone service in New York City, Chicago, South Florida and each 
other metropolitan area in which TCG offers such service. Since February 1997,  
ARC has purchased Bell Atlantic local telephone service for resale pursuant to  
Bell Atlantic' tariffs. ARC's agreements with CLEC's provide it with the ability
to offer services in certain regions of the United States, which are not served 
by TCG.                                                                         

   ARC's contracts with the CLEC's from which it purchases telephone
services requires ARC to purchase a specified dollar volume of service each     
month. Except for its agreement with TCG, which has been in effect since        
1993, ARC's purchase commitments do not become effective until the contract has 
been in effect for a specified period. Based on the contracts in effect in      

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March 1998, the minimum annual commitments, including TCG, will be approximately
$6.2 million for 1998 and 1999, $1.2 million for 2000, $171,000 for 2001 and    
$214,000 thereafter. ARC's purchases are presently in excess of its minimum     
requirements.                                                                   

  ARC's rates for local, long-distance and international telephone
service are set forth in its tariffs, which are filed with the FCC and state    
public service commission's in each state in which it offers such service. The  
tariff sets forth the charges for each service provided by ARC. ARC has two rate
structures for local telephone service -- one for service obtained by ARC from  
TCG or other CLEC's and the other for services provided by an ILEC, which, in   
New York City, is Bell Atlantic.                                                

      ARC has no minimum purchase obligations with Bell Atlantic, however,
the prices paid to Bell Atlantic are higher than they would be if there were a  
provision for guaranteed usage. Although the rates paid by ARC under its        
agreement with Bell Atlantic are typically higher than the rates paid to the    
CLEC's, ARC believes that its ability to offer Bell Atlantic service is         
important to ARC's customers. The rates paid by ARC to Bell Atlantic for local  
telephone service are set forth in Bell Atlantic's tariffs, which are subject to
change with notice. Bell Atlantic is required to file tariff changes with the   
New York Public Service Commission and ARC monitors such filings. ARC can change
its pricing with respect to Bell Atlantic service in response to changes by Bell
Atlantic. Although ARC must file new tariffs any time it changes its rates, it  
is not subject to public hearings and the waiting period prior to the           
effectiveness of new tariffs is considerably shorter for ARC than for Bell      
Atlantic. ARC's agreements with the CLEC's require the CLEC's to provide ARC    
with 15 to 30 days notice prior to any change, during which period ARC can      
change its pricing.                                                             

       The use of ARC's services rather than those of the underlying carrier
are transparent to the user. The lines used by the customer are the same lines  
that are provided by the CLEC's or ILEC's to their own customers. The only      
difference is that the rate paid to ARC may be lower than that which would be   
charged directly by the CLEC or ILEC to the customer and any servicing of the   
telephone lines is referred to the CLEC's or ILEC's.                            

    The local carrier for ARC's customers is generally selected by the
customer or by ARC with the consent of the customer. ARC may provide its        
customers with two carriers for local service, and, in New York City, may       
include both Bell Atlantic and a CLEC. By offering a choice of carriers, ARC can
offer telephone redundancy to major commercial users to provide them with       
telecommunications capability even if the principal carrier is experiencing     
problems in providing service.                                                  

       In addition to offering local telephone service to its customers, ARC
offers a range of telecommunications services, which are customized to meet the 
particular needs of its clients. These services include the development of      
custom billing records and management reports, bundled billing and customer     
service on a 24-hours a day, seven days a week basis. Bundled billing separately
identifies service provided through the ILEC, service provided through CLEC's,  
long-distance services, the amount which would have been paid under the tariffs 
of the customer's prior carriers and the amount of savings. ARC also offers data
communications users a number of products for the installation and maintenance  
of LAN lines, such as concentrators and bridges and design services relating to 
ARC's data transmission and distribution requirements.                          

   In addition to providing local telephone service, ARC designs and
installs a wide area network ("WAN"). A WAN is used to connect telephone users  
in more than one location, which may be in the same or different geographical   
areas. Since WAN service requires a telephone link between two locations, ARC   
uses the services of an underlying carrier to provide such services. ARC        
presently uses TCG and Bell Atlantic for such services. Because of the lack of  
installation and support staff outside of the New York City metropolitan area,  
ARC generally limits these services to customers in the New York City area. To  
the extent that such service is required outside of the New York City           
metropolitan area, ARC will subcontract such service.                           

Long-distance and International Telephone Services                              

    ARC also offers long-distance and international telephone service,
which it purchases from a number of carriers such as Frontier, PT-1 and Citizens
Communications. Although the long-distance telephone market is dominated by     
AT&T, WorldCom and Sprint, many long-distance companies such as Frontier offer  
such service on a regional or national basis.                                   

    ARC charges its customers at rates which it believes are generally
lower than the rates offered by the three major long-distance providers,        
although no assurance can be given that ARC's rates are or will be lower than or
competitive with the rates charged by its competitors. Long-distance telephone  
service provided by ARC is processed through the underlying carriers switching  
equipment, but ARC bills the customers and has the obligation to provide any    
required service. The Company generally bills its long-distance service at a    
flat per minute rate, which is not dependent upon the time of day that such     
calls are made.                                                                 

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Cabling and Wiring Services                                                     

    ARC also offers data and telephone cable installation services for
computer systems for commercial users and all telephone users. This service is  
not related to any telephone service provided by ARC and consists of cable      
installation for local area networks and related wiring services.               

Markets and Marketing                                                           

       ARC markets its products and services through an in-house sales staff
and commissioned sales agents. ARC directs its marketing efforts toward medium  
to large businesses that have significant telecommunications requirements. In   
general, ARC's employees market its local and long-distance service to          
commercial users, principally medium to large telephone users, and the          
commissioned sales agents market ARC's long-distance and local telephone        
services to a broader range of telephone users. The commissioned sales agents   
are not employees of ARC, and their compensation consists solely of commissions 
based on revenues generated.                                                    

      The market for ARC's data cabling installation services is primarily
institutional customers, including hospitals and government agencies. ARC's two 
largest customers for such services in 1997 were New York State and Mitel.      
Pursuant to a contract, New York State agencies are authorized to purchase such 
services from ARC. Since the contract was signed in January 1997, ARC generated 
1997 revenues from such contract of approximately $1 million, or 10% of ARC's   
total 1997 revenues. Revenues from Mitel, through which ARC provided services   
for the New York City Board of Education approximated $520,000, $869,000 and    
$629,000, respectively, representing 5%, 16% and 19%, respectively, of ARC's    
total revenues for 1997, 1996 and 1995. The only other customer for data cabling
installation services that accounted for more than 10% of total revenue was     
Newark Beth Israel Hospital, which accounted for revenue of approximately       
$200,000, or 2% of ARC's total revenues in 1997 and $542,000, or 17% of ARC's   
total revenue in 1995. The nature of data cable installation services is such   
that once the installation project is completed, there is no further revenue    
from the customer unless the customer separately purchases other services from  
ARC.                                                                            

      At March 31, 1997, ARC had a backlog of firm orders for data cabling
and wiring services of approximately $8.1 million, of which $5.6 million is     
expected to be completed during 1998. ARC has received, as of March 31, 1998,   
approximately $1 million of advance funding against such orders. There is no    
backlog for telephone service. In addition, ARC had billings in excess of costs 
and earnings of $1.2 million and costs and earnings in excess of billings of    
$100,000 as of December 31, 1997, all of which is expected to be completed in   
1998.                                                                           

Agreements with Telephone Carriers                                              

        ARC has an agreement dated March 18, 1993, with TCG, pursuant to which
ARC can resell TCG's local telephone services. The agreement has a term of ten  
years, which continues on a year-to-year basis thereafter unless terminated by  
either party. The agreement provides for minimum usage requirements, based on   
the number of minutes of telephone service purchased. The estimated minimum     
dollar volume of service is approximately $50,000 per month. If ARC fails to    
meet the minimum requirements, it will be billed for a surcharge. ARC does not  
have any funds on deposit with TCG, and TCG provides the Company with an open   
line of credit.                                                                 

     ARC has an agreement with Frontier, pursuant to which ARC may offer
Frontier's domestic and international long-distance telephone service. The      
agreement has a term of three years, commencing in February 1997, and continues 
on a year-to-year basis unless terminated by either party. ARC has provided     
Frontier with a $50,000 deposit. The agreement has minimum monthly requirements,
which start at $10,000 for the fourth month and increase to $500,000 for the    
thirteenth month and thereafter. If the minimum is not met, ARC can either pay  
the amount of the shortfall or pay a surcharge on the service actually used. ARC
is not prohibited from offering long-distance services from other carriers. In  
order to obtain long-distance service from additional carriers, ARC may be      
required to post substantial deposits or letters of credit.                     

   ARC has an agreement with Citizens pursuant to which it purchases
domestic long-distance telephone service. The agreement has a two-year term,    
commencing in August 1996. The agreement provides for a monthly commitment of   
$50,000, commencing January 1997. If the minimum is not met for any month, ARC  
pays a surcharge equal to 25% of the deficiency. ARC has met its minimum        
requirements for 1997.                                                          

   In November 1996, ARC entered into an agreement with Brooks Fiber
Properties, Inc. ("Brooks") pursuant to which the ARC may resell Brooks' local  
telephone service in certain metropolitan areas for a three-year period         
beginning in March 1997. The agreement provides for minimum usage starting at   
$6,000 in April 1997 and increasing to $18,000 in October 1997. Thereafter the  
agreement requires an annual minimum of $300,000. If a minimum is not attained  
in any month, ARC pays the shortfall and, during the following year, may use the
unused telephone usage in a subsequent month after the minimum has been met. No 
deposit is required pursuant to this agreement. In March 1998, ARC agreed to pay
Brooks $25,000 to terminate this agreement.                                     

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      Although ARC does not have a formal agreement with Bell Atlantic, it
purchases for resale Bell Atlantic' local telephone service based on Bell       
Atlantic' tariffs for the sale of such services to resellers. ARC has no minimum
obligations under the Bell Atlantic tariffs.                                    

Service and Maintenance                                                         

      ARC is required to provide customer service for all of its telephone
customers. Regardless of which carrier provides the underlying service that is  
resold by ARC, the bills sent by ARC to its telephone customers list a local    
Company telephone number to be called for any service problems. ARC refers any  
service problem to the appropriate carrier.                                     

       With respect to its data cable installation service, ARC provides the
customer with a warranty with respect to its workmanship of one to five years,  
depending on the nature of the work. ARC obtains from its supplier of cable and 
related equipment used in providing data cable wiring services a 15-year        
warranty, which is issued after the project is completed and certified by ARC.  
As of March 15, 1997, the Company had not incurred any costs in connection with 
its warranties.                                                                 

Competition                                                                     

Telecommunications                                                              

         The telecommunications industry in general is highly competitive. Major
industry participants such as AT&T, WorldCom, Sprint and the Bell Operating     
Companys ("BOCs") have far more resources and experience than ARC in providing  
local, long-distance. Moreover, foreign carriers are entering the United States 
market through alliances with larger domestic telecommunication carriers. No    
assurance can be given that ARC can successfully compete against these larger   
industry participants.                                                          

  ARC anticipates that competition with respect to local telephone
service will increase and that other major companies, including other BOCs and  
other telephone operating companies and long-distance telephone providers, will 
offer local telephone services in major markets. Such competition could result  
in price competition and erosion of gross margins, which could have a materially
adverse affect upon ARC's ability to compete. Furthermore, CLEC's, such as TCG, 
whose telephone service is resold by ARC, compete with ARC in offering telephone
service to commercial users, which is ARC's targeted customer base.             

       Competition for providing local telephone service to commercial users
is based on price, reliability and quality of service. The ability of ARC       
compete successfully is dependent upon its ability to demonstrate to commercial 
customers that the price, reliability and service which it offers compares      
favorably with the price, reliability and service offered by its competitors, as
to which no assurance can be given. Furthermore, as a result of the 1996 Act,   
local telephone operating companies may have more flexibility in their pricing  
structure, which could result in lower rates to major telephone users, which    
constitute the market targeted by ARC. Since the 1996 Act is designed to        
encourage competition in the local telephone market, there can be no assurance  
that ARC will not be adversely affected by the implementation of the 1996 Act.  

Data cable installation services                                                

Competition in the cable and wiring service business is highly
competitive. In providing these services, ARC competes with major computer and  
telecommunications companies such as AT&T, as well as a large number of         
independent companies that offer such services. Because of the fragmented nature
of this business, no single company or group of companies dominates the field.  
Competition is based on price and service, and ARC believes that its charges and
services compare favorably with other companies offering such services in the   
New York City metropolitan area.                                                

Government Regulations                                                          

         The telecommunications industry is subject to regulation at the Federal
level by the FCC and at the state level by state public utility and public      
service commissions. Changes in regulation have resulted in reduced rates for   
telephone services where demand is great, such as long-distance service between 
major metropolitan areas and additional competition. While the changes in       
regulation may have made rate changes easier for CLEC's, ILEC's are presently   
subject in many states to regulations which do not permit them to offer         
significant discounts to major users of local telephone services. To the extent 
that ILEC's are able to offer more favored rates to business customers, which   
represents the principal market for ARC's services, ARC's ability to compete    
could be adversely affected. Although the effects of the AT&T Divestiture Order 
which resulted in the divestiture by AT&T of the BOCs, as well as recent changes
in Federal law have reduced regulations in a manner which encourages competition
for local and long-distance telephone service. ARC is and will continue to be   
subject to certain regulations by the FCC and state public utility and public   
service                                                                         

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commissions. At the Federal level, as a common carrier, ARC may not unjustly    
discriminate, must offer service upon reasonable request and charge just and    
reasonable rates, pursuant to publicly filed tariffs. At the state level, ARC   
must be certified prior to providing local or long-distance, maintain tariffs   
with current rates, terms and conditions and file reports as required by the    
individual public service commissions. Changes in government regulations may    
have an adverse effect upon ARC's business and prospects, particularly as ARC   
seeks to enter new markets. There can be no assurance that ARC will receive all 
state authorizations required for ARC to enter new markets or that ARC will be  
able to comply with ongoing federal and state regulatory requirements.          

        ARC is subject to state regulation, including tariff and other filings
in each state in which it offers telephone services. ARC's rates for local,     
long-distance and international telephone service are set forth in its tariffs, 
which are filed with the FCC and state public service commissions. The tariffs  
set forth the charges for each service provided by ARC. In New York City, ARC   
has two rate structures for local telephone service -- one for service obtained 
by ARC from TCG or other CLEC's and the other for services provided by Bell     
Atlantic. ARC must file new tariffs any time it changes its rates or rate       
structure; however, it is not subject to public hearings and the waiting period 
prior to the effectiveness of new tariffs is typically shorter for ARC than for 
ILEC's.                                                                         

         As a result of the 1996 Act, the BOCs may offer long-distance telephone
service and other services not previously permitted to the BOCs; however, their 
ability to offer such services is conditioned upon the meeting of certain       
requirements that are expected to lead to additional competition in the local   
telephone market. These requirements include making their local services        
available for resale, providing competitors access to their network facilities, 
implementing number portability and dialing parity. Additional competition for  
local exchange service may have the effect of reducing the rates charged by, and
improving the services provided by, the ILEC's, which could have a downward,    
effect on rates to major commercial telephone users. Such a development could   
reduce the margin between the price at which ARC can sell service and the price 
paid by ARC for such service, which could have a material adverse effect upon   
ARC.                                                                            

Product Development                                                             

        ARC does not engage in product development and enhancement or research
and development. ARC does, however, consider new products and services, which it
believes, are consistent with its business. ARC does not anticipate that, in the
near future, it will develop any proprietary telephone products, however, it may
seek to acquire such products or to obtain marketing rights to such products. No
assurance can be given that ARC can or will obtain any such products or rights  
to any such products or that any products which are obtained by ARC can or will 
be profitably developed.                                                        

Employees                                                                       

        At December 31, 1997, ARC had 26 employees, of which 4 were executive,
5 were administrative, 3 were sales and marketing and 3 were technical support  
and 8 were customer service. ARC's employees are not represented by a labor     
union, and ARC considers its employee relationship to be good.                  

DEVELOPMENT STAGE                                                               

         The development stage segment consists of one company, which has had no
operating activity. Total expenses and losses for 1997 approximated $16,000.    
There can be no assurance that this development stage company will develop a    
marketable product or generate significant levels of revenue or operating       
income, if any.                                                                 

CORPORATE AND OTHER                                                             

      The corporate and other segment reflects the activity of the holding
companies, Consolidated Technology Group Ltd., the Registrant, and SISC, a      
wholly owned subsidiary of the Registrant. For 1997, 1996 and 1995, the holding 
companies incurred expenses and operating losses of approximately $3.3 million, 
$3 million and $6.3 million, respectively, and net losses of $4 million, $1.5   
million and $5.9 million, respectively.                                         

Consolidated Technology Group, Ltd.                                             

         Consolidated Technology Group, Ltd., ("Consolidated" or "the Company"),
(formerly Sequential Information Systems, Inc.) is a New York corporation       
organized in 1961. Consolidated does not generate revenues but does incur       
expenses including executive and administrative salaries and related payroll    
taxes and benefits, consulting fees, legal and accounting fees, public relations
fees and other general and administrative fees. Consolidated charges the        
underlying subsidiaries for specifically identified expenses incurred on behalf 
of the subsidiaries. Transactions between Consolidated and its subsidiaries are 
eliminated in consolidation. As of                                              

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December 31, 1997, Consolidated had four employees that provide management and  
administrative services for Consolidated, SIS Capital Corp. and Trinity.        

SIS Capital Corp.                                                               

SIS Capital Corp., ("SISC"), was organized by Consolidated for the purposes of  
making investments in or advancing funds to companies in which Consolidated has 
or proposes to obtain an equity position. SISC or one of SISC's subsidiaries    
holds the Company's equity and debt position in all of the operating            
subsidiaries. SISC also invests in companies in which it does not intend to     
obtain an equity position for the purpose of generating investment income.      
During 1997, 1996 and 1995, SISC advanced funds to an unconsolidated affiliate  
in which the Company owns a minority interest.                                  

DISCONTINUED OPERATIONS                                                         

During 1997, the Company implemented a plan to discontinue the
operations of the three dimensional products and services, medical diagnostics  
and audio products manufacturing segments. The decision to discontinue the three
dimensional products and services and audio products manufacturing segments was 
made in order the stop the cash flow drain that such operations caused. The     
decision to sell the medical diagnostics segment was made to provide the Company
with significant working capital to fund the operations of the remaining and    
future segments of the Company. Additionally, effective December 31, 1997, the  
Company sold the Electro Mechanical Electro Optical Products Manufacturing      
Products and the Business Consulting Services segments. The following discusses 
separately, each of the discontinued segments.                                  

Three Dimensional Products and Services                                         

  The three-dimensional products and services segment reflects the
consolidated operations of 3D Holdings International, Inc., ('"3D"), a Delaware 
corporation. The operations of 3D includes the operating activity of 3D         
Technology, Inc. ("3D Tech"), Computer Design Services, Inc. ("CDS") and 3D     
Imaging International, Inc. ("3DI") and Vero International, Inc., ("Vero") all  
of which are or were directly or indirectly, controlled by 3D. 3D was originally
formed to provide three dimensional imaging and scanning services to be used in 
engineering and manufacturing applications. Effective April 1, 1997, 3D sold all
of its ownership in Vero for nominal consideration. Effective June 30, 1997, the
measurement date of the 3D discontinuation, (the "3D Measurement Date"), the    
Company formulated a plan to discontinue the operations of the remaining        
subsidiaries. Such plan includes the transfer of certain assets and contractual 
rights of the 3D subsidiaries to a subsidiary operating in the                  
electro-mechanical and electro-optical products manufacturing segment in        
exchange for the related debt and capital lease obligations which encumbered the
transferred assets. The remaining assets of 3D are estimated to have little if  
any value and have been written off. 3D has substantial unpaid liabilities      
approximating $1.8 million of which approximately $250,000 relates to unpaid    
payroll taxes. The Company has been in correspondence with the IRS and is making
monthly payments on the outstanding payroll taxes. To date, the Company has not 
determined the final dissolution of the non-payroll tax related liabilities. As 
of the 3D Measurement Date, the Company has accrued $250,000 in estimated losses
to be incurred from the 3D Measurement Date until the final disposition of 3D.  
All remaining liabilities of 3D, including the $250,000 in estimated losses from
operations, are classified as net current liabilities of a discontinued segment.
The Company has recorded an estimated loss on disposal of 3D of approximately   
$465,000, which includes a gain of $135,000 on the actual sale of Vero and an   
estimated loss of $600,000 on the planned disposition of the remaining 3D       
subsidiaries. For 1997, 1996 and 1995, 3D incurred net losses approximating $1.6
million, $1.5 million and $2.3 million, respectively, which are classified as   
losses from operations of a discontinued segment.                               

Medical Diagnostics                                                             

The medical diagnostics segment reflects the operations of    
International Magnetic Imaging, Inc. and its affiliated entities ("IMI"). IMI   
was formed to acquire and operate ten medical diagnostic imaging centers and a  
referral network through which patients are referred to diagnostic imaging      
centers. Effective September 1, 1997, (the "IMI Measurement Date"), the Company 
formulated a plan to discontinue the operations of IMI. The plan contemplated   
the sale of substantially all of the assets of IMI for cash and the assumption  
of specific IMI liabilities. Pursuant to the plan, on January 28, 1998, the     
Company entered into an asset purchase agreement for the sale of substantially  
all of the assets of IMI for approximately $20 million in cash and the          
assumption of $21 million in debt. Such sale was consummated on April 2, 1998.  
The sale of IMI resulted in a gain on sale, which will be recognized in 1998.   
IMI's net remaining assets and liabilities have been classified as net current  
liabilities of a discontinued segment. For 1997 IMI incurred a net loss of      
approximately $1.9 million (the medical diagnostics segment loss was $1.2       
million after elliminating an intra-segment tax benefit for 1997) which includes
a $250,000 estimate of loss for the period from January 1, 1998 until the       
anticipated sale date. For 1996 and 1995, IMI reported net income of $1.5       
million and $2.7 million, respectively. The net income and loss for all of the  
periods reported are classified as net income or loss from operations of a      
disposed segment.                                                               

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Audit Products Manufacturing                                                    

         The audio products manufacturing segment reflects the operations of WWR
Acquisition Corp. and its wholly owned subsidiary WWR Technology, Inc.,         
collectively referred to as "WWR". WWR was formed for the purpose of acquiring  
the professional products business segment of the Klipsch TM loudspeaker line   
from Klipsch and Associates, Inc. On May 20, 1997, the Company sold all of its  
ownership in WWR for $100,000 and was released as a guarantor on obligations    
approximating $394,000. As a result of the sale, the Company received net       
proceeds of $62,000 and recorded a gain of approximately $129,000 on the        
disposal. The operations of WWR up to the date of disposal are classified as    
loss from operations of a discontinued segment, which approximated $293,000,    
$893,000 and $544,000 for 1997, 1996 and 1995, respectively.                    

Electro Mechanical Electro Optical Products Manufacturing                       

   The electro-mechanical and electro-optical products manufacturing
segment reflects the consolidated results of operations of Spectec, Inc.,       
("Spectec"). Spectec, a holding company owns a controlling interest in Spectec  
Acquisition Corp. Spectec Acquisition Corp. is a holding company that owns a    
controlling interest in SES Holdings, Corp., ("SESH"). SESH, a holding company, 
owns a controlling interest in Sequential Electronic Systems, Inc., ("SES") and 
S-Tech, Inc., ("S-Tech"). Additionally, Televend, Inc. ("Televend") and FMX     
Corp. ("FMX") represent two other entities which operated in the                
electro-mechanical and electro-optical products manufacturing segment. The      
principal business of Spectec is the design, manufacture and sale of            
electro-optical and electro-mechanical products, such as (1) devices that       
measure pressure, relative position and velocity; (2) avionics instrumentation  
devices that are used primarily in U.S. military aircraft to measure and display
oil pressure; (3) specialty vending machines used to dispense various products  
such as prepaid telephone calling cards, postage stamps and tokens; and (4) the 
integration, sale and servicing of three dimensional laser scanners which are   
used in various phases of the design, development and manufacturing of various  
products and offering such scanning services to others. The principal business  
of Televend is the sale and distribution of prepaid telephone debit cards and   
the principal business of FMX is the establishment of a fingerprint             
identification system. Effective December 31, 1997, all of the entities         
operating in the electro-mechanical and electro-optical products manufacturing  
segment were discontinued pursuant to a settlement agreement between the        
shareholders and the former chief executive officer of the Company (see the     
subsequent events footnote to the financial statements, Part IV, 1). The        
operations of the electro-mechanical and electro-optical products manufacturing 
segment up to December 31, 1997 are classified as loss from operations of a     
discontinued segment, which approximated $2.6 million, $2.2 million and $1.2    
million for 1997, 1996 and 1995, respectively.                                  

Business Consulting Services                                                    

       The business consulting services segment reflects the activity of The
Trinity Group, Inc., ("Trinity"). Trinity provides management and related       
services both to Consolidated's subsidiaries and an unconsolidated affiliate in 
which the Company owns a minority interest. Trinity's management services       
include management, finance, accounting, operations, marketing and other        
services, which are typically rendered pursuant to a consulting agreement.      
Transactions between Trinity and the subsidiaries are eliminated in             
consolidation. Effective December 31, 1997, Trinity was discontinued pursuant to
a settlement agreement between the shareholders and the former chief executive  
officer of the Company (see the subsequent events footnote to the financial     
statements, Part IV, 1), however, certain consulting contracts between Trinity  
and the subsidiaries of the Company have been assigned to Consolidated. The     
operations of Trinity have no material impact on the consolidated results of the
Company because significantly all of its operations are eliminated in           
consolidation.                                                                  

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ITEM 2.  PROPERTIES                                                             

Contract Engineering Services                                                   

Trans Global leases approximately 7,500 square feet of office 
facilities at its location in Long Island, New York, where it maintains its     
executive offices, which terminates in 2002. It also rents modest office space  
in Houston, Texas; Phoenix, Arizona; Arlington, Texas; Los Angeles, California; 
Seattle, Washington; Orlando, Florida and Wichita, Kansas. The aggregate annual 
rent payable by Trans Global is approximately $210,000, which is subject to     
annual increases. Trans Global believes that its present office space is        
adequate for its present needs and that additional office space is readily      
available on commercially reasonable terms.                                     

Medical Information Services                                                    

Netsmart's executive offices and facilities are located in    
approximately 15,000 square feet of space at 146 Nassau Avenue, Islip, New York,
pursuant to a lease, which terminates on February 28, 1999, at a minimum annual 
rental of $263,000. This lease provides for fixed annual increases ranging from 
4% to 5%. Netsmart believes that this space is inadequate for its needs and is  
investigating an extension to the existing lease for an additional 2,500 square 
feet. Netsmart also leases approximately 3,500 square feet of office space at   
1335 Dublin Road, Columbus, Ohio, pursuant to a lease, which terminates on      
November 30, 2002, at a minimum annual rental of $50,000. This lease provides   
for annual increases for operating expenses and real estate taxes. Netsmart also
leases approximately 5,700 square feet of office space at 18B Ledgebrook Run,   
Mansfield Center, Connecticut, pursuant to a lease, which terminates on October 
31, 2002, at a minimum annual rental of $21,000. This lease provides for annual 
increases for operating expenses and real estate taxes. Netsmart also leases    
approximately 1,800 square feet of office space at 7590 Fay Avenue, La Jolla,   
California, pursuant to a lease, which terminates on March 31, 1999, at a       
minimum annual rental of $31,000. This lease provides for fixed annual increases
of 4%. Netsmart occupies, on a month to month basis, approximately 2,000 square 
feet of office space in Ashland, Oregon, at a monthly rental of $700. Netsmart  
believes that its space is adequate for its immediate needs and that, if        
additional space is required, it would be readily available on commercially     
reasonable rates.                                                               

Telecommunications                                                              

 ARC occupies approximately 1,600 square feet of office space in
Hauppauge, New York which it rents from TGS at an annual rent of approximately  
$12,000 and 1,000 square feet of office space in New York City, which it rents  
on a month-to-month basis from SISC at an annual rental of approximately        
$24,000. The rent paid by ARC reflects the cost of such space to TGS and SISC.  
ARC's debit card platform is located in office space in New York City, pursuant 
to a month-to-month lease, for which ARC pays an annual rental of approximately 
$3,600. ARC's offices in Chicago and Ft. Lauderdale, Florida are located in     
office space rented on a month-to-month basis for an aggregate of $300 per      
month. ARC believes that additional office space would be readily available as  
and where required.                                                             

Corporate and Other                                                             

       Consolidated and SISC lease approximately 7,000 square feet of office
space at 160 Broadway, New York, NY, at an annual rental of approximately       
$100,000, which terminates in 2002. Approximately 1,500 square feet of such     
space is used by subsidiaries for which they are charged approximately $32,000  
on an annual basis. Additionally, approximately 1,000 square feet of such space 
is occupied by a related company that is accounted for under the equity method  
and is not a consolidated subsidiary, for which the related company is charged  
approximately $16,500 on an annual basis.                                       

ITEM 3.  LEGAL PROCEEDINGS                                                      

Holding Company and Discontinued Segments                                       

        (1) The Company is a defendant in a lawsuit filed in the Supreme Court
of the State of New York, Queens County captioned 5 Boro Beverage Distributors, 
Inc. v. Consolidated Technology Group, Ltd. "Metro, 5" Absolute, et al. which   
was initiated in 1995.  The action has been filed by the owners of a company    
that the Company was contemplating acquiring in January 1995 for alleged        
unauthorized use of proprietary information specific to that line of business.  
The plaintiffs are seeking $1 million in damages and the Company has filed a    
counter claim for $35,000 advanced to the plaintiff. The action is presently in 
abeyance and their has been no action by either side in over two years. Outside 
counsel handling this case has advised the Company that it has meritorious      
defenses.                                                                       

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        (2) The Company is a defendant in a lawsuit filed in the United States
District Court for the Southern District of New York captioned Naval Kapoor and 
Dirk Esselens v. SIS Capital Corp. that was initiated in 1998, whereby certain  
shareholders of 3D Technology, Inc., a subsidiary of the Company which has been 
discontinued, filed a lawsuit against the Company in December 1997. The         
complaint states that the Company wrongfully seized and transferred the assets  
of 3D Technology, Inc. for the benefit of the Company and at the detriment of   
the minority shareholders of 3D Technology, Inc. The plaintiffs are seeking     
$3,000,000 in damages. No assessments as to any outcome can be made at this time
as the matter is in its preliminary stages. The Company denies any allegation of
wrongdoing and intends to vigorously defend the action.                         

       (3) On February 23, 1998, the Company was advised of the commencement
of an action in the United States District Court for the Southern District of   
New York captioned Grino Corporation, LLC and SMACS Holding Corp. ("SMACS"),    
individually and as shareholders of and in the right of Consolidated Technology 
Group Ltd. v. Consolidated Technology Group Ltd., SIS Capital Corp., Lewis S.   
Schiller, Norman J. Hoskin, E. Gerald Kay and Grazyna B. Wnuk. The action sought
to enjoin the Company from (a) proceeding with its 1998 Annual Meeting of       
Stockholders scheduled for March 26, 1998, and (b) making any payment to Mr.    
Schiller, Ms. Wnuk and others from the proceeds of the sale of International    
Magnetic Imaging, Inc. ("IMI"). The complaint also alleges that the directors   
breached their fiduciary duty with respect to, and seeks to have declared void, 
(i) employment agreements with Mr. Schiller, which agreements ran from 1989, as 
amended and restated from time to time, resulting in a final agreement which was
approved by the Compensation Committee and the full Board of Directors in July  
1997, and Ms. Wnuk, (ii) agreements to issue stock or stock options of the      
Company and/or its subsidiaries to Messrs. Schiller, Hoskin and Kay and Ms.     
Wnuk, (iii) all completed transfers and issuances of stock and stock options by 
the Company to Messrs. Schiller, Hoskin and Kay and Ms. Wnuk without fair and   
adequate consideration by the Company, and (iv) all agreements to pay to Messrs.
Schiller, Hoskin and Kay and Ms. Wnuk or any other officer of the Company or any
of its subsidiaries, any bonus, finder's fee, stock or option liquidation       
payment, consent fee, professional fee, or profit share or any other payment    
arising out of or resulting from or based upon the sale or the profits from the 
sale of IMI or the assets of IMI or the assets or business of IMI without fair  
consideration to the Company. The complaint also alleges violations of Section  
10(b) of the Securities Exchange Act of 1934, as amended, and common law fraud  
based upon the same and similar allegations, and seeks monetary damages to be   
proved at trial. On February 24, 1998, the Court granted a temporary restraining
order. On March 9, 1998, the United States District Court for the Southern      
District of New York vacated the temporary restraining order issued on February 
24, 1998. The Court vacated the temporary restraining order because, inter alia,
it did not appear that the plaintiffs had a likelihood of success in the        
ultimate action, particularly with respect to the alleged 10b-5 claim. On March 
19, 1998, the United States District Court for the Southern District of New York
dismissed the action.                                                           

        (4) One of the plaintiffs in the Federal Court action described above,
SMACS Holdings Corp. ("SMACS"), and certain affiliates of SMACS are plaintiffs  
in an action commenced in November 1997 in the Supreme Court of the State of New
York, County of New York, captioned Bridge Ventures, Inc. etal v. Lewis S.      
Schiller, etal. The action, brought against Mr. Schiller, the Company, SIS      
Capital Corp. and IMI by SMACS, certain affiliates of SMACS and others seeks,   
inter alia, monetary damages in excess of $500,000 allegedly due pursuant to    
consulting agreements with the Company, an alleged equity interest in IMI and   
punitive damages of at least $5 million. The Company believes that it has       
meritorious defenses to the claims made in this action. In March 1998, the      
plaintiffs sought to amend the complaint to assert claims of a derivative nature
alleging claims similar to those in the Federal Court action and obtained a     
temporary restraining order prohibiting payments to Mr. Schiller and others from
the proceeds of the IMI sale. The temporary restraining order was lifted and, as
of the date of this Form 10-K, the complaint had not been amended. At the time  
the temporary restraining order was lifted, the negotiations relating to the    
resignation of Messrs. Schiller, Hoskin and Kay and Ms. Wnuk, which are         
described in Item 1 under the caption "Organization and Changes in Management of
the Company" had been substantially negotiated and the courts were so advised.  
The Company has accrued $250,000 for this contingency, which is included in     
selling, general and administrative expense.                                    

       (5) "Vanguard Limited ("Vanguard"), on its own behalf or on behalf of
other persons who may be affiliated with Vanguard, based on a purported         
agreement relating to the introduction of Consolidated to IMI and assistance in 
the negotiation of the acquisition of IMI in 1994, has asserted a claim that it 
has the right, among other things, to a 10% interest in the Common Stock of IMI 
at or about the time of the acquisition for no cash consideration. In addition, 
Vanguard has claimed that it is entitled to a $200,000 fee due at the time of   
the acquisition of the Centers, consulting fees of $240,000 per year for five   
years, reimbursement of nonaccountable expenses and a 5% interest in any future 
medical acquisition by the Company. No assurance can be given that any          
litigation which may ensue would not seek damages exceeding the claim described 
above and, if decided unfavorably to the Company, would not have a material     
adverse affect on the Company."                                                 

       (6) In January 1996, Drs. Ashley Kaye and James Sternberg, two former
stockholder-directors of the company that sold diagnostic imaging centers to    
IMI, and Dr. Sternberg's wife, threatened to commence an action against two     
subsidiaries of IMI, Consolidated and Mr. Lewis S. Schiller, formerly chairman  
of the board of Consolidated, for alleged violations of securities laws and     
common law in connection with an asset purchase agreement which was executed in 
conjunction with the acquisition of IMI in September 1994 and non-payment of    
$3,375,000 subordinated notes of two subsidiaries of IMI. Company. In 1997 they,
along with Dr. Stephen Schulman, a holder of subordinated notes in the principal
amount of approximately $6.4 million issued by subsidiaries of                  

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IMI who was the president of the company that sold the diagnostic centers to IMI
and was president and chief executive officer of IMI, commenced involuntary     
bankruptcy proceedings against certain subsidiaries of IMI. Such bankruptcy     
proceedings were dismissed. It is possible that any action which may be brought 
against the Company may include Dr. Schulman as a plaintiff. No assurance can be
given that an adverse decision in any action based on such claims will not have 
a material adverse effect upon the Company.                                     

Contract Engineering Services                                                   

       In November 1997, an action was commenced in the Supreme Court of the
State of New York, County of Suffolk, by Ralph Corace against RMI seeking       
damages of approximately $1.1 million for an alleged breach of contract by the  
Company. Mr. Corace was the president of Job Shop Technical Services, Inc., from
which RMI purchased assets in November 1994. The Company believes that the      
action is without merit, will vigorously contest this matter and has filed      
counterclaims against Mr. Corace.                                               

Medical Information Services                                                    

        In March 1997, an action was commenced against Netsmart and certain of
its officers, directors and stockholders by Onecard Health Services Corporation 
in the Supreme Court of the State of New York, County of New York. The named    
defendants include, in addition to Netsmart, Messrs. Lewis S. Schiller, formerly
chief executive officer and a director of Netsmart, Leonard M. Luttinger, vice  
president and a director of Netsmart, Thomas L. Evans, formerly a vice president
of Netsmart, Consolidated and certain of its subsidiaries, other stockholders of
Netsmart and other individuals who were or may have been officers or directors  
of Onecard but who have no affiliation with Netsmart or Consolidated. Mr.       
Luttinger and Mr. Evans were employees of Onecard prior to the formation of     
Netsmart. Mr. Schiller was not an employee or director or, consultant to, or    
otherwise affiliated with, Onecard. The complaint makes broad claims respecting 
alleged misappropriation of Onecard's trade secrets, corporate assets and       
corporate opportunities, breach of fiduciary relationship unfair competition,   
fraud, breach of trust and other similar allegations, apparently arising at the 
time of, or in connection with, the organization of Netsmart in September 1992. 
The complaint seeks injunctive relief and damages, including punitive damages,  
of $130 million. Netsmart believes that the action is without merit, and it will
vigorously defend the action. Netsmart has filed an answer denying all of the   
plaintiffs' allegations and has asserted affirmative defenses. In addition,     
Netsmart believes that there is a difference in the technology used in the      
Onecard software and Netsmart's CarteSmart software and in the type of computer 
network on which the software operates. Netsmart has demanded that the plaintiff
particularize the broad allegations of the complaint and the produce documents  
referred to in the complaint. No assurance can be given as to the ultimate      
disposition of the action, and an adverse decision may have a material adverse  
effect upon the business of Netsmart.                                           

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Item 4.  Submission of Matters to a Vote of Security Holders                    

       In January 1998, the Company issued a proxy statement to shareholders
which included matters to be voted on by the Company's security holders at a    
stockholders meeting scheduled for March 26, 1998. On March 9, 1998, the proxy  
was withdrawn and the meeting was cancelled due to uncertainties regarding the  
litigation outlined in above in Item 3. "Holding Company" (3).                  

PART II                                                                         

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  

       On August 15, 1997, the Company was delisted from the NASDAQ due to a
failure to meet minimum bid and net tangible worth requirements. Since August   
15, 1997, Consolidated's common stock has been traded on the Over-the-Counter   
("OTC") Bulletin Board under the symbol COTG. As such, the following table sets 
forth the reported high and low bid prices as reported by the Nasdaq SmallCap   
Market for the quarters ended March 31, 1996 through June 30, 1997 and the high 
and low bid prices as provided by the National Quotation Bureau derived from the
OTC Bulletin Board for the quarters ended September 30, 1997 and December 31,   
1997. Such OTC bid quotations reflect interdealer prices, without retail        
mark-up, markdown or commission and may not necessarily represent actual        
transactions.                                                                   

Quarter Ending                                    High Bid          Low Bid     

March 31, 1996                                     $0.41             $0.16      
June 30, 1996                                      $0.63             $0.22      
September 30, 1996                                 $0.31             $0.13      
December 31, 1996                                  $0.30             $0.06      

March 31, 1997                                     $0.06             $0.09      
June 30, 1997                                      $0.06             $0.09      
September 30, 1997                                 $0.17             $0.18      
December 31, 1997                                  $0.16             $0.17      

As of February 10, 1998, there were approximately 27,287 holders of record of   
the Company's common stock.                                                     

No cash dividends have been paid to the holders of the Common Stock during the  
years ended December 31, 1997, 1996 and 1995.                                   

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ITEM 6.  SELECTED FINANCIAL DATA                                                

                                                        [Enlarge/Download Table]

                                                                                                  Year Ended   
                                                      Year Ended December 31,                       July 31,   
                                                      -----------------------                                  
                                                      1996              1995           1994           1994     
                                         1997       Restated          Restated       Restated       Restated   
                                         ----       --------          --------       --------       --------   
                                                                                                               
Selected Statements of                                                                                         
 Operations Data                                                                                               
Revenues                            $92,717,000    $76,718,000      $73,790,000    $37,042,000    $11,359,000  
                                    ===========    ===========      ===========    ===========    ===========  
Loss from Operations               ($ 7,077,000)  ($ 9,548,000)    ($12,910,000)  ($ 7,402,000)  ($ 9,178,000) 
                                   =============  =============    =============  =============  ============= 
Loss from Continuing                                                                                           
  Operations                        ($7,067,000)   ($6,571,000)    ($10,248,000)   ($7,826,000)   ($9,305,000) 
Loss from Operations of                                                                                        
  Discontinued Segments              (5,262,000)    (2,999,000)      (1,112,000)    (3,602,000)    (1,467,000) 
Loss on Disposal of Segments           (336,000)            --               --             --             --  
                                       ---------     ---------        ---------      ---------      ---------- 
Net Loss                           ($12,665,000)  ($ 9,570,000)    ($11,360,000)  ($11,428,000)  ($10,772,000) 
                                   =============  =============    =============  =============  ============= 
Loss per Common Share:                                                                                         
 Loss from Continuing                                                                                          
  Operations                             ($0.15)        ($0.17)          ($0.46)        ($0.55)        ($1.17) 

Loss from Operations of                                                                                        
  Discontinued Segments                  ($0.11)        ($0.06)          ($0.05)        ($0.25)        ($0.18) 

Loss on Disposal of Segments             ($0.01)            --               --             --             --  
                                          ------         ------           ------         ------        ------  
Net Loss per Common Share                ($0.27)        ($0.23)          ($0.51)        ($0.80)        ($1.35) 
                                         =======        =======          =======        =======        ======= 

Selected Balance Sheet Data                                                                                    
Total Assets                        $37,671,000    $34,134,000      $38,474,000    $28,977,000     $23,863,000 
                                    ===========    ===========      ===========    ===========     =========== 
Long-term Obligations:                                                                                         
  Debt and Capital Lease                                                                                       
    Obligations                      $  158,000    $   244,000      $    33,000    $   172,000     $    260,000
  Subordinated Debt                     139,000             --               --        700,000                 
                                      ----------   ------------     -----------    -----------     ----------- 
      Total Long-term Obligations    $  297,000    $   244,000     $     33,000    $   872,000     $   260,000 
                                       ========    ============     ===========    ===========     =========== 

Dividends Declared per Common                                                                                  
Share                                        --             --               --             --              -- 

(A) The financial data for periods prior to 1997 has been restated to reflect   
the discontinuation of the medical diagnostics, three dimensional products and  
services, electro mechanical and electro optical products manufacturing,        
business consulting services and audio products manufacturing segments.         
Additionally, the financial data for 1996 has been restated to reflect the      
settlement agreement with Lafayette Industries, Inc. See footnotes 19 and 20 to 
the financial statements in Part IV, Item 14)                                   

(B) 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, 1994 includes expense of $7,140,000 from the 
issuance of stock options to consultants.                                       

(2) The year ended December 31, 1994 includes expense of $4,140,000 from the    
issuance of stock options to consultants.                                       

(3) The year ended December 31, 1995 includes expense of $3,869,000 from the    
issuance of stock options to consultants.                                       

(4) 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  
$13,000,000 as of July 31, 1994; (ii) an increase in revenues of approximately  
$11,000,000 for the fiscal year ended July 31, 1994 and $14,400,000 for the year
ended December 31, 1994; and (iii) a net increase in net loss of approximately  
$173,000 for the fiscal year ended July 31, 1994 and $1,600,000 for the year    
ended December 31, 1994.                                                        

(5) In May 1995 the Company acquired Concept Technologies resulting in: (i) an
increase in assets of approximately $1,780,000 as of December 31, 1995; (ii) an 
increase in revenues of approximately $2,149,000 for the year ended December 31,
1995; and (iii) an increase in net loss of approximately $553,000 for the year  
ended December 31, 1995.                                                        

Item 7. Management's Discussion and Analysis of Financial Condition and Results\
of Operations                                                   

Financial Condition - Liquidity and Capital Resources                           

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Going Concern                                                                   

   For the three years ended December 31, 1997, the Company incurred
cumulative net losses of $33.6 million and as of December 31, 1997 ("December   
1997") has an accumulated deficit approximating $62.9 million. Furthermore, on  
August 15, 1997, the Company was delisted from Trading on the NASDAQ because it 
failed to meet the minimum bid requirements of $1 and the minimum net tangible  
worth requirement of $1 million. Finally, the Company continues to have         
operating cash flow short falls in all of its segments other than contractual   
engineering services segment. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.                               

     Management recognizes the need to increase the profitability of the
Company and in conjunction therewith, has discontinued three unprofitable       
segments and a fourth segment which had nominal revenue sources other than      
intercompany billings to the Company's subsidiaries.                            

    On May 20, 1997, the Company sold the audio products manufacturing
segment, which had accumulated losses of $1.7 million through the date of       
disposal. The sale of the audio products segment will reduce operating losses   
and will also eliminate the need to fund cash to the segment. On June 30, 1997, 
management developed a plan to discontinue the three dimensional products and   
services segment, which has accumulated losses of $8 million through December   
1997 and required accumulated cash infusions from the Company in excess of $5   
million through December 1997. Effective December 31, 1997, the Company disposed
of the electro mechanical and electro optical products manufacturing and        
business consulting services segments, which have net accumulated losses of $5.9
million through December 31, 1997 and required cash infusions from the Company  
in excess of $6 million through December 31, 1996.                              

     Additionally, effective September 1, 1997, the Company formulated a
plan to sell the medical diagnostics segment and such sale was consummated on   
April 2, 1998. The sale of the medical diagnostics segment resulted in a gain   
which will be recognized by the company in 1998, and provided the Company with  
approximately $11 million in net cash, disposed of approximately $13.5 million  
of intangible assets and relieved the Company from approximately $21 million in 
debt and capital lease obligations, approximately $3 million of accounts payable
and accrued expenses. Management currently anticipates that approximately $3    
million of the net proceeds from the sale will be used to pay existing creditors
of the Company, leaving $8 million for future investment. Management's on-going 
plans to achieve profitability require the prudent use of the net cash generated
form the sale of the medical diagnostics segment. With that in mind, management 
intends to evaluate the expected return on investment in determining where to   
invest such cash whether it be invested in existing business segments or in new 
business ventures.                                                              

        Management recognizes that the sale of the medical diagnostics segment
is only one step in addressing the financial difficulties of the Company. For   
the year ended December 31, 1997 ("1997"), the contract engineering services    
segment reported net income of $1 million for the first time since it was       
acquired by the Company in 1994. However, the medical information services,     
telecommunications and development stage segments continue to report significant
losses, a total of $6.2 million for 1997. Recent attempts to adequately fund the
telecommunications segment through both private and public funding have not been
successful. Although management plans to continue efforts to raise capital for  
this segment, no assurances can be given that such efforts will be successful   
and if they are successful that the segment will be managed to profitable levels
once adequate funding is in place. During 1996, the medical information services
segment completed an initial public offering and received net proceeds of       
approximately $3.8 million and an additional $1.6 million from the exercise of  
stock purchase warrants. To date, significantly all of such proceeds have been  
depleted and the segment has yet to establish significantly increased revenues  
while current obligations have increased. In December 1997, certain of the      
medical information services segment's warrant's were exercised providing the   
segment with approximately $1.9 million in gross proceeds which management      
estimates will provide one years operating capital for the segment. The failure 
of the Company to raise significant capital for the unprofitable segments and to
achieve profitability when and if adequate funding is in place may force the    
Company to reduce or cease operations in unprofitable segments and could        
ultimately force the Company as a whole to cease operations.                    

Working Capital Condition                                                       

      As of December 31, 1996, ("December 1996"), the Company had negative
working capital of $5.4 million. As of December 1997, the Company has negative  
working capital of $18.9 million representing an increase in negative working   
capital of $13.5 million. Approximately $13.5 million of the negative working   
capital relates to the net current assets and liabilities of discontinued       
segments. Excluding the discontinued segments, the Company has approximately    
$5.3 million in negative working capital for continuing operations. The         
Company's principal working capital consists of cash and cash equivalents which 
were $1.3 million at                                                            

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December 1997 and $1.2 million at December 1996. For 1997, cash provided by   
discontinued operations amounted to $1.5 million and net cash provided by       
(used in) continuing operations was as follows:                                 

Contract Engineering Services                                   $    752,000    
Medical Information Services                                    (  1,493,000)   
Telecommunications                                              (    988,000)   
Development Stage                                               (     16,000)   
Corporate and Other                                             (    939,000)   
                                                             -------------
Net Cash Used in Continuing Operations                       ($  2,684,000) 
                                                            ==============

    The cash generated by the Contract Engineering Services segment is
generated by a publicly held company and as such is not necessarily available to
other subsidiaries of the Company. It is imperative that the segments which use 
significant amounts of cash in operating activities obtain alternative sources  
of funding, (i.e. equity offerings, debt financing) or increased volume at      
higher operating margins, in order to continue as operating segments and no     
assurance can be given that these segments will be able to continue as operating
entities.                                                                       

On April 15, 1998, Mr. George W. Mahoney gave the Company notice that he was    
exercising his right under his employment agreement with Consolidated to        
terminate his employment on 90 days' notice.  Mr. Mahoney has advised the       
Company that in his view the agreement requires the company to pay him a lump   
sum payment equal to his salary for the balance of the term of the agreement    
which is approximately $2.4 million.  The Company's board of directors is       
evaluating the Company's and Mr. Mahoney's respective rights under his          
employment contract.                                                            

Sources of Cash                                                                 

    During 1997, sources of cash, other than from operations, included
proceeds from the issuance of long-term debt of $680,000 and subordinated debt  
of $139,000, net advances from asset based lenders of $377,000 million, proceeds
from the issuance and exercise of subsidiary stock options and stock purchase   
warrants of $2 million, collections on repayments of notes receivable of        
$475,000 and proceeds from the sale of marketable securities of $97,000.        

Uses of Cash                                                                    

 During 1997, uses of cash included $118,000 of debt repayments,
payments on capital leases of $37,000, expenditures for software development of 
$462,000, deferred offering costs of $400,000, capital expenditures of $440,000,
payments for loans made of $220,000, purchases of marketable securities of      
$20,000, equity issuance costs of $75,000 and an increase in other assets of    
$693,000.                                                                       

Changes in Other Working Capital Assets and Liabilities                         

        From December 1996 to December 1997, working capital assets other than
cash decreased $230,000. Accounts receivable increased approximately $1.5       
million of which $1.3 million relate to the telecommunications segment. The     
increase in accounts receivable was partially offset by a decrease in the net   
current assets of discontinued segments of $1.3 million. During the same period,
working capital liabilities increased $13.4 of which $8.5 million relates to the
net current liabilities of discontinued segments and $4.9 million relates to    
continuing operations. Accounts payable and accrued expenses increased $3.4     
million due primarily to a build up of trade payables of $1.8 million in the    
telecommunications segment and $898,000 in corporate and other. The build up in 
payables for the telecommunications segment is a result of not generating       
adequate cash flows to cover commitments to vendors and the increase in         
corporate and other payables is due primarily to an increase in accrued         
compensation payable to the former chief operating officer. Current debt        
increased approximately $1 million, which is a factor of $377,000 of net        
advances from asset-based lenders and approximately $680,000 of new debt net of 
scheduled repayments. The remaining increase in working capital liabilities is a
$902,000 increase in billings on uncompleted projects within the                
telecommunications and medical information services segments.                   

Effect of Loan Defaults                                                         

         The Company is in technical default on loans and interest approximating
$7.1 million at December 1997 relating to the discontinued medical diagnostics  
segment. On October 22, 1997, involuntary petitions (the "Petitions") were filed
under chapter 7 of the U.S. Bankruptcy Code against certain subsidiaries of the 
Company operating in the medical diagnostics segment. In January 1998 such      
petitions were dismissed. Currently, it is estimated that the Company will pay  
approximately $1.5 million for full settlement of such debt.                    

Delinquent Payroll Taxes                                                        

       A subsidiary of the Company, which operated in the discontinued three
dimensional products and services segment, owes delinquent payroll taxes and    
related interest and penalties of approximately $190,000. It is anticipated that
such obligations will be repaid during 1998.                                    

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Results of Operations                                                           

       During 1997, the Company discontinued five of its operating segments,
three dimensional products and services, medical diagnostics, electro mechanical
and electro optical products manufacturing, business consulting services and    
audio products manufacturing segments. Additionally, during 1997, the Company is
reporting a new segment called development stage, which includes a subsidiary   
that has not yet developed a salable or marketable product. As a result of the  
above, the prior period data has been reclassified to conform to the above      
changes in segment reporting.                                                   

Loss from Continuing Operations                                                 

  Comparing 1997 to the year ended December 31, 1996 ("1996"), the
aggregate decrease in loss from continuing operations consisted of the          
following:                                                                      

                                                        [Enlarge/Download Table]

                                                                Income (Loss) from Operations                                  

                                                                  1997                  1996                Variance           
                                                                  ----                  ----                --------           
                                                                                                                               
         Contract Engineering Services                       $   1,402,000         $     187,000         $   1,215,000         
         Medical Information Services                        (   2,863,000)        (   5,843,000)            2,980,000         
         Telecommunications                                  (   2,018,000)        (     929,000)        (   1,089,000)        
         Development Stage                                   (      16,000)                   --         (      16,000)        
         Corporate and Other                                 (   3,343,000)        (   3,143,000)        (     200,000)        
         Intercompany Transactions                           (     239,000)              180,000         (     419,000)        
                                                             --------------        -------------         --------------        
               Loss from Operations                         ($   7,077,000)       ($   9,548,000)        $   2,471,000         
                                                            ===============       ===============        =============         

         Comparing 1996 to the year ended December 31, 1995 ("1995"), the aggregate decrease in loss from continuing operations
consisted of the following:                                                                                                    

                                                                Income (Loss) from Operations                                  

                                                                  1996                  1995                Variance           
                                                                  ----                  ----                --------           
         Contract Engineering Services                       $     187,000        ($   3,816,000)        $   4,003,000         
         Medical Information Services                        (   5,843,000)        (   2,274,000)        (   3,569,000)        
         Telecommunications                                  (     929,000)        (     474,000)        (     455,000)        
         Corporate and Other                                 (   3,143,000)        (   6,319,000)            3,176,000         
         Intercompany Transactions                                 180,000         (      27,000)              207,000         
                                                                   -------         --------------              -------         
               Loss from Operations                         ($   9,548,000)       ($  12,910,000)        $   3,362,000         
                                                            ===============       ===============        =============         

         During 1996, the medical information services segment incurred non-cash
expense of $3.7 million from the issuance of below market stock options and     
stock purchase warrants and $1.8 million from the issuance of common stock in   
lieu of cash for services rendered. During 1995, contract engineering services  
and corporate and other includes $2.2 million and $3.9 million, respectively,   
from the issuance of non-employee directors and consultants stock options.      

Other Income and Expense                                                        

     Interest expense approximated $1.1 million for 1997, 1996 and 1995.
Such interest is primarily from advances on receivables from asset based lendors
in the contract engineering, medical information services and telecommunications
segments. During 1997, the Company realized losses of $368,000 on the sale of   
marketable securities of which $203,000 relates to the sale of Trans Global     
Services, Inc. ("Trans Global") stock to the president of Trans Global and      
$165,000 relates to the sale of Netsmart, Inc. stock to executives of Netsmart, 
Inc. During 1996 the Company realized $823,000 on the sale of marketable        
securities primarily from the sale of Netsmart warrants held by the Company.    
Other net expense amounted to $1.2 million for 1997 of which the major          
components consist of $500,000 for the Lafayette settlement (see footnote 19 of 
the financial statements), $140,000 of loss on a joint venture of the medical   
information services segment and $390,000 of financing costs for the            
telecommunications segment.                                                     

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Income Tax Benefit (Provision)                                                  

         The Company's benefit (provision) for income taxes was 2.8%, (0.5%) and
0.1% of income before taxes for 1997, 1996 and 1995, respectively. The Company  
will have a net operating loss carryforward of approximately $33.4 million. The 
net operating loss carryforward expires beginning in 1998 through 2012.         

Minority Interest in (Income) Loss of Subsidiaries                              

        For 1997, 1996 and 1995, the minority interest in loss of subsidiaries
approximated $2.4 million, $3.1 million and $3.7 million, respectively. Changes 
in the minority interest in the income and loss of subsidiaries are a result of 
the inherent differences in the net income and loss of subsidiaries from period 
to period.                                                                      

Discontinued Operations                                                         

       The operations of  discontinued  segments  resulted in losses of $5.3
million, $3 million and $1.1 million for 1997, 1996 and 1995, respectively. The 
aggregate losses from discontinued operations consists of the following:        

                                                        [Enlarge/Download Table]

                                                     Income (Loss) from Discontinued Operations             

                                                       1997                  1996                  1995     
                                                       ----                  ----                  ----     
                                                                                                            
Medical Diagnostics                              ($   1,188,000)        $   1,446,000         $   2,682,000 
Audio Products Manufacturing                      (     293,000)        (     893,000)        (     544,000)
Electro Mechanical and Electro Optical Products                                                             
    Manufacturing                                 (   2,604,000)        (   2,164,000)        (   1,184,000)
Business Consulting Services                            221,000               263,000               191,000 
Three Dimensional Products and Services           (   1,636,000)        (   1,471,000)        (   2,284,000)
Intercompany Transactions                               238,000         (     180,000)               27,000 
                                                        -------               -------                ------ 
      Loss from Discontinued Operations          ($   5,262,000)       ($   2,999,000)       ($   1,112,000)
                                                 ===============       ===============       ===============

       The medical diagnostics segment's 1997 loss includes the write-off of
deferred offering costs of approximately $750,000 from the terminated public    
offering, $408,000 for settlement costs paid to former limited partners of one  
of the medical diagnostics segment's imaging centers and increased legal and    
professional fees of approximately $1 million. The increased legal fees resulted
from litigation that occurred during 1997. Additionally, the 1997 medical       
diagnostics loss includes $250,000 of estimated losses to be incurred from      
December 1997 until the date that the sale was consummated.                     

   The audio products manufacturing segment's 1997 loss includes the
operating activity through May 20, 1997, the date of disposal and for 1995      
includes the operating activity from April 1, 1995, the date of acquisition,    
through December 31, 1995.                                                      

   The electro mechanical and electro optical products manufacturing
segment includes Televend, Inc. and FMX Corp., which did not start operations   
until 1996 and as such are not included in 1995. The operations of SpecTec,     
Inc., the holding company of two operating entities is included in the results  
of operations for all three years reported.                                     

         The business consulting services segment's only significant activity is
intersegment sales. The portions of such intersegment among the other           
discontinued segments are included in the intercompany transaction line of the  
above table.                                                                    

 The three dimensional products and services segment's 1997 loss
includes $250,000 for estimated loss to be incurred from December 1997 until    
the complete disposal of the segment. The 1995 three dimensional products and   
services segment loss includes approximately $250,000 of loss from European     
operations that were shut-down in the first quarter of 1996.                    

         The loss on disposal of segments includes a gain of $129,000 related to
the sale of the audio products manufacturing segment and an estimated loss on   
the disposal of the three dimensional products and services segment of and      
$465,000.                                                                       

Consolidated Net Loss                                                           

        As a result of the foregoing, the Company incurred net losses of $12.7
million, $9.6 million and $11.4 million, respectively and net losses per common 
share of $0.27, $0.23 and $0.51, respectively, for 1997, 1996 and 1995.         

Year 2000 Issues                                                                

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         The Company's subsidiaries have not conducted a comprehensive review of
their computer systems to identify the systems that could be affected by the    
"Year 2000" issue. The Company plans to address the Year 2000 Issue at the      
subsidiary level during 1998. All computer systems used by the holding company  
are already year 2000 compliant. The year 2000 problem is the result of computer
programs being written using two digits rather than four to define the          
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company presently
is not in a position to determine the short or long-term impact of the Year 2000
Issue on its subsidiaries, however if significant year 2000 Issues exist and are
not addressed timely, the impact may have a material adverse effect on the      
Company as a whole.                                                             

Discussion of Operations by Segment                           

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 are
discussed further within the respective industry segment discussions.           

                                                                [Download Table]

                                                     Percentage of Total        
                                                   Year Ended December 31,      
                                             1997           1996            1995
                                             ----           ----            ----
                                                                                
Revenues                                                                        
Contract Engineering Services                82%             82%            86% 
Medical Information Services                  9%             11%            10% 
Telecommunications                           10%             7%              4% 
Intercompany Transactions                    (1%)            --              -- 

Gross Profit (Loss)                                                             
Contract Engineering Services                77%             74%            60% 
Medical Information Services                 20%             19%            30% 
Telecommunications                            9%             7%             10% 
Intercompany Transactions                    (6%)                               

Selling, General and Administrative Expense                                     
Contract Engineering Services                34%             30%            40% 
Medical Information Services                 29%             43%            22% 
Telecommunications                           18%             9%              6% 
Development Stage                             *              --              -- 
Corporate and Other                           21             19%            32% 
Intercompany Transactions                    (2%)           (1%)             *  

* - Less than one percent.                                                      

Contract Engineering Services                                                   

       The contract engineering  services segment reflects the operations of
Trans Global Services, Inc. ("Trans Global") and its two subsidiaries, Avionics 
Research Holdings, Inc. ("Avionics") and Resource Management International, Inc.
("RMI"). Trans Global is engaged in the business of providing engineers,        
designers and technical personnel on a temporary basis to major corporations.   

    Revenue from technical temporary staffing services is based on the
hourly cost of payroll plus a percentage. The success of Trans Global's business
will be dependent upon its ability to generate sufficient revenues to enable it 
to cover its fixed costs and other operating expenses, and to reduce its        
variable costs, principally its interest. Under its agreements with its clients,
Trans Global is required to pay its employees and pay all applicable Federal and
state withholding and payroll taxes prior to the receipt of payment from the    
clients. Furthermore, Trans Global's payments from its clients are based upon   
the hourly rate paid to the employee, without regard to when payroll taxes are  
payable with respect to the employee. Accordingly, Trans Global's cost of       
services are greater during the first part of the year, when Federal Social     
Security taxes and state unemployment and related taxes, which are based on a   
specific level of compensation, are due. Thus, until Trans Global satisfies its 
payroll tax obligations, it will have a lower gross margin than after such      
obligations are satisfied. Furthermore, to the extent that Trans Global         
experiences turnover in employees, its gross margin will be adversely affected. 
For example, in 1997, Social Security taxes are payable on the first $65,400 of 
compensation. Once that level of compensation is paid with respect to any       
employee, there is no further requirement for Trans Global to pay Social        
Security tax for such employee. Since most of Trans Global's employees receive  
compensation in excess of that amount, Trans Global's costs                     

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with respect to any employee are significantly higher during the period when it 
is required to pay Social Security taxes than it is after such taxes have been  
paid.                                                                           

    For 1997, Trans Global had revenues of $75.7 million reflecting an
increase of 21% over the revenues of 1996 and a 20% increase over the revenues  
of 1995. This increase is significant because it includes the impact of the loss
of a sizable contract on January 1, 1996 from one of Trans Global's larger      
customers. This increase is a reflection of the success of Trans Global's       
continuing sales and placement efforts. During 1997, approximately 63% of Trans 
Global's revenue was derived from its three largest clients and 80% of such     
revenue was derived from its five largest clients. In 1996, approximately 61%   
and 75% of Trans Global's revenue was derived from those same clients. In 1995, 
62% of Trans Global's revenues were derived from the three largest clients. The 
merger and acquisition trend in the aircraft and aerospace industry is the major
reason why a high percentage of Trans Global's revenues are from a small number 
of clients. However, Trans Global does business with various divisions of each  
of those clients, who act autonomously when selecting their suppliers. Gross    
margins for 1997 are 6.5% and 38.8% higher than they were for 1996 and 1995     
respectively. This increase can be attributed to Trans Global's recent          
successful efforts to penetrate the "Information Technology" sector of the      
marketplace, which generates higher gross margins than Trans Global's more      
traditional marketplace, as well as Trans Global's strategy to drop those       
clients with relatively low margins.                                            

         Selling, general and administrative expenses exclusive of related party
expenses increased by 5.7% compared to 1996 and decreased by 24.8% compared to  
1995. The increase in 1997 can be attributed to costs of $322,000 that were     
incurred with respect to an aborted attempt to raise capital. Although, Trans   
Global still plans on raising capital through an equity placement those costs   
associated with the initial placement had to be written off. Trans Global is    
committed to controlling selling, general and administrative costs as these     
financial statements illustrate. The decrease in 1997 with respect to the       
selling, general and administrative expenses incurred in 1995 is due to the high
level of expenses in 1995 resulting from the issuance of securities to          
consultants in 1995 ($2.3 million) and penalties for late withholding taxes ($1 
million). Trans Global completed its payment schedule with the Internal Revenue 
Service in July 1997 and is presently current with regard to all of its taxes.  

     During 1995, Trans Global incurred $528,000 of acquisition expenses
relating to the issuance of securities in connection with the Trans Global      
Transaction. The acquisition expenses reflect the value of Common Stock issued  
to a finder in connection with the Trans Global Transaction and in consideration
of agreements by certain of Trans Global's stockholders to enter into lock-up   
agreements. The delivery of such shares of Common Stock was deferred until after
Trans Global's certificate of incorporation was amended to increase its         
authorized Common Stock. No comparable expenses were incurred in 1997 or 1996.  

   Trans Global finances its payroll obligations by borrowing from a
non-affiliated asset-based lender at an interest rate of 2% in excess of prime. 
Trans Global also pays a fee of 0.3% of the face amount of the invoices         
financed, regardless of the amount borrowed against the invoice. This reflects a
reduction in the financing charges resulting from a June 1995 amendment to its  
borrowing agreement. Prior to the amendment, Trans Global paid interest at a    
rate of 4% in excess of prime and a fee of 1% of its borrowings relating to     
RMI's operations. Pursuant to a letter dated January 29, 1998 the asset-based   
lender has agreed to continue the present financial agreement through December  
31, 1998. The borrowings are secured by a security interest in all of Trans     
Global's assets. At December 31, 1997, such borrowings from the asset-based     
lender were approximately $3.6 million. The ability of Trans Global to increase 
profits is dependent in part upon its ability to reduce its financing costs. The
interest rate (exclusive of the fee) payable by Trans Global at December 31,    
1997 was 10.50% and at December 31, 1996 and 1995 was 10.25%. During 1997, the  
interest expense was approximately $775,000 as compared to $712,000 in 1996 and 
$963,000 in 1995. The increase in interest expense from 1996 to 1997 can be     
attributed to the increased borrowing during the year as a result of the        
increase in the accounts receivable borrowing base. The decrease in interest    
expense from 1995 to 1996 reflects the reduced borrowing rates, which became    
effective June 1995                                                             

        Amortization of customer lists and other intangible assets was reduced
in 1997 by 26.6% as compared to 1996 and 1995 due to certain intangible assets  
related to Avionics Research Holdings having been fully amortized during the    
year.                                                                           

       During 1996 Trans Global established a $300,000 reserve in connection
with the claim by the DOL arising from the acquisition of Job Shop assets. In   
1997, Trans Global reached an agreement with the DOL and the independent trustee
of the Job Shop technical Services, Inc., 401(k) Plan (collectively "DOL").     
Trans Global agreed to pay the DOL an aggregate of $300,000 in 18 monthly       
installments of $16,667 of which nine payments remain as of December 31, 1997.  

        As a result of the above, Trans Global had net income of approximately
$1 million for 1997, as compared with a loss of $681,000 1996 and a loss of $4.7
million in 1995. Trans Global believes that now that it has completed its       
obligation to the IRS with regard to the delinquent payroll taxes and has       
resolved the situation with the DOL it will be successful in its negotiations   
with asset-based lenders towards reducing its finance costs which will increase 
profits to a greater extent. However, no assurance can be given that Trans      
Global can or will operate profitably in the future.                            

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Medical Information Services:                                                   

      The medical information services segment consists of the activity of
two companies, Netsmart Technologies, Inc., ("Netsmart") and Creative Socio     
Medics, Inc. ("CSM"). For purposes herein, references to Netsmart relate to he  
operation of both Netsmart and CSM unless indicated otherwise. Netsmart is      
engaged in developing, marketing and supporting computer software designed to   
enable health service as well as financial related organizations to provide a   
range of services in a network-computing environment. Netsmart has developed    
proprietary network technology utilizing smart cards I financial health care    
network systems.                                                                

Years Ended December 31, 1997 and 1996                                          

Netsmart's revenue for 1997 was $7.9 million, a decrease of   
approximately $659,000, or 8% from the revenue for 1996 which was $8.5 million. 
This decrease results from a decrease in revenue from $1,879,000 in 1996 to     
$95,000 in 1997, from a contract with IBN Inc. ("IBN"). IBN represented         
Netsmart's most significant customer for 1996, accounting for approximately 22% 
of revenue. Netsmart is no longer providing professional services to IBN.       

 Revenue from Netsmart's health information systems continued to
represent Netsmart's principal source of revenue in 1997, accounting for $7.6   
million or 97% of revenue. The largest component of revenue in 1997 was data    
center (service bureau) revenue, which increased to $2,235,000 in 1997 from     
$2,207,000 in 1996, reflecting an increase of 1%. The turnkey systems revenue   
increased to $2,107,000 in 1997 from $1,663,000 in 1996, reflecting an increase 
of 27%. This increase is substantially the result of growth in the turnkey      
backlog and the ability of Netsmart to provide the staff necessary to generate  
the additional revenue. Maintenance revenue increased to $1,280,000 in 1997 from
$1,226,000 in 1996, reflecting a 4% increase. Revenue from third party hardware 
and software decreased to $1,078,000 in 1997 from $1,114,000 in 1996, a decrease
of 3%. Sales of third party hardware and software are made in connection with   
the sales of turnkey systems. License revenue increased to $737,000 in 1997 from
$329,000 in 1996, a 124% increase. License revenue is generated as part of a    
sale of a turnkey system pursuant to a contract or purchase order that includes 
development of a turnkey system and maintenance. Netsmart believes that the     
increase in 1997 installations should enable Netsmart to increase the           
maintenance revenue in future periods. Revenue associated with methadone turnkey
installations, which were partially the result of the Johnson Computer Systems  
acquisition in October 1997 amounted to $198,000 in 1997.                       

    Revenue from contracts from government agencies represented 34% of
revenue for 1997. Netsmart believes that such contracts will continue to        
represent an important part of its business, particularly its health information
systems business.                                                               

         Gross profit increased to $1,727,000 in 1997 from $1,332,000 in 1996, a
30% increase. The increase in the gross profit was substantially the result of a
reduction of costs associated with the IBN contract as well as the increase in  
revenue from the health information systems mentioned above, particularly the   
increase in license revenue which is highly margined.                           

         Selling, general and administrative expenses were $4.6 million in 1997,
a decrease of 36% from the $7.1 million in 1996.  During 1996, Netsmart incurred
non cash compensation charges of $3.5 million arising out of the issuance by    
Netsmart of warrants and options having exercise prices which were less than the
market value of the Common Stock at the date of approval by the board of        
directors. During 1996, Netsmart issued 500,000 common shares to certain note   
holders and 25,000 common shares to Netsmart's asset based lender. As a result  
of such issuance, Netsmart incurred a financing cost charge to operations of    
approximately $1.7 million.  During 1997, Netsmart incurred research and        
development expenses in the amount of $201,000, which were related to Netsmart's
health information systems products. In addition, Netsmart capitalized $204,000 
of health information systems software development costs associated with such   
products as its clinician workstation, BHIS for windows, managed care and       
methadone dispensing products. Netsmart also capitalized $258,000 of software   
development costs associated with a customer activated terminal product. The    
amount of amortization associated with these products in 1997 amounted to       
$59,000 and was charged to cost of sales. In 1996, Netsmart incurred research   
and development expenses of $278,000, which were related to Netsmart's contract 
with IBN and the development of SmartCard products.  During 1997 Netsmart wrote 
down to net realizable value substantially all of the assets associated with its
EDTO division. Such assets consisted of accounts receivable, costs and estimated
profits in excess of interim billings, computer equipment, capitalized software 
and its investment in the CCAC joint venture. The effect of this adjustment     
resulted in a one time charge to income in the amount of $1.5 million.          

In 1997, Netsmart's 50% share of its loss in its joint venture
corporation with respect to the development of CCAC software purchased in 1996  
decreased from $264,000 in 1996 to $140,000 in 1997.                            

       Interest expense was $308,000 in 1997, a decrease of $164,000, or 35%
from the interest expense in 1996. This is a result of a decrease in the average
borrowings during 1997. The most significant component of the interest expense  
on an ongoing basis is the interest payable to Netsmart's asset-based lender.   
Netsmart pays interest on such loans at a rate equal to prime plus 8 1/2% plus a
fee of 5/8% of the face amount of the invoice.                                  

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         As a result of the foregoing  factors,  Netsmart incurred a net loss of
$3.5 million in 1997 as compared with a net loss of $6.6 million in 1996.       

Years Ended December 31, 1996 and 1995                                          

   Netsmart's revenue for 1996 was $8.5 million, an increase of $1.1
million, or 15% from the revenue for 1995 which was $7.4 million. Approximately 
$1,550,000 of the increase in revenue was generated pursuant to Netsmart's      
agreement with IBN. IBN represented Netsmart's most significant customer for    
1996, accounting for approximately 22% of revenue. Furthermore, through December
31, 1996 IBN has generated revenue of $2.4 million, or approximately 89.6% of   
Netsmart's total revenue from the SmartCard systems during the two years ended  
December 31, 1996 and 1995 on a combined basis. The revenue generated to date   
includes approximately $419,000 of guaranteed royalties. As of December 31,     
1996, the contract was more than 80% complete. Netsmart is continuing to provide
professional services to IBN, although revenues from such services have declined
substantially from the level at the beginning of the year. Netsmart intends to  
expand its marketing effort for its CarteSmart System, however, at December 31, 
1996, Netsmart did not have any significant contracts for the CarteSmart system.

 Revenue from Netsmart's health information systems continued to
represent Netsmart's principal source of revenue in 1996, accounting for $6.5   
million or 76% of revenue. However, as a result of the increase of revenue from 
SmartCard systems, principally from IBN, revenue from health information systems
and services declined as a percentage of total revenue. Except for revenue from 
the IBN contract, the largest component of revenue in 1996 was data center      
(service bureau) revenue which increased to $2,207,000 in 1996 from $1,742,000  
in 1995, reflecting an increase of 27%. The turnkey systems revenue decreased to
$1,663,000 in 1996 from $1,777,000 in 1995, reflecting a decrease of 6%.        
Maintenance revenue increased to $1,226,000 in 1996 from $1,099,000 in 1995,    
reflecting a 11% increase. Revenue from third party hardware and software       
decreased to $1,114,000 in 1996 from $2,148,000 in 1995, a decrease of 48%.     
Sales of third party hardware and software are made only in connection with the 
sales of turnkey systems. License revenue increased to $329,000 in 1996 from    
$162,000 in 1995. License revenue is generated as part of a sale of a turnkey   
system pursuant to a contract or purchase order that includes development of a  
turnkey system and maintenance. Netsmart believes that the increase in 1996     
installations should enable Netsmart to increase the maintenance revenue in     
future periods.                                                                 

    Revenue from contracts from government agencies represented 31% of
revenue for 1996. Netsmart believes that such contracts will continue to        
represent an important part of its business, particularly its health information
systems business. In 1996, contracts from government agencies accounted for     
approximately 40% of its revenue from health information systems.               

         Gross profit decreased to $1,610,000 in 1996 from $1,764,000 in 1995, a
9% decrease. The decrease in the gross profit was substantially the result of   
costs associated with the completion of the IBN contract. At December 31, 1996  
the IBN contract was more than 80% complete.                                    

         Selling, general and administrative expenses were $7.1 million in 1996,
an increase of 69% from the $4.2 million in 1995.  During 1996, Netsmart        
incurred non cash compensation charges of $3.5 million arising out of the       
issuance by Netsmart of warrants and options having exercise prices which were  
less than the market value of the Common Stock at the date of approval by the   
board of directors. During 1996, Netsmart issued 500,000 common shares to       
certain note holders and 25,000 common shares to Netsmart's asset based lender. 
As a result of such issuance, Netsmart incurred a financing cost charge to      
operations of approximately $1.7 million.  Additionally, Netsmart wrote off     
$460,000 of deferred offering costs in 1995.  During 1996, Netsmart incurred    
research and development expenses in the amount of $278,000, which were related 
to Netsmart's contract with IBN and the development of SmartCard products. Also 
during 1996 Netsmart incurred capitalized software development costs in the     
amount of $279,000 of which $28,000 has been amortized in 1996 and charged to   
cost of sales. In 1995, Netsmart incurred research and development expenses in  
the amount of $699,000.                                                         

    In 1996 Netsmart recognized its 50% share of its loss in its joint
venture corporation with respect to the purchase of SATC software. The amount of
such loss was $264,000.                                                         

        Interest expense was $473,000 in 1996, an increase of $118,000, or 33%
from the interest expense in 1995. The most significant component of the        
interest expense on an ongoing basis is the interest payable to Netsmart's      
asset-based lender, which it pays interest equal to the greater if 18% per annum
or prime plus 8% plus a fee of 1% of the face amount of the invoice.            

         As a result of the foregoing  factors,  Netsmart incurred a net loss of
$6.6 million in 1996 as compared with a net loss of $2.9 million in 1995.       

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Telecommunications:                                                             

   This segment consists of the operations of ARC Networks, which is
engaged in the business of marketing a wide range of telecommunications services
including the resale of local exchange services through Competitive Access      
Providers ("CAP"), the design and installation of end-user networks in addition 
to its newly formed debit card services and domestic and international long     
distance services.                                                              

       Revenues for 1997 were $9.7 million compared to $5.6 million and $3.3
million 1996 and 1995, respectively, reflecting increases of 73% and 72%, or $4 
million and $2.3 million. The following table sets forth the revenues from      
continuing operations and percentage of revenues during 1997, 1996 and 1995 from
each business line.                                                             

                                                                [Download Table]

                            1997               1996               1995        
                            ----               ----               ----        
                                                                              
Telephone Services     $  7,184,000  75%  $  4,410,000  79%  $  1,275,000  39%
Data Cabling Services     2,464,000  25%     1,173,000  21%     1,978,000  61%
                          ---------          ---------          ---------     
Total                  $  9,648,000       $  5,583,000       $  3,253,000     
                          =========          =========          =========     

       The increase in revenue in 1997 compared to 1996 and 1995 is a result
of greater market penetration into the local telephone market, principally NYC, 
through ARC Network's reseller programs with Teleport Communications Group      
("TCG"), a Competitive Local Exchange Carrier and, beginning in April 1997, ARC 
Network's reseller program with Bell Atlantic, the Incumbent Local Exchange     
Carrier, and increases in ARC Network's data cabling installation business,     
respectively.                                                                   

     Sales to customers made through TCG's reseller program increased by
$1.3 million, or 45% to $4.3 million in 1997 from $2.9 million in 1996 and sales
increased $1.7 million, or 134% in 1996 from $1.3 million in 1995. Sales to     
customers made through the Bell Atlantic reseller program were $992,000 during  
1997. In May 1997, ARC Networks also began reselling long distance phone service
through several carriers, but predominantly Frontier Communications. Revenues   
attributed to long distance in 1997 were $432,000. ARC Networks also recorded   
$17,000 of commission income on telecommunications products in 1997.            

    Sales in the Data Cabling Installation line increased 111% in 1997
compared to 1996 but decreased 810,000, or 41%, from 1995 to 1996. In 1997, ARC 
Networks performed approximately $1 million of services for New York State in   
connection with updating its buildings for computers and Internet services. ARC 
Networks also continued to benefit from its subcontract with Mitel Systems,     
Inc., which is the primary contractor with the NYC Schools to rewire classrooms 
for computer and Internet services. Sales to Mitel in 1997 and 1996,            
respectively, were $538,000 and $327,000. At December 31, 1997 ARC Networks had 
billed unearned revenues, for which the work has not yet been completed, of     
approximately $1,1 million which will all be recognized in the first half of    
1998.                                                                           

        Total cost of revenue operations during 1997 was $8.9 million compared
to $5 million and $2.6 million for 1996 and 1995, respectively, reflecting an   
increase of $3.8 million and $2.6 million, or 75% and 98%, respectively. Total  
gross margins were 8%, 9% and 2l%, respectively during 1997, 1996 and 1995,     
respectively.                                                                   

      Gross margins for Arc Networks telephone service were 1%, 7% and 15%
during 1997, 1996 and 1995, respectively. The most significant reasons for the  
continuing decline in Arc Networks' margins are (1) Arc Networks' continuing    
inability to generate sufficient revenue from its debit card operations to cover
both the cost of providing telephone service and the cost of maintaining the    
equipment used to track debit card usage and (2) significant start-up costs     
incurred in 1997 in connection with Arc Networks' reseller agreement with Bell  
Atlantic, which costs are charged to cost of revenue. In addition, although Arc 
Networks priced the telephone service offered pursuant to the Bell Atlantic     
program to take advantage of the large volume purchase discount provided by Bell
Atlantic, it has not reach the necessary volume level, which had an adverse     
effect upon its gross margin for such service. No assurance can be given that   
Arc Networks will generate sufficient volume to enable it to benefit from such  
discount.                                                                       

      It is ARC Network's intention to significantly restructure the debit
card operation by eliminating the unprofitable sale of debit cards on a prepaid 
basis and only selling cards on a cost plus basis which would allow it to recoup
all costs incurred after the card has been used. ARC Networks has experienced   
problems with the sale of prepaid debit cards because of its inability to price 
the cards properly and track the usage properly with these cards. ARC Networks  
believes that it requires approximately $350,000 of sales of cost plus debit    
cards per month in order to be profitable in this line of business. It currently
has orders, which are below that level, however, it is currently negotiating    
with several large customers, which should enable it to reach the required level
of sales to be profitable. In 1998, ARC Networks received an open purchase order
from Southern New England Telephone ("SNET") to purchase up to a maximum of $5  
million of debit card services. However, there is no commitment from SNET to    
purchase any                                                                    

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minimum debit card services and there can be no assurances that ARC Networks    
will ever generate sufficient debit card business to enable it generate a       
positive gross margin.                                                          

     ARC Network's initial focus in the resale of telephone services has
been to build its customer base and market share. In this regard, ARC Networks  
has waived installation charges and has absorbed certain costs and charges      
relating to signing up new customers and acquiring certain equipment needed to  
make the connection to the customer. Such costs are being expensed immediately  
without a corresponding increase in revenue. In addition, $1.8 million and      
$710,000 of sales in 1997 and 1996 were to one customer at a margin of 5% for   
service and 10% for recurring charges, such as line features. These sales at    
lower margins, although not customary, will become a smaller percentage of total
sales if revenues continue to grow in this line.                                

         Gross margins for ARC Network's data cabling installation services were
28%, 16% and 9% during 1997, 1996 and 1995, respectively. During the 1997, ARC  
Networks managed approximately 60 different jobs, principally with the State of 
New York and Mitel. In 1995 and 1996, the projects received by ARC Networks were
based on the lowest bid, where as the jobs currently being received are based on
a market niche carved out in the government sector.                             

      Selling, general and administrative expenses were $2.7 million, $1.5
million and $1.2 million, or 28%, 26% and 36% of total sales during 1997, 1996  
and 1995, respectively. In the second half of 1996, ARC Networks added four     
sales personnel to promote ARC Network's phone services and a Vice President of 
Sales, in March 1997 it hired a controller to manage its finances, several      
supervisors were added to manage its cable installation business as volume in   
this line continued to grow and a customer service department was established in
mid 1997 to support the local telephone market which ARC Networks is            
penetrating. The customer service department is required by state statute in the
various areas in which ARC Networks is selling local phone service. ARC Networks
also opened offices in Florida and Illinois in 1997 to begin direct sales       
efforts in those regions, although these offices were closed before year end due
to ARC Network's inability to fund these marketing efforts. As of December 31,  
1997, ARC Networks was qualified to sell phone service in 15 states. In this    
regard, ARC Networks has spent approximately $50,000 in legal fees in 1997. The 
principal components of selling, general and administrative expenses during 1997
were: personnel costs of $1.4 million, sales commissions of $217,000, travel and
trade show expenses of $144,000, costs associated with a failed underwriting of 
ARC Network's common stock of $162,000, rent and utilities of $125,000, legal   
and accounting fees of $74,000, advertising of $52,000, office equipment and    
supplies of $146,000, depreciation expense of $47,000 and provision for bad     
debts of $30,000. The principle components of selling, general and              
administrative expenses for 1996 were: personnel costs of $773,000, sales       
commissions of $144,000, travel and trade show expenses of $151,000, office     
equipment, supplies and other expenses of $203,000, rent and utilities of       
$68,000, legal and accounting of $54,000, a provision for bad debts of $55,000  
and advertising of $8,000. The principle components of selling, general and     
administrative expenses for 1995 were: $694,000 for personnel costs, $190,000   
for sales commissions, $108,000 for travel and trade show expenses and $124,000 
for office equipment, supplies and other expenses, $45,000 for rent and         
utilities and $18,000 for provision for bad debts.                              

       ARC Networks will be adding a Director of Sales to organize its sales
and marketing efforts and its agent program at an estimated cost of $75,000 to  
$100,000 annually. Offsetting this requirement, in the fourth quarter of 1997,  
ARC Networks restructured certain positions and eliminated four others, which   
should produce savings of approximately $450,000 to $500,000 annually. It also  
has contracted with an advertising firm to provide it with sales and marketing  
support for its various product lines.                                          

        ARC Networks incurred total interest expense of $326,000, $167,000 and
$69,000 during 1997, 1996 and 1995, respectively. ARC Networks obtained an 8%   
$550,000 loan in February 1997 on which it recorded $39,000 of interest expense.
In September 1997, ARC Networks received a 12% $250,000 loan on which it        
recorded interest expense of $9,000. The loan from ARC Network's asset based    
lender, which was outstanding in both 1997 and 1996, produced interest expense  
of $32,000 and 35,000, respectively. The interest rate on such loan was 10.25%  
for the past two years. Interest expense of $121,000, $107,000 and $69,000 was  
incurred on loans from related parties during 1997, 1996 and 1995. ARC Networks 
received a $350,000 equipment loan in 1996 on which interest in 1997 and 1996   
was $117,000 and $25,000.                                                       

      As a result of the above,  ARC Networks  reported net losses of $2.7
million,  $1.1 million and $545,000  during 1997, 1996 and 1995, respectively.  

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Development Stage                                             

   The development stage segment consists of a company, which has no
operating activity and incurred approximately $16,000 in research and           
development expenses.                                                           

Corporate and Other:                                                            

Selling, General and Administrative Expense                                     

  Corporate selling, general and administrative expenses increased
$200,000 when comparing 1997 to 1996 and decreased by $3.3 million when         
comparing 1996 to 1995. In 1995 selling, general and administrative expenses    
included non-cash consulting fee expenses incurred upon the issuance of         
non-employee directors and consultant's stock options of $3.9 million. No such  
consulting fees were incurred at the holding company level during 1997 and 1996.
The remaining expenses, which consist primarily of executive and administrative 
salaries and benefits, accounting and legal fees, consulting fees and office    
expenses, remained relatively level with the prior periods. During 1998, 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.                   

Impact of Inflation:                                                            

      The Company is subject to normal inflationary trends and anticipates
that any increased costs would be passed on to its customers.                   

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk.            

Not applicable                                                

Item 8.  Financial Statements and Supplementary Data                            

      The financial statements and supplementary data begin on page F-1 of
this Form 10-K.                                                                 

Item 9.  Changes and Disagreements with Accountants on Accounting and Financial 
Disclosure                                                    

None                                                          

Part III                                                                        

     Part III, consisting of Items 10, 11, 12 and 13, is incorporated by
reference from the definitive proxy statement relating to the Company's 1998    
Annual Meeting of Shareholders, to be filed with the Securities and Exchange    
Commission within 120 days after the end of the year ended December 31, 1997.   

PART IV                                                                         

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K      

1. Financial Statements                                                         

F-3           Report of Moore Stephens, P.C. Independent Certified Accountants  
F-4 & F-5     Consolidated Balance Sheets as of December 31, 1997 and 1996      
F-6           Consolidated Statements of Operations for the Years Ended         
December 31, 1997, 1996 and 1995                  
F-7 - F-9     Consolidated Statements of Shareholders' Equity for the           
Years Ended December 31, 1997, 1996 and 1995      
F-10 - F-12   Consolidated Statements of Cash Flows for the Years Ended         
December 31, 1997, 1996 and 1995                  
F-13 - F-45   Notes to Consolidated Financial Statements                        

2. Financial Statement Schedules                                                
None                                                          

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3. Reports on Form 8-K                                                          
     On April 21, 1997, the Company filed an 8-K regarding the Lafayette
Industries, Inc. settlement agreement.                      

4.    Exhibits                                                                  

1     Certificate of Incorporation(1)                                           
3.2   By-laws(1)                                                                
10.1  Agreements relating to the acquisition and financing of International     
Magnetic Imaging, Inc. and its affiliated companies.(2)             
10.2  Plan and agreement of reorganization dated as of April 13, 1994 by and    
   among the Registrant, CSM Acquisition Corp., Carte Medical Corporation,
  Creative Socio-Medics Corp. and Advanced Computer Techniques, Inc., as
amended.(3)                                                         
10.3  Employment agreement dated March 21, 1995, between the Registrant and     
George W. Mahoney.(6)                                               
10.4  Employment agreement dated October 1, 1994, between the Registrant and    
Lewis S. Schiller.(6)                                               
10.5  Agreement dated as of March 31, 1995 among SIS Capital Corp., DLB, Inc.,  
Joseph G. Sicinski and Concept Technologies Group, Inc., including  
exhibits and disclosure letters.(5)                                 
10.6  Agreement dated December 20, 1996 relating to the acquisition of Lafayette
Industries, Inc.(8)                                                 
10.7  Employment agreement dated April 11, 1997, between the Registrant and     
George W. Mahoney.(10)                                              
10.8  Settlement agreement between SIS Capital and Lafayette Industries, Inc.(9)
10.9  Employment agreement dated January 1, 1997.(11)                           
11.1  Calculation of earnings per share                                         
21.1  List of Subsidiaries of Registrant.                                       
27    Financial Data Schedule.(7)                                               
-------                                                                         

(1)   Filed as an exhibit to the Company's annual report on Form 10-K for the   
 fiscal year ended July 31, 1994 and incorporated herein by reference.
(2)   Included as exhibits to the Registrant's report on Form 8-K, as amended,  
dated July 19, 1994, and incorporated herein by reference.          
(3)   Included as exhibits to the Registrant's report on Form 8-K, as amended,  
dated June 16, 1994, and incorporated herein by reference.          
(4)   Filed as an exhibit to the Company's annual report on Form 10-K for the   
year ended December 31, 1995 and incorporated herein by reference.  
(5)   Filed as exhibit to the Company's report on Form 8-K, dated April 19,     
1995, and incorporated herein by reference.                         
(6)   Filed as an exhibit to the Company's annual report on Form 10-K for the   
  five month transition period from August 1, 1994 to December 31, 1994.
(7)   Filed only to the SEC in electronic format.                               
(8)   Included as exhibits to the Registrant's report on Form 8-K dated December
20, 1996, and incorporated herein by reference.                     
(9)   Included as exhibits to the Registrant's report on Form 8-K dated April   
21, 1997, and incorporated herein by reference.                     
(10)  Filed as an exhibit to the Company's annual report on Form 10-K for the   
year ended December 31, 1996.                                       
(11)  Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
six months ended June 30, 1997.                                     

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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:    April 14, 1998                   /s/_____________________________      
                   Seymour Richter
                                         President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following personal on behalf of the Registrant and 
in the capacities and on the dates indicated.                                   

Signature                 Title                                 Date            
---------                 -----                                 ----            

/s/________________       President and Chief Executive         April 14, 1998  
Seymour Richter           Officer (Principal Executive                          
Officer)                    

/s/________________       Chief Financial Officer               April 14, 1998  
George W. Mahoney         (Principal Financial and                              
Accounting Officer)         

/s/________________       Director                              April 14, 1998  
Edward D. Bright                                                                

/s/________________       Director                              April 14, 1998  
Don Chaifetz                                                                    

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CONSOLIDATED TECHNOLOGY GROUP, LTD. AND SUBSIDIARIES

FINANCIAL STATEMENTS

 DECEMBER 31, 1997

F-1 

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CONSOLIDATED TECHNOLOGY GROUP, LTD AND SUBSIDIARIES 
FINANCIAL STATEMENTS
 DECEMBER 31, 1997
 INDEX

Independent Auditor's Report                                           F-3      

Consolidated Balance Sheets - December 31, 1997 and 1996            F-4 - F-5   

Consolidated Statements of Operations - Years Ended                             
December 31, 1997, 1996  and 1995                                     F-6     

Consolidated Statement of Shareholders' Equity -                                
Years Ended December 31, 1997, 1996  and 1995                      F-7 - F-9  

Consolidated Statements of Cash Flows -                                         
Years Ended December 31, 1997, 1996  and 1995                     F-10 - F12  

Notes to Consolidated Financial Statements                         F-13 - F-45  

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INDEPENDENT AUDITOR'S REPORT                                                    

To the Board of Directors and Stockholders of                                   
Consolidated Technology Group Ltd..                                             
New York, New York                                                              

 We have audited the accompanying consolidated balance sheets of
Consolidated Technology Group Ltd. and its subsidiaries as of December 31, 1997 
and 1996, and the related consolidated statements of operations, shareholders'  
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 
and 1996, and the consolidated results of their operations and their cash flows 
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.                                  

       The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the     
consolidated financial statements and as discussed in Note 2 to the consolidated
financial statements, the Company has suffered recurring losses from operations,
has certain debt in default; and has an accumulated deficit at December 31, 1997
of approximately $63 million. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard  
to these matters are also described in Note 2. The consolidated financial       
statements do not include any adjustments that might result from the outcome of 
this uncertainty.                                                               

MOORE STEPHENS, P.C.                                                            
Certified Public Accountants,                                                   

Cranford, New Jersey                                                            
March 30, 1998                                                                  

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Consolidated Technology Group Ltd. and Subsidiaries 
Consolidated Balance Sheets 

                                                        December 31,
                                                        ------------
                                                                    1996
                                                                    Restated
                                                                    (footnotes
                                                        1997       19 & 20 )
                                                        ----       ---------
Assets:                                                                         
Current assets:                                                               
 Cash and cash equivalents                           $ 1,268,000   $ 1,185,000
 Receivables, net of allowances                       10,039,000     8,580,000
 Inventories                                                  --        13,000
 Loans receivable                                             --       269,000
 Excess of accumulated costs over related billings       642,000       938,000
 Prepaid expenses and other current assets               298,000       142,000
 Net current assets of discontinued segments           1,044,000     2,311,000
                                                       ---------     ---------
   Total current assets                               13,291,000    13,438,000
                                                      ----------    ----------

Property, plant and equipment, net                       636,000       919,000
                                                         -------       -------

Other assets:                                                                 
 Capitalized software development costs                  183,000       251,000
 Goodwill, net                                           776,000       824,000
 Covenants not to compete, net                                --        60,000
 Customer lists, net                                   5,681,000     5,967,000
 Deferred offering costs                                  71,000       151,000
 Receivables, related parties                            655,000       918,000
 Marketable securities                                    19,000       241,000
 Other assets                                            742,000        49,000
 Net assets of discontinued segments                  15,617,000    11,316,000
                                                      ----------    ----------
   Total Other Assets                                 23,744,000    19,777,000
                                                      ----------    ----------

     Total Assets                                    $37,671,000   $34,134,000
                                                     ===========   ===========

See notes to consolidated financial statements

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Consolidated Technology Group Ltd. and Subsidiaries 
Consolidated Balance Sheets 

                                                        [Enlarge/Download Table]

                                                                      December 31,       
                                                                      ------------       
                                                                               1996      
                                                                             Restated    
                                                                            (footnotes   
                                                                  1997       19 & 20 )   
                                                                  ----       ---------   
                                                                                         
Liabilities and Shareholders' Equity:                                                    
 Current liabilities:                                                                    
  Accounts payable and accrued expenses                      $ 7,632,000     $ 4,236,000 
  Accrued payroll and related expenses                         1,834,000       2,187,000 
  Accrued interest                                                 9,000         101,000 
  Income taxes payable                                            76,000          85,000 
  Interim billings in excess of costs and estimated profits    2,346,000       1,444,000 
  Current debt obligations                                     5,651,000       4,618,000 
  Current portion of capitalized lease obligations                39,000          41,000 
  Notes payable, related parties                                  10,000              -- 
  Net current liabilities of discontinued segments            14,611,000       6,096,000 
                                                              ----------       --------- 
    Total current liabilities                                 32,208,000      18,808,000 
                                                              ----------      ---------- 
 Long-term liabilities:                                                                  
  Long-term debt                                                 124,000         228,000 
  Capitalized lease obligations                                   34,000          16,000 
  Subordinated debt                                              139,000              -- 
                                                                 -------         ------- 
    Total long-term liabilities                                  297,000         244,000 
                                                                 -------         ------- 

Minority interest                                             15,511,000      12,617,000 
                                                              ----------      ---------- 
Shareholders' equity (deficit):                                                          
 Preferred stock                                                   3,000          26,000 
 Additional paid-in-capital, preferred stock                          --          92,000 
 Common stock (50,000,000 shares authorized, 49,910,996                                  
  and 45,795,828 shares issued and outstanding as of                                     
  December 31, 1997 and 1996, respectively)                      499,000         458,000 
 Additional paid-in-capital, common stock                     52,152,000      52,005,000 
 Unrealized gain on exchange translation                              --          86,000 
 Unrealized gain (loss) on marketable securities                (116,000)         16,000 
 Accumulated deficit                                         (62,883,000)    (50,218,000)
                                                             ------------    ------------
   Total shareholders' equity (deficit)                      (10,345,000)      2,465,000 
                                                             ------------      --------- 

     Total Liabilities and Shareholders' Equity (Deficit)    $37,671,000     $34,134,000 
                                                             ===========     =========== 

See notes to consolidated financial statements

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 Consolidated Technology Group Ltd. and Subsidiaries
 Consolidated Statements of Operations

                                                        [Enlarge/Download Table]

                                                                   Year Ended December 31,               
                                                                   -----------------------               
                                                                              1996              1995     
                                                                            Restated          Restated   
                                                                           (footnotes        (footnotes  
                                                             1997           19 & 20 )         19 & 20 )  
                                                             ----           ---------         ---------  
                                                                                                         
Revenues                                                  $92,717,000      $76,718,000       $73,790,000 

Direct Costs                                               84,127,000       69,718,000        67,123,000 
                                                           ----------       ----------        ---------- 

Gross Profit                                                8,590,000        7,000,000         6,667,000 

Selling, General and Administrative                        15,667,000       16,548,000        19,577,000 
                                                           ----------       ----------        ---------- 

Loss from Operations                                       (7,077,000)      (9,548,000)      (12,910,000)
                                                           -----------      -----------      ------------

Other Income (Expense):                                                                                  
 Interest expense                                          (1,130,000)      (1,089,000)       (1,069,000)
 Other income (expense), net                               (1,210,000)         194,000            59,000 
 Realized gain (loss) on marketable securities               (368,000)         823,000           (35,000)
                                                             ---------         -------           --------
  Total other expense, net                                 (2,708,000)         (72,000)       (1,045,000)
                                                           -----------         --------       -----------

Loss from Continuing Operations Before                                                                   
 Income Taxes and Minority Interest                        (9,785,000)      (9,620,000)      (13,955,000)

Income Tax Benefit (Provision)                                275,000          (49,000)          (17,000)

Minority Interest in Loss of Subsidiaries                   2,443,000        3,098,000         3,724,000 
                                                            ---------        ---------         --------- 

Loss from continuing operations                            (7,067,000)      (6,571,000)      (10,248,000)

Discontinued Operations (footnote 20):                                                                   
 Income (Loss) from operations of discontinued segments    (5,262,000)      (2,999,000)       (1,112,000)
 Loss on disposal of segments                                (336,000)              --                -- 
                                                             ---------              --                -- 

Net Loss                                                 ($12,665,000)     ($9,570,000)     ($11,360,000)
                                                         =============     ============     =============

Loss per common share:                                                                                   
 Loss from continuing operations                               ($0.15)          ($0.17)           ($0.46)
 Loss from operations of discontinued segments                 ($0.11)          ($0.06)           ($0.05)
 Loss on disposal of segments                                  ($0.01)              --                -- 
                                                               -------              --                -- 
Net loss per common share                                      ($0.27)          ($0.23)           ($0.51)
                                                               =======          =======           =======

Weighted average number of common shares                   47,161,799       41,639,293        22,423,035 
                                                           ==========       ==========        ========== 

See notes to consolidated financial statements

 F-6

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Consolidated Technology Group, Ltd. and Subsidiaries
 Consolidated Statement of Shareholders Equity
for the Year Ended December 31, 1997

                                                        [Enlarge/Download Table]

                                         Balance at                       Stock                
                                        December 31,                    Issued in  Unrealized  
                                            1996      Conversion         Lieu of     Loss on   
                                          Restated    of Series A         Cash      Exchange   
                                       (footnote 19)   Preferred         Payment   Translation 
                                       -------------  ----------         -------   ----------- 
                                                                                               
Preferred stock $1.00 par value,                                                               
 6% Series A, Authorized                                                                       
 77,713 shares:                                                                                
   Shares                                    22,891         (22,891)           --           -- 
   Amounts                              $    23,000     ($   23,000)           --           -- 
Preferred stock, $1.00 par value,                                                              
 $3.50 and $.10, Series B and E,                                                               
 8,000 shares authorized each:                                                                 
   Shares                                       262              --            --           -- 
   Amounts                              $     1,000              --            --           -- 
Preferred stock, $1.00 par value,                                                              
 $8.00 subordinated Series F,                                                                  
 6,000 shares authorized:                                                                      
   Shares                                     2,700              --            --           -- 
   Amounts                              $     2,000              --            --           -- 
                                        -----------     ------------  -----------   ---------- 
Total Preferred stock, par              $    26,000     ($   23,000)           --           -- 
Additional paid-in capital                                                                     
 preferred stock                        $    92,000     ($   92,000)           --           -- 
Common stock, $0.01 par value.                                                                 
 50,000,000 shares authorized                                                                  
   Shares                                45,795,828       2,891,943     1,223,225           -- 
   Amounts                              $   458,000      $   29,000   $    12,000           -- 
Additional paid-in capital,                                                                    
 common stock                           $52,005,000      $   86,000   $    61,000           -- 
Unrealized gain on exchange                                                                    
 translation                            $    86,000              --            --  ($   86,000)
Unrealized gain on Marketable                                                                  
 Securities                             $    16,000              --            --           -- 
Accumulated deficit                    ($50,218,000)             --            --           -- 
                                        -----------      ----------   -----------   ---------- 
  Total shareholders' equity (deficit)  $ 2,465,000              --   $    73,000  ($   86,000)
                                        ===========      ==========   ===========   ========== 

                                                                                   (continued) 

 See notes to consolidated financial statements.

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Consolidated Technology Group, Ltd. and Subsidiaries
 Consolidated Statement of Shareholders Equity
for the Year Ended December 31, 1997

                                                                [Download Table]

                                             Net                                   
                                          Unrealized                    Balance    
                                          Investment                       at      
                                           Security          Net      December 31, 
                                             Loss           Loss          1997     
                                             ----           ----          ----     
                                                                                   
Preferred stock $1.00 par value,                                                   
 6% Series A, Authorized                                                           
 77,713 shares:                                                                    
   Shares                                        --             --              -- 
   Amounts                                       --             --              -- 
Preferred stock, $1.00 par value,                                                  
 $3.50 and $.10, Series B and E,                                                   
 8,000 shares authorized each:                                                     
   Shares                                        --             --             262 
   Amounts                                       --             --    $      1,000 
Preferred stock, $1.00 par value,                                                  
 $8.00 subordinated Series F,                                                      
 6,000 shares authorized:                                                          
   Shares                                        --             --           2,700 
   Amounts                                       --             --    $      2,000 
                                            -------         ------    ------------ 
Total Preferred stock, par                       --             --    $      3,000 
Additional paid-in capital                                                         
 preferred stock                                 --             --              -- 
Common stock, $0.01 par value.                                                     
 50,000,000 shares authorized                                                      
   Shares                                        --             --      49,910,996 
   Amounts                                       --             --    $    499,000 
Additional paid-in capital,                                                        
 common stock                                    --             --    $ 52,152,000 
Unrealized gain (loss) on exchange                                                 
 translation                                     --             --              -- 
Unrealized gain (loss) on marketable                                               
securities                              ($  132,000)            --   ($    116,000)
Accumulated deficit                              --   ($12,665,000)  ($ 62,883,000)
                                        ------------  -------------  --------------
  Total shareholders' equity (deficit)  ($  132,000)  ($12,665,000)  ($ 10,345,000)
                                        ============  =============  ==============

                                                                        (concluded)

 See notes to consolidated financial statements.

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Consolidated Technology Group, Ltd. and Subsidiaries
 Consolidated Statement of Shareholders Equity
for the Year Ended December 31, 1996

                                                        [Enlarge/Download Table]

                                                                                Stock Issued
                                     Balance                          Stock        in Lieu  
                                       at         Conversion         Issued     of Cash for 
                                   December 31,   of Series A          for        Services  
                                       1995        Preferred        Offerings     Rendered  
                                       ----        ---------        ---------     --------  
                                                                                            
Preferred stock $1.00 par value,                                                            
 6% Series A, Authorized                                                                    
 77,713 shares:                                                                             
   Shares                                66,596         (43,705)           --           --  
   Amounts                          $    67,000     ($   44,000)           --           --  
Preferred stock, $1.00 par value,                                                           
 $3.50 and $.10, Series B and E,                                                            
 8,000 shares authorized each:                                                              
   Shares                                   262              --            --           --  
   Amounts                          $     1,000              --            --           --  
Preferred stock, $1.00 par value,                                                           
 $8.00 subordinated Series F,                                                               
 6,000 shares authorized:                                                                   
   Shares                                 2,700              --            --           --  
   Amounts                          $     2,000              --            --           --  
                                    -----------     ------------     --------     --------  
Total Preferred stock, par          $    70,000     ($   44,000)           --           --  
Additional paid-in capital                                                                  
 preferred stock                    $   266,000     ($  174,000)           --           --  
Common stock, $0.01 par value.                                                              
 50,000,000 shares authorized                                                               
   Shares                            26,655,071       5,690,757    13,250,000      200,000  
   Amounts                          $   267,000      $   57,000   $   132,000     $  2,000  
Additional paid-in capital,                                                                 
 common stock                       $51,021,000      $  161,000   $   780,000     $ 43,000  
Unrealized gain on exchange                                                                 
 translation                       ($    17,000)             --            --           --  
Unrealized gain on Marketable                                                               
 Securities                         $    89,000              --            --           --  
Accumulated deficit                ($40,648,000)             --            --           --  
                                    -----------      ----------   -----------     --------  
  Total shareholders' equity        $11,048,000      $       --   $   912,000     $ 45,000  
                                    ===========      ==========   ===========     ========  

                                                                               (continued)  

 See notes to consolidated financial statements.

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Consolidated Technology Group, Ltd. and Subsidiaries
 Consolidated Statement of Shareholders Equity
for the Year Ended December 31, 1996

                                                        [Enlarge/Download Table]

                                       Unrealized  Unrealized                     Balance at  
                                         Gain on   Investment                    December 31, 
                                        Exchange    Security          Net       1996 Restated 
                                      Translation     Gain           Loss       (footnote 19) 
                                      -----------     ----           ----       ------------- 
                                                                                              
Preferred stock $1.00 par value,                                                              
 6% Series A, Authorized                                                                      
 77,713 shares:                                                                               
   Shares                                      --          --             --           22,891 
   Amounts                                     --          --             --     $     23,000 
Preferred stock, $1.00 par value,                                                             
 $3.50 and $.10, Series B and E,                                                              
 8,000 shares authorized each:                                                                
   Shares                                      --          --             --              262 
   Amounts                                     --          --             --     $      1,000 
Preferred stock, $1.00 par value,                                                             
 $8.00 subordinated Series F,                                                                 
 6,000 shares authorized:                                                                     
   Shares                                      --          --             --            2,700 
   Amounts                                     --          --             --     $      2,000 
                                          -------      ------          -----     ------------ 
Total Preferred stock, par                     --          --             --     $     26,000 
Additional paid-in capital                                                                    
 preferred stock                               --          --             --     $     92,000 
Common stock, $0.01 par value.                                                                
 50,000,000 shares authorized                                                                 
   Shares                                      --          --             --       45,795,828 
   Amounts                                     --          --             --     $    458,000 
Additional paid-in capital,                                                                   
 common stock                                  --          --             --     $ 52,005,000 
Unrealized gain (loss) on exchange                                                            
 translation                           $  103,000          --             --     $     86,000 
Unrealized gain (loss) on marketable                                                          
securities                                     --    ( 73,000)            --     $     16,000 
Accumulated deficit                            --          --   ($ 9,570,000)   ($ 50,218,000)
                                       ----------   ----------   -------------  --------------
  Total shareholders' equity           $  103,000   ($ 73,000)  ($ 9,570,000)    $  2,465,000 
                                       ==========   ==========  =============    ============ 

                                                                                  (concluded) 

 See notes to consolidated financial statements.

F-8 

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Consolidated Technology Group, Ltd. and Subsidiaries
 Consolidated Statement of Shareholders Equity
for the Year Ended December 31, 1995

                                                        [Enlarge/Download Table]

                                                                                Stock Issued
                                     Balance                          Stock        in Lieu  
                                       at         Conversion         Issued     of Cash for 
                                   December 31,   of Series A          for        Services  
                                       1994        Preferred        Offerings     Rendered  
                                       ----        ---------        ---------     --------  
                                                                                            
Preferred stock $1.00 par value,                                                            
 6% Series A, Authorized                                                                    
 77,713 shares:                                                                             
   Shares                                77,713         (11,117)           --           --  
   Amounts                          $    78,000     ($   11,000)           --           --  
Preferred stock, $1.00 par value,                                                           
 $3.50 and $.10, Series B and E,                                                            
 8,000 shares authorized each:                                                              
   Shares                                   262              --            --           --  
   Amounts                          $     1,000              --            --           --  
Preferred stock, $1.00 par value,                                                           
 $8.00 subordinated Series F,                                                               
 6,000 shares authorized:                                                                   
   Shares                                 2,700              --            --           --  
   Amounts                          $     2,000              --            --           --  
                                    -----------     ------------     --------     --------  
Total Preferred stock, par          $    81,000     ($   11,000)           --           --  
Additional paid-in capital                                                                  
 preferred stock                    $   310,000     ($   44,000)           --           --  
Common stock, $0.01 par value.                                                              
 50,000,000 shares authorized                                                               
   Shares                            17,577,260       1,447,807     1,000,000      130,004  
   Amounts                          $   176,000      $   15,000   $    10,000     $  1,000  
Additional paid-in capital,                                                                 
 common stock                       $45,598,000      $   42,000   $   240,000     $113,000  
Unrealized gain on exchange                                                                 
 translation                       ($    33,000)             --            --           --  
Unrealized gain on Marketable                                                               
 Securities                        ($   139,000)             --            --           --  
Accumulated deficit                ($29,288,000)             --            --           --  
                                    -----------      ----------   -----------     --------  
  Total shareholders' equity        $16,705,000      $    2,000   $   250,000     $114,000  
                                    ===========      ==========   ===========     ========  

                                                                               (continued)  

 See notes to consolidated financial statements.

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Consolidated Technology Group, Ltd. and Subsidiaries
 Consolidated Statement of Shareholders Equity
for the Year Ended December 31, 1995

                                                        [Enlarge/Download Table]

                                      Stock Issued    Unrealized  Unrealized                               
                                        for the         Gain on   Investment                   Balance at  
                                      Exercise of      Exchange    Security         Net       December 31, 
                                      Stock Options  Translation     Gain          Loss          1995      
                                      -------------  -----------     ----          ----      ------------- 
                                                                                                           
Preferred stock $1.00 par value,                                                                           
 6% Series A, Authorized                                                                                   
 77,713 shares:                                                                                            
   Shares                                      --             --          --            --          66,596 
   Amounts                                     --             --          --            --    $     67,000 
Preferred stock, $1.00 par value,                                                                          
 $3.50 and $.10, Series B and E,                                                                           
 8,000 shares authorized each:                                                                             
   Shares                                      --             --          --            --             262 
   Amounts                                     --             --          --            --    $      1,000 
Preferred stock, $1.00 par value,                                                                          
 $8.00 subordinated Series F,                                                                              
 6,000 shares authorized:                                                                                  
   Shares                                      --             --          --            --           2,700 
   Amounts                                     --             --          --            --    $      2,000 
                                           ------        -------      ------         -----    ------------ 
Total Preferred stock, par                     --             --          --            --    $     70,000 
Additional paid-in capital                                                                                 
 preferred stock                               --             --          --            --    $    266,000 
Common stock, $0.01 par value.                                                                             
 50,000,000 shares authorized                                                                              
   Shares                               6,500,000             --          --            --      26,655,071 
   Amounts                             $   65,000             --          --            --    $    267,000 
Additional paid-in capital,                                                                                
 common stock                          $5,028,000             --          --            --    $ 51,021,000 
Unrealized gain (loss) on exchange                                                                         
 translation                                   --     $   16,000          --            --   ($     17,000)
Unrealized gain (loss) on marketable                                                                       
securities                                     --             --    $228,000            --    $     89,000 
Accumulated deficit                            --             --              ($11,360,000)  ($ 40,648,000)
                                      -----------     ----------    --------  -------------  --------------
  Total shareholders' equity          $ 5,093,000     $   16,000    $228,000  ($11,360,000)   $ 11,048,000 
                                      ===========     ==========    ========  =============   ============ 

                                                                                                (concluded)

 See notes to consolidated financial statements.

F-9 

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 Consolidated Technology Group Ltd. and Subsidiaries
 Consolidated Statements of Cash Flows

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                                                                                    Year Ended December 31,              
                                                                                    -----------------------              
                                                                                              1996               1995    
                                                                                            Restated           Restated  
                                                                                           (footnotes         (footnotes 
                                                                           1997             19 & 20)           19 & 20)  
                                                                           ----             --------           --------  
                                                                                                                         
Cash Flows from Operating Activities:                                                                                    
Loss from continuing operations                                         ($7,067,000)      ($6,571,000)      ($10,248,000)
Adjustments to reconcile loss from continuing operations to net cash                                                     
 provided by (used in) continuing operations:                                                                            
  Depreciation and amortization                                           1,050,000         1,028,000          2,085,000 
  Minority interest in net loss of consolidated subsidiaries             (2,443,000)       (3,098,000)        (3,724,000)
  Bad debt expense                                                        1,195,000           110,000            237,000 
  Loss from equity method investments                                       140,000           264,000                 -- 
  Noncash expense from issuance of options and warrants                          --                --          3,869,000 
  Noncash expense from subsidiaries issuance of options and warrants        926,000         3,722,000          2,214,000 
  Value of stock issued in lieu of cash payments for services rendered       73,000            45,000            114,000 
  Value of subsidiaries stock issued in lieu of cash payments                                                            
   for services rendered                                                         --         1,827,000             11,000 
  Realized (gain) loss on marketable securities                             368,000          (823,000)            35,000 
  (Gain) loss on disposal of fixed assets                                   491,000                --                 -- 
  Impaired asset write-offs                                                 415,000           509,000                 -- 
  Write-off deferred offering costs                                         480,000                --                 -- 
  Change in assets and liabilities:                                                                                      
   (Increase) decrease in assets:                                                                                        
     Receivables                                                         (2,309,000)         (963,000)          (121,000)
     Inventories                                                             13,000             8,000             74,000 
     Excess of accumulated costs over related billings                     (156,000)           65,000         (1,002,000)
     Prepaid expenses and other current assets                              296,000          (174,000)            66,000 
   Increase (decrease) in liabilities:                                                                                   
     Accounts payable and accrued  expenses                               3,396,000          (716,000)         2,251,000 
     Accrued payroll taxes and related expenses                            (353,000)          283,000            202,000 
     Accrued interest                                                        (9,000)           85,000            232,000 
     Income taxes payable                                                   (92,000)           49,000             17,000 
     Interim billings in excess of costs and estimated profits              902,000          (256,000)         1,046,000 
                                                                            -------          ---------         --------- 
     Net cash used in continuing operations                              (2,684,000)       (4,606,000)        (2,642,000)
                                                                         -----------       -----------        -----------

Income (loss) from discontinued operations                               (5,262,000)       (2,999,000)        (1,112,000)
Adjustments to reconcile loss from discontinued operations to net cash                                                   
 provided by (used in) discontinued operations:                                                                          
  Depreciation and amortization                                           5,495,000         5,938,000          5,517,000 
  Bad debt expense                                                        2,413,000         2,478,000            986,000 
  (Gain) loss on disposal of fixed assets                                   (29,000)          167,000           (148,000)
  Loss on disposal of segments                                             (336,000)               --                 -- 
  Net change in assets and liabilities                                     (784,000)       (7,837,000)        (5,661,000)
                                                                           ---------       -----------        -----------
    Net cash provided by (used in) discontinued operations                1,497,000        (2,253,000)          (418,000)
                                                                          ---------        -----------          ---------

    Net cash used in operating activities                                (1,187,000)       (6,859,000)        (3,060,000)
                                                                         -----------       -----------        -----------

                                                                                                              (continued)

See notes to consolidated financial statements

F-10

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 Consolidated Technology Group Ltd. and Subsidiaries
 Consolidated Statements of Cash Flows

                                                        [Enlarge/Download Table]

                                                                          Year Ended December 31,              
                                                                          -----------------------              
                                                                                    1996               1995    
                                                                                  Restated           Restated  
                                                                                 (footnotes         (footnotes 
                                                                 1997             19 & 20)           19 & 20)  
                                                                 ----             --------           --------  
                                                                                                               

Cash Flows from Investing Activities:                                                                          
 (Increase) decrease in other assets                             (693,000)          289,000           (463,000)
 Capital expenditures                                            (440,000)         (661,000)          (273,000)
 Capitalized software development costs                          (462,000)         (279,000)                -- 
 Investments in marketable securities                             (20,000)         (385,000)            (7,000)
 Proceeds from sale of marketable securities                       97,000         1,244,000            530,000 
 Payments for loans made                                         (220,000)       (3,208,000)        (3,022,000)
 Collections for repayment of loans made                          475,000         3,449,000          3,223,000 
 Acquisition of a subsidiary                                           --                --           (983,000)
 Cash of subsidiaries acquired and merged                              --                --            504,000 
                                                               -----------          -------            ------- 
          Net cash provided by (used in) investing activities  (1,263,000)          449,000           (491,000)

Cash Flows from Financing Activities:                                                                          
 Deferred offering costs                                         (400,000)         (152,000)          (129,000)
 Net advances from (payments to) asset based lender               377,000           (25,000)           366,000 
 Proceeds from issuance of debt                                   680,000         3,332,000                 -- 
 Repayment of debt                                               (118,000)       (3,462,000)          (572,000)
 Proceeds from issuance of subordinated debt                      139,000                --                 -- 
 Repayment of subordinated debt                                        --          (700,000)          (800,000)
 Payments on capital lease obligations                            (37,000)         (192,000)           (29,000)
 Issuance of common stock                                              --           912,000            250,000 
 Issuance of subsidiaries common stock                                 --         7,510,000          2,990,000 
 Cost of subsidiaries issuance of common stock                    (75,000)       (1,369,000)                -- 
 Issuance and exercise of stock options                                --                --          1,225,000 
 Subsidiaries issuance and exercise of stock options            1,967,000         1,625,000            716,000 
                                                                ---------         ---------            ------- 
          Net cash provided by financing activities             2,533,000         7,479,000          4,017,000 
                                                                ---------         ---------          --------- 

Net Increase in Cash and Cash Equivalents                          83,000         1,069,000            466,000 

Cash and Cash Equivalents (Overdraft) at Beginning of Period    1,185,000           116,000           (350,000)
                                                                ---------           -------           ---------

Cash and Cash Equivalents at End of Period                     $1,268,000        $1,185,000           $116,000 
                                                               ==========        ==========           ======== 

Supplemental Disclosures of Cash Flow Information:                                                             
  Cash paid for:                                                                                               
   Interest                                                    $1,105,000        $1,004,000           $840,000 
                                                               ==========        ==========           ======== 
   Income taxes                                                $        0        $        0           $      0 
                                                               ==========        ==========           ======== 

                                                                                                   (concluded) 

See notes to consolidated financial statements

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Consolidated Technology Group, Ltd. and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31, 1997, `1996 and 1995 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:        

During the Year Ended December 31, 1997:                                        
(1)    The Company acquired equipment under capital lease obligations with a net
present value of $53,000.                                         
(2)   The Company issued common stock valued at $73,000 in lieu  of cash        
payments  for  services  performed.                               
(3)   A subsidiary of the Company, operating in the contract engineering        
    services segment, incurred non-cash expense from the issuance of stock
options valued at $141,000.                                       
(4)   A subsidiary of the Company, operating in the telecommunications segment, 
    incurred non-cash expense from the issuance of stock purchase warrants
valued at $485,000.                                               
(5)   A subsidiary of the Company, operating in the medical information         
     services segment, incurred non-cash expense from the issuance of common
stock valued at $300,000 for the acquisition of certain assets.   

During the Year Ended December 31, 1996:                                        
(1) A subsidiary of the Company, operating in the medical information services  
segment, incurred non-cash expense from the issuance of stock options and       
warrants to purchase stock valued at $3.7 million.                              
(2) The Company issued common stock valued at $45,000 in lieu of cash payments  
for services performed.                                                         
(3) Subsidiaries of the Company operating in the contract engineering services  
and medical information services segments issued common stock valued at $80,000 
and $1.7 million, respectively, in lieu of cash payments for services performed.

During the Year Ended December 31, 1995:                                        
(1) The Company issued stock options and incurred non-cash expense of $3.9      
million.                                                                        
(2) A subsidiary of the Company operating in the contract engineering           
services segment incurred non-cash expense from the issuance of stock options   
and warrants to purchase stock valued at $2.2 million.                          
(3) The Company issued common stock valued at $114,000 in lieu of cash payment  
for services rendered.                                                          
(4) Pursuant to a reverse acquisition between a subsidiary of the Company and   
another entity: (a) Reduced the Company's equity ownership in such subsidiary   
resulting in increased minority interest of $5.8 million. (b) Acquired net      
assets with a book value of $983,000. (5) The Company received marketable       
securities in lieu of cash payments for notes and interest receivable with a    
book value of $217,000.                                                         

See notes to consolidated financial statements

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Notes to Consolidated Financial Statements
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(1)      Summary of Significant Accounting Policies                             

Nature of Operations - Consolidated Technology Group, Ltd., (the "Company",     
"Consolidated" or the "Registrant") is a publicly held holding company which has
controlling interests, (either directly or indirectly through its wholly owned  
subsidiary, SIS Capital Corp., ("SISC")), in its consolidated subsidiaries      
operating in various business segments throughout the United States. During the 
1997, the Company discontinued five of its eight operating segments that existed
at December 31, 1996 and added one segment.                                     

The operating business segments of the Company as of December 31, 1997 are as   
follows:                                                                        

(i) Contract Engineering Services consists of Trans Global Services, Inc.,      
("TGS"), and its subsidiaries, Avionics-Research Holdings, ("Avionics"), and    
Resource Management International, Inc., ("RMI"), which provide engineers,      
designers and technical personnel on a temporary basis pursuant to contracts    
with major corporations.                                                        

(ii) Medical Information Services consists of Netsmart Technologies, Inc.,      
("Netsmart") and its subsidiary, Creative Socio-Medics, Corp., ("CSM") which are
companies that provide medical information database services, health care       
industry related software packages and the SmartCard medical identification     
cards and related software program.                                             

(iii) Telecommunications consists of ARC Networks, Inc., ("ARC") which, among   
other things, installs telephonic network systems and buys and resells local    
telephone service.                                                              

(iv) Development stage consists of one company, which has not had any operating 
activity.                                                                       

The business segments, which were discontinued during 1997, are as follows:     

(i) Medical Diagnostics consists of International Magnetic Imaging, Inc.,       
("IMI") which performs magnetic resonance imaging and other medical diagnostic  
services.                                                                       

(ii) Electro-Mechanical and Electro-Optical Products Manufacturing consists of  
Sequential Electronic Systems, Inc. ("SES"), and S-Tech, Inc. ("S-Tech") which  
are subsidiaries of SES Holdings Inc., ("SESH") which is a wholly owned         
subsidiary of SpecTec, Inc. ("SpecTec") and Televend, Inc., ("Televend"), and   
FMX, Corp. ("FMX"). This group of companies are those which manufacture and sell
products such as devices that measure distance and velocity, instrumentation    
devices, debit card vending machines, prepaid telephone calling cards and finger
print identification products.                                                  

(iii) Three Dimensional Products and Services consists of 3D Holdings           
International, Inc., (3D"), and its subsidiaries, 3D Technology, Inc., ("3D     
Tech"), 3D Imaging International, Inc., ("3DI"), and Vero International, Inc.,  
("Vero"), which are companies that provide three dimensional imaging services   
that are used in a variety of applications, such as prototype building and      
reverse engineering.                                                            

(iv) Audio Products Manufacturing consists of WWR Technology, Inc., ("WWR"), a  
subsidiary of SESH which manufactures and sells a professional line of          
loudspeakers.                                                                   

(v) Business Consulting Services consists of The Trinity Group, Inc.,           
("Trinity") which provides a variety of financial and business related services.

Corporate and Other consists of the operating activities of the holding company 
entities, primarily Consolidated and SISC.                                      

The percentage of revenues produced by the various business segments are as     
follows:                                                                        

                                       1997              1996             1995
                                       ----              ----             ----
Contract Engineering Services            82%               83%              86% 
Medical Information Services              9%               11%              10% 
Telecommunications                        9%                6%               4% 

For further discussions of the Company's business segments, see footnote 14,    
"Industry Segments".                                                            

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Notes to Consolidated Financial Statements
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Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and all of its majority-owned and voting    
controlled subsidiaries. Investments in 20% to 50% owned companies in which the 
Company does not have voting control are accounted for on the equity method. All
significant intercompany balances and transactions have been eliminated.        

Cash and Cash Equivalents - The Company considers all highly liquid instruments 
purchased with a maturity of three months or less to be cash equivalents.       

Inventories - Inventories are valued at the lower of cost or market and consist 
of raw material and parts.                                                      

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 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 which ranges from 2-7 years for furniture and  
fixtures, 5-10 years for and machinery and equipment and 3-4 years for vehicles.
Leasehold improvements are amortized over periods not in excess of applicable   
lease terms. Amortization of capitalized leases and leasehold improvements is   
included with depreciation expense.                                             

Research and Development - The Company's research and product development       
activities are conducted by the medical information services and development    
stage segments. The Company's research and development expense for 1997, 1996   
and 1995 approximated $217000, $278,000 and $699,000. All of the Company's      
research and development activities were company financed. Research and         
development costs are expensed as incurred.                                     

Intangible Assets - Intangible assets consist of capitalized software           
development costs, goodwill, covenants not to compete and customer lists.       

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 commences 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 2-5 years. Research and development  
costs incurred to establish technological feasibility are expensed as incurred. 

Goodwill - 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.                

Covenants Not to Compete - The capitalized value of covenants not to compete are
amortized on the straight-line basis over their contractual lives, which range  
from three to five years. As of December 31, 1997, all amounts capitalized for  
covenants not to compete have been fully amortized.                             

Customer Lists - Customer lists are being amortized over twelve to fifteen years
on the straight-line basis.                                                     

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Notes to Consolidated Financial Statements
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Impairment - Certain long-term assets of the Company including goodwill and the 
other intangible assets described above, are reviewed on a quarterly basis as to
whether their carrying value has become impaired. Management considers assets to
be impaired if the carrying value exceeds the future projected net cash flows   
from related operations. If impairment is deemed to exist, the assets will be   
written-down to fair value or projected net cash flows from related operations. 
Management also re-evaluates the periods of amortization to determine whether   
subsequent events and circumstances warrant revised estimates of useful lives.  
Impairment and the method of projecting net cash flows (discounted or           
undiscounted and without interest charges) is determined at the subsidiary      
level. Based on this evaluation, as of December 31, 1997, the balances as       
reported in the accompanying balance sheet are expected to be fully recoverable.
However, it is at least reasonably possible that management's estimate of future
cash flows may change in the near term, thus resulting in an acceleration in or 
complete write-off of the unamortized balance of certain long lived assets.     
During 1997, the medical information services segment wrote-off $1.5 million of 
impaired assets During 1996, the Company wrote-off impaired goodwill of $509,000
related to the telecommunications segment. All of the impairment write-offs are 
included in the selling, general and administrative expense.                    

Deferred Offering Costs - Deferred offering costs represent amounts paid or     
accrued for costs associated with anticipated public offerings for three of the 
Company's a subsidiaries. During 1997, the contract engineering services segment
wrote-off $320,000 of deferred offering costs which were incurred during 1997   
and 1996 and the telecommunications segment incurred $233,000 of such costs and 
wrote-off $162,000. Additionally, during 1996, the medical information services 
segment completed a public offering in which offering costs of $1.4 million were
incurred and offset against the total gross proceeds of the offering. During    
1995 the medical information services segment wrote-off $460,000 of deferred    
offering costs that were incurred for a prior offering that was not consummated.

Marketable Securities -All of the Company's investments have readily            
determinable fair values which 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.                  

Minority Interest - For consolidated subsidiaries that are not wholly owned the 
Company eliminates the minority interest portion of the related profits and     
losses. The allocable losses of such minority interests is in excess of the     
Company's investment in such subsidiaries by approximately $2.8 million and $1.8
million, respectively, at December 31, 1997 and 1996.                           

Revenue Recognition - The Company's segments that generate revenues apply the   
following revenue recognition policies:                                         

Contract Engineering Services - The contract engineering services segment       
recognizes revenue as services are provided.                                    

Medical Information Services - The medical information services segment         
anticipates that it will recognize revenue principally from the licensing of its
software, and from consulting and maintenance services rendered in connection   
with such licensing activity. Revenues from licensing will be recognized under  
the terms of the licenses. Consulting revenue is recognized when the services   
are rendered. 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. Using the units-of-work performed    
method to measure progress towards completion, revisions in cost estimates and  
recognition of losses on these contracts are reflected in the accounting period 
in which the facts become known. Contract terms provide for billing schedules   
that differ from revenue recognition and give rise to excess of accumulated     
costs over related billings and interim billings in excess of costs and         
estimated profits. It is reasonably possible that the excess of accumulated     
costs over related billings and interim billings in excess of costs and         
estimated profits may be subject to change in the near future. Revenue from the 
software package license agreements without significant vendor obligation 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.                                           

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Notes to Consolidated Financial Statements
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Telecommunications - For local and long distance telephone service, the         
telecommunications segment recognizes revenue as service is provided to         
customers. For telephone service provided through the sale of prepaid debit     
cards the segment invoices the customer, principally distributors, at a discount
from the face amount of the debit card, when the debit cards are distributed.   
The telecommunications segment records the invoice as deferred revenue and      
recognizes as telephone usage is provided. Data cable installation revenue is   
recognized using the percentage of completion method, measured by the percentage
of cost incurred to date to the total estimated cost for each contract.         
Revisions in cost estimates and recognition of losses on these contracts are    
reflected in the accounting period in which the facts become known. Contract    
terms provide for billing schedules that differ from revenue recognition and    
give rise to excess of accumulated costs over related billings and interim      
billings in excess of costs and estimated profits. It is reasonably possible    
that the excess of accumulated costs over related billings and interim billings 
in excess of costs and estimated profits may be subject to change in the near   
future.                                                                         

Costs, estimated profits, and billings on uncompleted contracts are summarized  
as follows:                                                                     

                                            December 31,
                                            ------------
                                           1997                   1996
                                           ----                   ----
Costs Incurred on Uncompleted Contracts      $4,099,000             $3,906,000  
Estimated Profits                             1,699,000                740,000  
Less Billings to Date                        (7,502,000)            (5,152,000) 
                                            -----------            -----------
 Net                                       ($1,704,000)           ($  506,000)
                                           ============           ============

Excess of Accumulated Costs Over                                                
Related Billings                               642,000                938,000 
Interim Billings in Excess of Costs                                             
And Estimated Profits                       (2,346,000)            (1,444,000)
                                            -----------            -----------
           Net                             ($1,704,000)           ($  506,000)
                                           ============           ============

Loss Per Share - The Financial Accounting Standards Board has issued Statement  
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which 
is effective for financial statements issued for periods ending after December  
15, 1997. Accordingly, earnings per share data in the financial statements for  
1997 have been calculated in accordance with SFAS No. 128. Prior period earnings
per share data did not require restatement in order to conform to SFAS No. 128. 
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings   
per Share" and replaces its primary earnings per share with a new basic earnings
per share representing the amount of earnings for the period available to each  
share of common stock outstanding during the reporting period. SFAS No. 128 also
requires a dual presentation of basic and diluted earnings per share on the face
of the statement of operations for all companies with complex capital           
structures. Diluted earnings per share reflects the amount of earnings for the  
period available to each share of common stock outstanding during the reporting 
period, while giving effect to all dilutive potential common shares that were   
outstanding during the period, such as, common shares that could result from the
potential exercise or conversion of securities into common stock. The           
computation of diluted earnings per share does not assume conversion, exercise, 
or contingent issuance of securities that would have an antidilutive effect on  
earnings per share (i.e. increasing earnings per share or reducing loss per     
share). The dilutive effect of outstanding options and warrants and their       
equivalents are reflected in dilutive earnings per share by the application of  
the treasury stock method which recognizes the use of proceeds that could be    
obtained upon the exercise of options and warrants in computing diluted earnings
per share. It assumes that any proceeds would be used to purchase common stock  
at the average market price of the common stock during the period exceeds the   
exercise price of the options or warrants. Securities that could potentially    
dilute earnings per share in the future are disclosed in footnote 13 and consist
of the Series A Common Stock Purchase Warrants to purchase 1,000,000 shares of  
the Company's common stock. As of December 31, 1997, the Company does not have  
any dilutive items and a dual presentation of earnings per share is not         
presented.                                                                      

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 number of common shares outstanding because their inclusion would be    
anti-dilutive.                                                                  

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Notes to Consolidated Financial Statements
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Fair Value of Financial Instruments - Generally accepted accounting principles  
require disclosing the fair value of financial instruments to the extent        
practicable for financial instruments, which are recognized or unrecognized in  
the balance sheet. The fair value of the financial instruments disclosed herein 
is not necessarily representative of the amount that could be realized or       
settled, nor does the fair value amount consider the tax consequences of        
realization or settlement. In assessing the fair value of these financial       
instruments, the Company used a variety of methods and assumptions, which were  
based on estimates of market conditions and risks existing at that time. For    
certain instruments, including cash and cash equivalents, trade receivables and 
trade payables and officer advances, it was estimated that the carrying amount  
approximated fair value for the majority of these instruments because of their  
short maturities. For long-term investment in marketable securities, fair value 
is estimated based on current quoted market price. Management estimates that the
fair value of its long-term obligations is as follows:                          

                              Carrying Amount             Fair Value
                                 December 31,             December 31,
                                 ------------             ------------
                                1997          1996        1997        1996
                                ----          ----        ----        ----
Debt maturing Within One Year   $5,661,000   $4,618,000   $5,661,000  $4,618,000
                                ==========   ==========   ==========  ==========
Long-term debt                    $263,000     $ 28,000     $263,000    $ 28,000
                                  ========     ========     ========    ========

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  
does not require collateral or other security to support financial instruments  
subject to credit risk. 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. As 
of December 31, 1997 and 1996, the Company had cash balances in excess of       
federally insured limits of approximately $952,000 and $1.8 million,            
respectively. The contract engineering services segment has three customers     
accounting for approximately $20 million, $15 million and $13 million,          
respectively, of revenue for 1997, and $16 million, $13 million and $9 million, 
respectively, of revenue for 1996. As of December 31, 1997 and 1996, these three
customers represented $2.7 million and $2.9 million, respectively, of accounts  
receivable. For 1996 and 1995, the medical information services segment received
22% and 19%, or $1.9 million and $1.4 million, respectively, of its revenue from
one customer and received $2.8 million, $2.6 million and $4 million in revenue  
for 1997, 1996 and 1995, respectively, from contracts with government agencies. 

Stock Options and Similar Equity Instruments - On January 1, 1996, the Company  
adopted the disclosure requirements of Statement of Financial Accounting        
Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation," for stock
options and similar equity instruments (collectively "Options") issued to       
employees. SFAS No. 123 allows for the option of recording stock options to     
employees to be recorded using Accounting Principles Board ("APB") Opinion No.  
25 "Accounting for Stock Issued to Employees" while disclosing the effects, on a
pro forma basis, of using SFAS No. 123 in the footnotes to the financial        
statements. The Company will continue to apply the intrinsic value based method 
of accounting for options issued to employees prescribed by APB Opinion No. 25, 
rather than the fair value based method of accounting prescribed by SFAS No.    
123. SFAS No. 123 also applies to transactions in which an entity issues its    
equity instruments to acquire goods or services from non-employees. Those       
transactions must be accounted for based on the fair value of the consideration 
received or the fair value of the equity instruments issued, whichever is more  
reliably measurable.                                                            

Use of Estimates - The preparation of financial statements in conformity with   
generally accepted accounting principles requires management to make estimates  
and assumptions that affect the reported amount of assets and liabilities and   
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. Actual results could differ from those estimates.             

Reclassifications - Certain 1996 and 1995 items have been reclassified to       
conform to the December 31, 1997 presentation.                                  

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Notes to Consolidated Financial Statements
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(2) Going Concern                                                               

The accompanying consolidated financial statements have been prepared assuming  
that the Company will continue as a going concern. As shown in the financial    
statements, the Company incurred a net loss of $12.7 million for 1997, and has  
an accumulated deficit as of 1997 of $63 million. These conditions raise        
substantial doubt about the Company's ability to continue as a going concern.   
The Company has discontinued certain of its unprofitable segments and the       
ability of the Company to continue as a going concern is dependent upon the     
success of the Company's remaining segments marketing efforts and their efforts 
to obtain sufficient funding to enable them to continue operations. Management's
plan is to continue efforts to raise capital through public offerings of the    
underlying subsidiary's equity and to manage them to profitable levels once     
adequate funding is in place. There can be no assurances that management's plans
to raise additional capital and to manage the subsidiaries to profitable levels 
will be successful. The failure of the subsidiaries to raise capital by equity  
offerings of their stock may force the Company to reduce operations via the     
closure of certain segments of operations and could ultimately force the Company
as a whole to cease operations. The financial statements do not include any     
adjustments relating to the recoverability and classification of recorded       
assets, or the amounts and classifications of liabilities that might be         
necessary in the event the Company cannot continue in existence.                

(3) Receivables, Net of Allowances                                            
                    December 31,
                    ------------
                    1997              1996
                    ----              ----
Receivables                         $10,535,000       $8,986,000                
Less:  Allowance for bad debts         (496,000)        (406,000)               
                        ---------        ---------
Receivables, net of allowances      $10,039,000       $8,580,000                
                    ===========       ==========

The contract engineering services, medical information services and             
telecommunications segments all have agreements with asset-based lenders        
pursuant to which significantly all of the above receivables represent          
collateral.                                                                     

The changes in the allowance for bad debts are as follows:                      

                                 Year Ended December 31,
                                 -----------------------
                                 1997        1996         1995
                                 ----        ----         ----
Balance at beginning of period          $406,000    $209,000     $94,000        
Provision for the period                 850,000     370,000     138,000        
Write-offs for the period               (760,000)   (173,000)    (23,000)       
                                 ---------   ---------    --------
Balance at end of periods               $496,000    $406,000    $209,000        
                                ========    ========    ========

(4) Loans Receivable                                                            
                                            December 31,
                                            ------------
                                             1997                   1996
                                             ----                   ----
Fingermatrix (a)                                $95,000               $217,000  
Other                                                --                 52,000  
Less: Allowance for Doubtful Accounts          ($95,000)                    --  
                                             ---------              --------
Net Loans Receivable                                  --              $269,000  
                                             =========              ========

(a) 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 of $250,000 on its secured debt and its initial      
payment of $2,000 on its unsecured debt. The Company received 150,000 common    
shares and 250,000 warrants equaling less than 5% of the emerging debtor upon   
confirmation. The common shares and warrants received were recorded at $240,000 
which was the book value of the receivable and the related accrued interest     
exchanged for the receipt of such common stock and warrants. As of December 31, 
1997, the final payment is delinquent and is reserved.                          

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Notes to Consolidated Financial Statements
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(5) Receivables, Related Parties                                              

                                                December 31,
                                                ------------
                                             1997                 1996
                                             ----                 ----
Universal International, an                                                     
unconsolidated affiliate consisting                                           
of cash advances without fixed                                                
due dates                                       $187,000             $517,000 
Loan to the president of Trans Global                                           
Services, Inc., due 2002, loan is for                                         
the president's purchase of SISC's                                            
Trans Global Services, Inc. common                                            
stock                                            420,000                   -- 
Advances to president of Trans Global                                           
Services, Inc., no repayment terms                48,000               45,000 

Receivable from the chief executive                                             
officer of the Company                                --              356,000 
                                                --------             -------
Receivables, related parties                      $655,000            $918,000  
                                                ========            ========

(6) Marketable Securities                                                       

                                                December 31,
                                                ------------
                                             1997                 1996
                                             ----                 ----
Cost Basis                                       $135,000            $225,000   
Net Unrealized Gain (Loss) Included                                             
as a Separate Component of                                                    
Shareholders' Equity                            (116,000)             16,000  
Market Value                                      $19,000            $241,000   

Change in Net Unrealized Gain (Loss)                                            
on Marketable Securities:                                                     
Balance at the Beginning of the Period            $16,000             $89,000   
Adjust Marketable Securities                                                    
to Fair Market Value                            (132,000)            250,000  
Realization of Previously Unrealized                                            
Gain (Loss) on Securities Sold                        --            (323,000) 
                                             ----------            -------
Balance at End of Period                        ($116,000)            $16,000   
                                             ==========            =======

For purposes of determining gain or (loss) on the sale of securities, the cost  
is based on the average cost of all shares of each such security held at the    
date of sale. Gain or (Loss) on security sales is calculated as follows:        

                                 Year Ended December 31,
                                 -----------------------
                                 1997              1996             1995
                                 ----              ----             ----
Proceeds from Security Sales        $455,000        $1,244,000        $530,000  
Cost of Securities Sold              823,000           421,000         565,000  
                                   -------           -------         -------
Gain (Loss) on Sale of                                                          
Marketable Securities             ($368,000)         $823,000        ($35,000)
                                  ==========         ========        =========

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(7) Property, Plant and Equipment                                               

                                                December 31,
                                                ------------
                                            1997                1996
                                            ----                ----
Machinery and Equipment                        $       --            $419,000   
Furniture and Office Equipment                  1,218,000             843,000   
Leasehold Improvements                            276,000             182,000   
                                               -------             -------
Cost                                           1,494,000           1,444,000  
Less: Accumulated Depreciation                                                  
and Amortization                                (924,000)           (550,000) 
                                               ---------           ---------
Net                                              570,000             894,000  
                                               -------             -------
Equipment Held Under Capital Lease Obligations    103,000              50,000   
Less: Accumulated Amortization                    (37,000)            (25,000)  
                                                --------            --------
Net                                               66,000              25,000  
                                                ------              ------
Property, Plant and Equipment, Net               $636,000            $919,000   
                                              ========            ========

Depreciation expense charged to operations was $285,000, $201,000 and $236,000  
for 1997, 1996 and 1995, respectively. All of the property, plant and equipment 
serve as collateral for debt and capital lease obligations.                     

(8) Intangible Assets                                                           

                                                December 31,
                                                ------------
                                            1997                1996
                                            ----                ----

Capitalized Software Development Costs           $326,000            $279,000   
Less: Accumulated Amortization                   (143,000)            (28,000)  
                                               ---------            --------
Capitalized Software Development Costs, Net      $183,000            $251,000   
                                              ========            ========

Goodwill                                         $972,000            $972,000   
Less: Accumulated Amortization                   (196,000)           (148,000)  
                                               ---------           ---------
Goodwill, Net                                    $776,000            $824,000   
                                              ========            ========

Covenants Not to Compete                         $907,000            $907,000   
Less: Accumulated Amortization                   (907,000)           (847,000)  
                                               ---------           ---------
Covenants Not to Compete, Net                    $      --            $60,000   
                                              =========            =======

Customer Lists                                 $7,481,000          $7,226,000   
Less: Accumulated Amortization                 (1,800,000)         (1,259,000)  
                                             -----------         -----------
Customer Lists, Net                            $5,681,000          $5,967,000   
                                            ==========          ==========

The increase in customer lists resulted from an acquisition made by the medical 
information services segment. Amortization expense charged to operations was    
$765,000, $826,000 and $1.9 million for 1997, 1996 and 1995. During 1997, the   
medical information services segment wrote-off $415,000 of impaired intangible  
assets and during 1996, Company wrote-off $509,000 of impaired goodwill related 
to the telecommunications segment. All impairment write-offs are included in    
selling, general and administrative expenses.                                   

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(9) Current and Long-term Debt Obligations                                      

                                                December 31,
                                                ------------
                                            1997                1996
                                            ----                ----

Notes Payable, Related Parties:                                                 
Advances from the former CEO's Wife,                                            
repaid in 1998 without interest                  $10,000                  --  
                                               =======              ======

Debt Obligations:                                                               
Pre 1993 recapitalization debt,                                                 
written-off during 1997                               --             $15,000  

Asset-Based Lender - Contract                                                   
Engineering Services segment (a)               3,571,000           3,691,000  

Asset-Based Lender - Medical                                                    
Information Services segment (b)                 935,000             590,000  

Asset-Based Lender - Accounts                                                   
Receivables -  Telecommunications                                             
segment (c)                                     231,000               80,000  

Asset-Based Lender - Equipment -                                                
Telecommunications segment (d)                  230,000              332,000  

Interim Financing Note -                                                        
Telecommunications segment (e)                  400,000                   --  

Accredited Investor Notes -                                                     
Telecommunications segment (f)                  250,000                   --  

Former Shareholders of the Contract                                             
Engineering Services segment (g)                138,000              138,000  

8% Promissory Note - Development                                                
Stage segment, due on demand                     20,000                   --  
                                               ------            ---------
Total Debt Obligations                         5,775,000            4,846,000   
Current Debt Obligations                       5,651,000            4,618,000   
                                            ---------            ---------
Long-term debt                              $    124,000              228,000   
                                         ============              =======
Subordinated Debt:                                                              
15% Promissory Notes, interest and                                              
principle due July 1999                        $139,000                   --  
                        ========

Total Debt Obligations                        $5,924,000           $4,846,000   
                                           ==========           ==========

Five Year Maturities as of December 31,                                         
1997 are as follows:                                                          

1998                                       $5,661,000                     
1999                                          243,000                     
2000                                           20,000                     
                          ------
Total                                      $5,924,000                     
                      ==========

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(a) The contract engineering services segment finances a majority of its        
receivables from an asset-based lender under agreements entered into in February
1995 and subsequently amended. The agreements have a maximum availability of    
funds of $5.5 million. Funds can be advanced in an amount equal to 85% of the   
total face amount of outstanding and unpaid receivables, with the asset-based   
lender 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 8.5% at December 31, 1997 plus 2% and a fee of 0.3% of the      
receivables financed. The asset-based lender has a security interest in all     
accounts receivables, contract rights, personal property, fixtures and inventory
of the contract engineering services segment. The weighted average interest rate
on this short-term borrowing outstanding for the years 1997 and 1996 was        
approximately 10.5% and 10.25%, respectively. The contract engineering services 
segment has received a commitment from its asset-based lender to continue its   
present financial agreement through 1998. The contract engineering services     
segment is seeking alternative financing sources, however no assurance can be   
given that the contract engineering services segment can or will be able to     
obtain an alternate financing source, the failure of which could have a material
adverse affect upon the contract engineering services segment.                  

(b) In February 1995, the medical information services segment entered into an  
accounts receivable financing agreement with an asset-based lender. The medical 
information services segment can borrow up to 80% of eligible receivables, and  
it pays interest at the rate of prime plus 8.5% and a fee equal to 0.625% of the
amount of the invoice. All of the accounts receivable and property and equipment
of the medical information services segment collateralize this note. In July    
1997, the agreement with the asset-based lender was modified to allow borrowings
up to 80% instead of 75% of eligible receivables to a maximum of $1.3 million   
through July 31, 1998 and $1.5 million through July 31, 1999. The previous      
amount of maximum borrowings was capped at $750,000. The interest rate was      
adjusted from the greater of 18% per annum or prime plus 8% to prime plus 8.5%  
per annum. The fee on the amount of the invoice was reduced from 1% to 0.625%.  
The weighted average interest rate on this short-term borrowing outstanding for 
both 1997 and 1996 was approximately 22%.                                       

(c) In August 1994, the telecommunications segment entered into an agreement    
with an asset-based lender to finance its accounts receivable. The agreement had
an initial term of one year and was renewed in August 1995, 1996 and 1997. The  
maximum availability of funds is $3 million. Funds can be advanced in an amount 
to equal 85% of the total face amount of outstanding eligible receivables. The  
interest rate is equal to the base lending rate of an agreed upon bank, 8.25% at
December 31, 1997, plus 2% and a commission of 0.3% of the receivables financed.
The lender has a security interest in all accounts receivable, contract rights, 
personal property, fixtures and any inventory of the Telecommunications segment.
The weighted average interest rate on the balances outstanding at December 31,  
1997 was 10.25%.                                                                

(d) In September 1996, the telecommunications segment entered into a term loan  
agreement with an asset based-lender. Such agreement remains in effect until    
August 2000 and allows the telecommunications segment to borrow up to $350,00   
for the purpose of purchasing equipment to be used in the business. The loan    
agreement provides for weekly principal payments of $2,000 until the loan is    
repaid. Interest is charged monthly at a rate equal to the highest prime        
interest charged in New York City plus 12%. Such rate shall not be less than    
20.25% (the effective rate at December 31, 1997). The prime rate at December 31,
1997 and 1996 was 8.25% and 8.5%, respectively. The loan is collateralized by   
the telecommunications segment accounts receivable and equipment. The security  
interest granted to this lender is junior to the security interest granted to   
telecommunications segment other asset-based lender (see (c) above) as to all   
assets except for the equipment specifically financed under this loan agreement.
The Company has also guaranteed the obligations under this loan. The weighted   
average interest rate on the balances outstanding at December 31, 1997 was      
20.25%.                                                                         

(e) In February 1997, the Telecommunications segment issued 8% promissory notes 
in the principal amount of $550,000, from which it received net proceeds of     
approximately $495,000 after deducting a $55,000 commission paid to the         
placement agent, and in connection therewith, the related subsidiary issued     
stock purchase warrants which are valued at $485,000. Such notes are due, with  
interest on the earlier of April 1, 1998 or the closing of a potential public   
offering.                                                                       

(f) In September 1997, the telecommunications segment borrowed $250,000 from two
accredited investors and issued its 12% demand notes. No fee was incurred in    
connection with the issuance of such demand notes. The demand notes, plus       
accrued interest are to be repaid from the proceeds of a potential public       
offering.                                                                       

(g) These notes payable owed to certain former shareholders of Trans Global     
Services, Inc. were due in 1996 and bear interest at 7%. The payment of         
principle and interest on this note has been suspended pending the outcome of   
the Government Printing Office contingency (see footnote 16).                   

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(10) Lease Obligations                                                        

Capitalized Lease Obligations - The Company leases equipment under noncancelable
capital leases. Capitalized lease obligations are collateralized by leased      
equipment which has a net book value of $66,000 at December 31, 1997.           

Future minimum payments under capital lease obligations are as                  
follows at December 31, 1997:                                                 
1998                                               $  46,000  
1999                                                  21,000  
2000                                                  19,000  
                                                    ------
Total                                                 86,000  
Less: Portion Representing Interest                   13,000  
                                                    ------
Present Value of Net Minimum Payments                 73,000  
Current Portion of Capitalized Lease Obligations      39,000  
                                                    ------
Long-term Portion of Capitalized Lease Obligations   $34,000  
                                                   =======

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, NY 10038, which it occupies      
pursuant to a lease expiring February 28, 1999. The current base rent for such  
premises is $7,000 per month. The Company's subsidiaries lease office space and 
office machines under operating leases expiring through 2001. The current base  
rent for such leases approximates $38,000 month.                                

Minimum future rental payments under noncancelable operating leases having a    
remaining term in excess of one year are as follows:                            

1998     $674,000                                             
1999      357,000                                             
2000      269,000                                             
2001      222,000                                             
2002      120,000                                             
-------                                   
Total  $1,642,000                                             
==========                                      

Rent  expense  for  1997,  1996 and 1995  approximated  $653,000,  $632,000  and
$551,000, 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 December 31, 1997 and 1996 are as follows:                      

                                                December 31,
                                                ------------
                                            1997                1996
                                            ----                ----

Deferred Tax Liabilities:                                                       
Marketable Securities                                  --           ($199,000)  

Deferred Tax Assets:                                                            
Stock Based Compensation                       $1,400,000           1,668,000   
Federal and State Net Operating                                                 
Loss Carryforward                              6,362,000           4,062,000  
                                             ---------           ---------
                                             7,762,000           5,730,000
                                             ---------           ---------

Valuation Allowance                           ($7,407,000)        ($5,531,000)  
                                            ------------        ------------
Net Deferred Tax Asset - included in                                            
other assets                                     355,000                  --  
                                               =======               =====

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The Company's deferred tax asset valuation allowance was $7.4 million and $5.5  
million as of December 31, 1997 and 1996, respectively. The increase in the     
valuation allowance of $1.9 million for 1997 is comprised of the following:     

Marketable Securities                                   $199,000                
Stock Based Compensation                                (268,000)               
Federal and State Net Operating Loss Carryforward       2,945,000               
                                         ---------
Total                                                  $2,876,000               
                                        ==========

The current and deferred income tax components of the (provision) benefit for   
income taxes consist of the following:                                          

             Year Ended December 31,
             -----------------------
             1997          1996           1995
             ----          ----           ----
Current:                                                                        
Federal                      $     --           --             --               
State                         (80,000)    ($49,000)      ($17,000)              
               --------     ---------      ---------
                (80,000)     (49,000)       (17,000)

Deferred                      355,000           --             --               
               -------       ------         ------
Total                        $275,000     ($49,000)      ($17,000)              
               ========     =========      =========

The provision for income taxes varies from the amount computed by applying the  
statutory rate for the reasons below:                                           

                           Year Ended December 31,
                           -----------------------
                          1997       1996       1995
                          ----       ----       ----
Provision Based on Statutory Rate       35.0%      35.0%      35.0%             
Benefit of Graduated Rates              (1.0%)     (1.0%)     (1.0%)            
State Taxes (Net of Federal Benefit)      --        0.5%       0.1%             
Valuation Allowance                    (34.0%)    (34.0%)    (34.0%)            
Net Operating Loss                      (2.8%)      n/a        n/a              
                          ------      ---        ---
                           (2.8%)      0.5%       0.1%
                           ======      ====       ====

The Company's (provision) benefit for income taxes is comprised of federal      
income taxes for 1997 and state income taxes 1996 and 1995. The Company will    
have a federal and state net operating loss carryforward of approximately $33.4 
million. The federal and state net operating loss carryforwards expire in years 
1998 through 2012 (the state expiration dates vary based on individual state    
income tax laws).                                                               

(12) Capital Stock                                                              

Common Stock                                                                    

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 payment. At various times the  
Company has registered and granted options pursuant to the plan. During 1995,   
6,500,000 shares were granted and exercised. The value of such issuance was     
calculated in accordance with Accounting Principles Board ("APB") No. 25.       

Stock Issued in Lieu of Cash Payment - For 1997, 1996 and 1995 the Company      
issued 1,223,225, 200,000 and 130,004 shares, respectively, in connection with  
consulting and financing services valued at $73,000, $45,000 and $114,000,      
respectively. The expense calculated for 1997 and 1996 was determined in        
accordance with Statement of Financial Accounting Standards ("SFAS") No. 123 and
the expense for 1995 was calculated in accordance with APB No. 25.              

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Regulation S Offerings - Pursuant to offerings in September 1996 and October    
1995 made under Regulation S of the Securities Act of 1933, the Company received
net proceeds of $912,000 and $250,000, respectively, in conjunction with the    
respective issuance of 13,250,000 and 1,000,000 shares of common stock.         

Conversion of Series A Preferred Stock - During 1997, 1996 and 1995,            
respectively, the Company issued 2,891,943; 5,690,757 and 1,447,807 shares of   
common stock upon the conversion of 22,891; 43,705 and 11,117 shares,           
respectively, of series A preferred 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.                                                  

Series A - 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. As of December 31, 1997, all of 
the Preferred Series A stock has been converted.                                

Series B - 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 $200,000. In the event of involuntary liquidation, the holders may receive   
$87.50 per share and all dividends. No dividends were declared for 1997, 1996   
and 1995.                                                                       

Series E - 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 1997, 1996 and 1995.                             

Series F - 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 non-cumulative and is payable 
within 100 days from the close of any year where net income after tax exceeds   
$500,000, and all dividends due on the Series B preferred stock are paid or     
provided for. No dividends were declared for 1997, 1996 and 1995.               

Series G - The Company issued the Series G Preferred stock to Trans Global in   
consideration for $2.1 million that another subsidiary of the Company owed to   
Trans Global. Originally, the series G Preferred stock converted automatically  
on September 30, 1999 into such number of the Company's common stock as having a
value equaling $2.1 million. In March 1998, the Company amended its certificate 
of incorporation, with the consent of Trans Global as the sole holder of the    
Series G Preferred stock, to change the rights, preferences such that the       
conversion privileges were terminated and the Series G Preferred stock became   
redeemable at an aggregate redemption price of $2.1 million. Because the series 
G Preferred stock is held solely by an consolidated subsidiary all such amounts 
eliminate in consolidation.                                                     

(13) 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. Pursuant to the plan during the year ended 
December 31, 1995, 6,500,000 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 1,000,000 were exercised at $0.50 per share and 3,000,000 were        
exercised at $0.00 per share, resulting in $3,869,000 of expenses computed as   
follows using the intrinsic value method per APB No. 25:                        

Shares                                                   6,500,000              
Weighted Average Value of stock at date of grant         $  0.9796              
                                           ---------
                                           6,367,000
20% discount                                            (1,273,000)             
                                           -----------
                                           5,094,000
Exercise proceeds                                       (1,225,000)             
                                           -----------
Total consulting costs                                  $3,869,000              
                                          ==========

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Notes to Consolidated Financial Statements
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In accordance with the agreements relating to the various parties involved, for 
1995 $3.9 million was charged as consulting services in the determination of    
income from operations. A 20% discount was utilized because the shares issued   
represent a large block of stock.                                               

SFAS No. 123 applies to the above stock option transactions wherein the         
calculation of the expense must be disclosed and pro forma results are to be    
presented. The following disclosures are pursuant to SFAS No. 123 although the  
amounts actually reported in the Company's accompanying financial statements are
based on APB No. 25. As of December 31, 1997, 1996 and 1995, the Company had no 
outstanding, unexercised stock options. The activity in the Companies stock     
option plan is as follows:                                                      

                                                        Weighted
                                         Weighted        Average
                            Number         Average       Remaining
                               of           Exercise     Contractual
                          Options          Price          Life
                          -------          -----          ----
Options Outstanding at                                                          
December 31, 1994                       --                         None       
Granted                        6,630,004         $0.19                    
Exercised                      6,630,004         $0.19                    
Expired                               --                                  
---------   
Options Outstanding at                                                          
December 31, 1995                       --                         None       
Granted                          200,000         $0.00                    
Exercised                        200,000         $0.00                    
Expired                               --                                  
Options Outstanding                                                             
at December 31, 1996                    --          None           None       

Options Outstanding and Exercisable                                             
at December 31, 1997                    --                                    

The Company's expense for 1997 and 1996 for the issuance of stock under SFAS No.
123 was approximately $73,000 and $45,000, respectively. If the Company had     
accounted for the issuance of all options pursuant to the fair value based      
method of SFAS No. 123, the Company would have recorded additional compensation 
expense of approximately $1.4 million for 1995 and the Company's net loss and   
loss per share would have been as follows:                                      
                                                        1995
                                                        ----
Net loss as reported                                          ($11,360,000)     
                                                         =============
Pro forma net loss                                            ($12,760,000)     
                                                         =============
Loss per share as reported                                          ($0.51)     
                                                               =======
Pro forma net loss                                                  ($0.57)     
                                                               =======

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Notes to Consolidated Financial Statements
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The fair value of options to purchase common stock at the date of grant was   
estimated using the fair value based method with the following weighted average 
assumptions:                                                                    

                                     1997              1996             1995
                                     ----              ----             ----
Expected Life (Exercised on                                                     
date of issuance)                    1 year            1 year           1 year
Interest Rate                           6%                6%               6%   
Annual rate of Dividends                None              None             None 
Volatility                             86.00%            86.10%           87.48%

The weighted average fair value of options at date of grant using the fair value
based method during 1997, 1996 and 1995 was estimated at $0.0; $0.0 and $0.19,  
respectively.                                                                   

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. The weighted average exercise price of such     
warrants is $0.75 for each of 1997, 1996 and 1995 and the weighted average      
remaining contractual life of such warrants as of December 31, 1997, 1996 and   
1995 was 2 years, 3 years and 4 years, respectively.                            

(14) Industry Segments                                                          

During 1997, the Company has discontinued five of its operating segments,       
Electro-Mechanical and Electro-Optical Products Manufacturing, Three Dimensional
Products and Services, Medical Diagnostics, Business Consulting Services and    
Audio Products Manufacturing. Additionally, as of December 31, 1997, the Company
is reporting a new segment called Development Stage, which includes a subsidiary
that has not yet developed a salable or marketable product. As a result, the    
Company currently classifies its operations into four business segments: (i)    
Contract Engineering Services, which consists of subsidiaries that provide      
engineers, designers and technical personnel on a temporary basis pursuant to   
contracts with major corporations; (ii) Medical Information Services, which     
consists of subsidiaries that provide medical information database services,    
health care industry related software packages and the SmartCard medical        
identification cards and the related software program; (iii) Telecommunications,
which consists of a subsidiary that, among other things, installs telephonic    
network systems and buys and resells local telephone service; and Development   
Stage, which consists of a subsidiary that is attempting to obtain patent rights
to a hot food vending machine. Corporate and Other consists of the operating    
activities of the holding company entities. Inter segment sales and sales       
outside the United States are not material. Information concerning the Company's
business segments is as follows:                                                

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(14) Industry Segments:                                                         

                                                        [Enlarge/Download Table]

                                                         Year Ended December 31,              
                                                         -----------------------              
                                                                   1996               1995    
                                                                 Restated           Restated  
                                                                (footnotes         (footnotes 
                                                1997             19 & 20)           19 & 20)  
                                                ----             --------           --------  
                                                                                              
Revenues:                                                                                     
 Contract Engineering Services               $75,725,000       $62,594,000        $63,156,000 
 Medical Information Services                  7,882,000         8,541,000          7,381,000 
 Telecommunications                            9,648,000         5,583,000          3,253,000 
 Intercompany Transactions                      (538,000)               --                 -- 
                                             -----------       -----------        ----------- 
   Total Revenues                            $92,717,000       $76,718,000        $73,790,000 
                                             ===========       ===========        =========== 

Gross Profit (Loss):                                                                          
 Contract Engineering Services                $6,648,000        $5,159,000         $3,998,000 
 Medical Information Services                  1,727,000         1,332,000          1,974,000 
 Telecommunications                              753,000           509,000            695,000 
 Intercompany Transactions                      (538,000)               --                 -- 
                                              ----------        ----------         ---------- 
   Total Gross Profits                        $8,590,000        $7,000,000         $6,667,000 
                                              ==========        ==========         ========== 

Income (Loss) from Operations:                                                                
 Contract Engineering Services                $1,402,000          $187,000        ($3,816,000)
 Medical Information Services                 (2,863,000)       (5,843,000)        (2,274,000)
 Telecommunications                           (2,018,000)         (929,000)          (474,000)
 Development Stage                               (16,000)               --                 -- 
 Corporate and Other                          (3,343,000)       (3,143,000)        (6,319,000)
 Intercompany Transactions                      (239,000)          180,000            (27,000)
                                             ------------      ------------      -------------
   Total Loss from Operations                ($7,077,000)      ($9,548,000)      ($12,910,000)
                                             ============      ============      =============

Net Income (Loss):                                                                            
 Contract Engineering Services                $1,022,000         ($607,000)       ($4,682,000)
 Medical Information Services                 (3,459,000)       (6,599,000)        (2,827,000)
 Telecommunications                           (2,734,000)       (1,095,000)          (543,000)
 Development Stage                               (16,000)               --                 -- 
 Corporate and Other                          (4,086,000)       (1,549,000)        (5,894,000)
 Minority Interest in Loss of Subsidiaries     2,443,000         3,098,000          3,724,000 
 Discontinued Segments                        (5,835,000)       (2,818,000)        (1,138,000)
                                            -------------      ------------      -------------
   Total Net Loss                           ($12,665,000)      ($9,570,000)      ($11,360,000)
                                            =============      ============      =============

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(14) Industry Segments:                                                         

                                                        [Enlarge/Download Table]

                                                   Year Ended December 31,                
                                                   -----------------------                
                                                             1996               1995      
                                                           Restated           Restated    
                                                          (footnotes         (footnotes   
                                          1997             19 & 20)           19 & 20)    
                                          ----             --------           --------    
                                                                                          
Depreciation and Amortization:                                                            
 Contract Engineering Services            $385,000          $477,000           $706,000   
 Medical Information Services              601,000           488,000          1,334,000   
 Telecommunications                         46,000            17,000                 --   
 Corporate and Other                        18,000            46,000             45,000   
                                        ----------        ----------         -----------  
   Total Depreciation and Amortization  $1,050,000        $1,028,000         $2,085,000   
                                        ==========        ==========         ==========   

Capital Expenditures:                                                                     
 Contract Engineering Services            $171,000           $57,000           $110,000   
 Medical Information Services              234,000           181,000            138,000   
 Telecommunications                         30,000           416,000              3,000   
 Corporate and Other                         5,000             7,000             22,000   
                                          --------          --------           --------   
   Total Capital Expenditures             $440,000          $661,000           $273,000   
                                          ========          ========           ========   

                                                                              December 31,
                                                                                  1996    
                                                                                Restated  
                                                          December 31,         (footnotes 
                                                              1997             19 & 20 )  
                                                              ----             ---------  
Identifiable Assets:                                                                      
 Contract Engineering Services                           $13,943,000        $13,181,000   
 Medical Information Services                              7,340,000          8,257,000   
 Telecommunications                                            4,000                 --   
 Development Stage                                         2,793,000          1,655,000   
 Corporate and Other                                      23,230,000         49,546,000   
 Discontinued Segments                                    20,015,000         18,615,000   
 Intercompany Balances                                   (29,654,000)       (57,120,000)  
                                                         ------------       ------------  
   Total Identifiable Assets:                            $37,671,000        $34,134,000   
                                                         ===========        ===========   

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(15) Related Party Transactions                                                 

Trans Global Services, Inc. Transaction:                                        

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. ("Avionics"), (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. 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 Avionics and RMI, 500 shares of Series A 5% 
Redeemable Cumulative Preferred Stock. 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 Avionics and   
RMI and the advances made by SISC. In connection with the organization of Trans 
Global, Trans Global also issued a 3.4% interest to the president of Trans      
Global in exchange for certain rights he had with respect to the stock of       
Avionics.                                                                       

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, Inc. ("DLB"), in exchange for DLB's 10% interest in another subsidiary of  
Consolidated. The wife of the former chairman of the board and chief executive  
officer of the Company owns DLB.                                                

During 1995, SISC, DLB, the president of Trans Global and 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.                

Pursuant to the Trans Global Agreement, Concept issued 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 issued 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 issued 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 the president of Trans Global with certain registration rights with
respect to the 100,000 shares of Common Stock issued to him pursuant to the     
Trans Global Agreement. The shares owned by the president of Trans Global are   
subject to a one-year lockup agreement, subject to earlier release under certain
conditions.                                                                     

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Advances to an Unconsolidated Subsidiary:                                       

The Company and its subsidiary, Trans Global, have made advances to Universal   
International, in which the former Consolidated Secretary is an owner, from time
to time in various amounts. These advances have no fixed due dates or terms and 
$145,000 of such advances have been written-off. The outstanding balances owed  
to the Company and Trans Global from this subsidiary was $187,000 and $517,000, 
respectively, at December 31, 1997 and 1996 and the greatest amount outstanding 
to Universal during 1997 and 1996 was $600,000.                                 

Common Stock Sold to former Chief Executive Officer:                            

In July 1997, the Company's former Chief Executive Officer, ("CEO"), purchased  
1,190,000 shares of common stock from the Company at $0.03 per share, reflecting
a discount from the bid price on the date of sale, which was $0.06 per share.   
Payment for the purchase price of such shares was effected by a reduction of the
Company's obligation to the CEO for past compensation.                          

Sale of Subsidiary Stock to Subsidiary Employees:                               

In 1997, SIS Capital Corp., ("SISC"), a wholly owned subsidiary of the Company, 
sold 258,333 common shares of Trans Global, a majority owned, publicly held     
subsidiary of the Company operating in the Contract Engineering Services        
segment, to the president of Trans Global at $1.67, the fair market value of the
Trans Global common stock on the date of sale. The Company's book basis in such 
shares approximated $622,000 resulting in a loss on the sale of approximately   
$191,000. Payment by the president of Trans Global is evidenced by a promissory 
note from the president of Trans Global.                                        

In 1997, SIS Capital Corp., ("SISC"), a wholly owned subsidiary of the Company, 
sold 151,920 common shares of Netsmart, Inc. ("Netsmart"), a majority owned,    
publicly held subsidiary of the Company operating in the Medical Information    
Services segment, to certain employees of Netsmart at $0.23 per share. The      
Company's book basis in such shares approximated $201,000 resulting in a loss on
the sale of approximately $165,000.                                             

(16) Commitments and Contingencies                                              

(I)       Employment Agreements                                                 

Subsequent to December 31, 1997 the following executive officers of the Company 
resigned, see footnote 21. The following describes the employment agreements    
that were in effect as of December 31, 1997.                                    

(a)      Chief Executive Officer                                                

During 1997, the Company entered into a restated employment agreement, (the     
"CEO's Agreement"), with the Company's chief executive officer, (the "CEO"),    
whereby the Board of Directors of the Company, (the "Board"), and the CEO agreed
that the prior employment agreements, (original employment agreement dated      
January 1988, and certain restated employment agreements entered into in        
September 1993, October 1994 and January 1996 did not accurately and properly   
reflect the intent and prior understanding and agreement of the parties as to   
certain matters.                                                                

Term of CEO's Agreement:                                                        

The term of the CEO's Agreement commenced January 1988, the date of the original
employment agreement, and expires on December 31, 2000. The CEO's Agreement is  
subject to termination prior to December 31, 2000 pursuant to certain           
termination provisions contained in the agreement.                              

CEO's Compensation:                                                             

Effective September 1996, the CEO's annual salary is $500,000 and shall increase
annually by the greater of 5% or the increase in the cost of living index. A    
bonus for each year is payable in an amount equal to 10% of the amount by which 
the greater of (A) the Company's consolidated net income before taxes, or, (B)  
the Company's consolidated net cash flow calculated as the Company's net income 
plus depreciation, amortization and other non-cash items of expense, minus      
payments of all principal amounts of outstanding debt, exceeds $600,000..       

CEO's Benefits:                                                                 

The CEO is entitled to four weeks paid vacation and fifteen paid sick days      
during each year. The Company will pay for and maintain for the CEO disability  
insurance providing for payment to the CEO of a minimum of 60% of his salary.   
The Company is also required to pay and maintain for the CEO major medical,     
hospitalization, dental and vision insurance and life insurance having a face   
value of not less than $2,000,000, the proceeds of which shall be payable to    
such beneficiaries as may be designated by the CEO. The Company will maintain   
such disability, medical, dental, and vision insurance, at the Company's expense
for a period of 10 years after the expiration or termination of the CEO's       
Agreement. The Company provides the CEO with a vehicle and reimburses the CEO   
for all costs incurred by the CEO in connection therewith.                      

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CEO's Severance:                                                                

In addition to any salary or bonus payable pursuant to the CEO's Agreement, the 
CEO is entitled to severance compensation under the following circumstances:    

(i) - In the event of the death of the CEO, the Company shall pay to the CEO's  
beneficiary the face value of the life insurance policy to be maintained by the 
Company.                                                                        

(ii) - In the event of the permanent disability of the CEO, the Company shall   
pay to the CEO, 60% of his then salary for 10 years. In the event of a temporary
disability, (generally 6 months), the Company shall pay to the CEO 100% of his  
salary and bonus for the period of the disability.                              

(iii) - The CEO will continue to receive his salary for 10 years, if the CEO's  
Agreement is terminated due to any of the following events, (1) upon notice to  
the Company by the CEO of the termination of the agreement for any breach or    
default by the Company of any of its obligations or covenants under the CEO's   
Agreement, provided that any such breach or default is not cured within 30 days 
from notice; (2) in the event of a change of control, the CEO may terminate the 
CEO's Agreement upon 90 days notice; wherein change of control is defined as the
date on which the Company sells all or substantially all of its assets or sells 
more than 50% of the outstanding capital stock of any one or more subsidiaries, 
the aggregate gross revenues of which constitute 33.33% or more of the aggregate
gross revenues of the Company on a consolidated basis, merges with or into or   
consolidates with any entity, issues to an independent, non-affiliated third    
party such number of shares of its outstanding capital stock (or equity or debt 
instruments securities convertible into or exchangeable for shares of the       
Company's capital stock) as shall equal 25% or more of its total issued and     
outstanding shares of capital stock, or the CEO is removed from the Board,      
without cause, provided, however, that a change of control shall not be deemed  
to occur as a result of or in conjunction with any recapitalization or public   
offering of the Company's securities or the occurrence of any of the foregoing  
transactions which is approved by the CEO; (3) upon 30 days notice from the CEO 
if the CEO is removed from the Board without cause; or (4) upon seven days      
notice from the CEO in the event of the entry by a court of competent           
jurisdiction of a decree or order for relief in respect of the Company in an    
involuntary case under any applicable bankruptcy, insolvency, or similar law    
then in effect or the appointment of a receiver, liquidator, assignee,          
custodian, trustee, or sequestrator of the Company or any substantial part of   
its property or an order by any such court for the wind-up or liquidation of the
Company's affairs; or a petition initiating an involuntary case under any such  
bankruptcy, insolvency, or similar law is filed against the Company and is      
pending for 60 days without a stay or dismissal; or the Company commences a     
voluntary case under any such bankruptcy, insolvency, or similar law then in    
effect, or makes any general assignment for the benefit of its creditors or     
fails generally to pay its debts as such debts become due or takes corporate    
action in furtherance of any of the foregoing.                                  

CEO's Retirement:                                                               

In the event of the retirement of the CEO, the CEO or his beneficiary will      
continue to receive monthly retirement compensation equal to one-twelfth of the 
greater of, (A) the CEO's then annual salary; or (B) the average of the annual  
salary and bonus of the CEO for each of the five years preceding the year of    
retirement, for a period of 10 years from the date of retirement. Retirement    
shall be deemed to have occurred at the expiration of the CEO's Agreement, or   
any renewal of the CEO's Agreement, or at the mutual consent of the CEO and the 
Company.                                                                        

CEO's Participation in the Future Expansion of the Company:                     

During the term of the CEO's Agreement, the CEO or his designees shall have the 
right to participate in the future expansion of the Company whereby, if the     
Company, or any subsidiary of the Company proposes to form a subsidiary for any 
purpose, the CEO shall have the right to form or cause to be formed, at the     
CEO's sole cost and expense, such subsidiary and, in consideration of the CEO   
bearing such cost and expense, the CEO shall receive 10% of the authorized      
securities of each class and series of such newly formed subsidiary and the CEO 
will be deemed to have equitable and beneficial ownership of 10%of such         
securities. If subsequent to the formation of such subsidiary, the subsidiary   
issues any securities as a dividend, stock split or any other recapitalization, 
the CEO shall be entitled to receive his proportionate share of such securities 
issued.                                                                         

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CEO's Purchase of 10% of SIS Capital Corp.:                                     

SIS Capital Corp., ("SISC"), is a wholly owned subsidiary of the Company.       
Substantially all of the operating subsidiaries of the Company are owned by     
SISC. The CEO may, at any time during the term of the CEO's Agreement, upon 10  
days notice, purchase up to 10% of the equity securities of SISC (on a fully    
diluted basis) for a purchase price equal to the then fair market value of such 
securities. The purchase price for such securities shall be payable by delivery 
of the CEO's 10 year recourse promissory note, bearing interest at the lowest   
rate necessary to avoid imputed interest under the Internal Revenue Code of     
1986.                                                                           

CEO's Profit Sharing Bonus:                                                     

In the event of the sale of any subsidiary or the business thereof or any       
business combination including any subsidiary or of any securities purchased or 
acquired by the Company or any subsidiary thereof as investment securities, the 
CEO shall be entitled to a profit-sharing bonus equal to 20% of the gross       
profit, if any received as a result of the sale or business combination.        

CEO's Expense Reimbursement:                                                    

The Company is obligated to reimburse the CEO for all ordinary and necessary    
expenses incurred in the performance of his services. In the event that the     
Company moves its headquarters from the New York metropolitan area, and the CEO 
elects to move, the Company will pay the CEO's moving costs, or if the CEO      
elects not to move, the Company will provide the CEO with an office and a staff 
in the New York metropolitan area. In the event that the Company establishes    
multiple offices, the Company will pay the CEO a housing allowance of $3,500 per
month for as long as more than one office is maintained.                        

(b)      Corporate Secretary                                                    

On August 14, 1997, the Company entered into an employment agreement, (the      
"Secretary's Agreement"), with the Company's Corporate Secretary. Such agreement
includes the following terms:                                                   

Term of Secretary's Agreement:                                                  

The term of the Secretary's Agreement is from the date of commencement until    
December 31, 2002 and, at the option of the Secretary, may be extended for five 
more years. The Secretary's Agreement is subject to termination prior to        
December 31, 2002 pursuant to certain termination provisions contained within   
the agreement.                                                                  

Secretary's Compensation:                                                       

For 1997 the Secretary's annual salary is $200,000 and shall increase annually  
by the greater of 5% or the increase in the cost of living index. A bonus for   
each year is payable in an amount equal to 0.5% of the amount by which the      
greater of (A) the Company's consolidated net income before taxes, or, (B) the  
Company's consolidated net cash flow calculated as the Company's net income plus
depreciation, amortization and other non-cash items of expense, minus payments  
of all principal amounts of outstanding debt, exceeds $600,000.                 

Secretary's Benefits:                                                           

The Secretary is entitled to three weeks paid vacation and fifteen paid sick    
days during each year. The Company will pay for and maintain for the Secretary  
disability insurance providing for payment to the Secretary of a minimum of 60% 
of her salary. The Company is required to pay and maintain for the Secretary    
major medical, hospitalization, dental and vision insurance and life insurance  
having a face value of not less than $400,000, the proceeds of which shall be   
payable to such beneficiaries as may be designated by the Secretary. The Company
will maintain such disability, medical, dental, and vision insurance, at the    
Company's expense for a period of 10 years after the expiration or termination  
of the Secretary's Agreement.                                                   

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Secretary's Severance:                                                          

In addition to any salary or bonus payable pursuant to the Secretary's          
Agreement, the Secretary is entitled to severance compensation under the        
following circumstances:                                                        

(i) - In the event of the death of the Secretary, the Company shall pay to the  
Secretary's beneficiary the face value of the life insurance policy to be       
maintained by the Company.                                                      

(ii) - In the event of the permanent disability of the Secretary, the Company   
shall pay to the Secretary, 60% of her then salary for 10 years. In the event of
a temporary disability, (generally 6 months), the Company shall pay to the      
Secretary 100% of her salary and bonus for the period of the disability.        

(iii) - The Secretary will continue to receive her salary for 10 years, if the  
Secretary's Agreement is terminated due to any of the following events, (1) upon
notice to the Company by the Secretary of the termination of the agreement for  
any breach or default by the Company of any of its obligations or covenants     
under the Secretary's Agreement, provided that any such breach or default is not
cured within 30 days from notice; (2) in the event of a change of control, the  
Secretary may terminate the Secretary's Agreement upon 90 days notice; wherein  
change of control is defined as the date on which the Company sells all or      
substantially all of its assets or sells more than 50% of the outstanding       
capital stock of any one or more subsidiaries, the aggregate gross revenues of  
which constitute 33.33% or more of the aggregate gross revenues of the Company  
on a consolidated basis, merges with or into or consolidates with any entity,   
issues to an independent, non-affiliated third party such number of shares of   
its outstanding capital stock (or equity or debt instruments securities         
convertible into or exchangeable for shares of the Company's capital stock) as  
shall equal 25% or more of its total issued and outstanding shares of capital   
stock, or the Secretary is removed from the Board, without cause, provided,     
however, that a change of control shall not be deemed to occur as a result of or
in conjunction with any recapitalization or public offering of the Company's    
securities or the occurrence of any of the foregoing transactions which is      
approved by the Secretary; (3) upon 30 days notice from the Secretary if the    
Secretary is removed from the Board without cause; or (4) upon seven days notice
from the Secretary in the event of the entry by a court of competent            
jurisdiction of a decree or order for relief in respect of the Company in an    
involuntary case under any applicable bankruptcy, insolvency, or similar law    
then in effect or the appointment of a receiver, liquidator, assignee,          
custodian, trustee, or sequestrator of the Company or any substantial part of   
its property or an order by any such court for the wind-up or liquidation of the
Company's affairs; or a petition initiating an involuntary case under any such  
bankruptcy, insolvency, or similar law is filed against the Company and is      
pending for 60 days without a stay or dismissal; or the Company commences a     
voluntary case under any such bankruptcy, insolvency, or similar law then in    
effect, or makes any general assignment for the benefit of its creditors or     
fails generally to pay its debts as such debts become due or takes corporate    
action in furtherance of any of the foregoing.                                  

Secretary's Retirement:                                                         

In the event of the retirement of the Secretary, the Secretary or her           
beneficiary will continue to receive monthly retirement compensation equal to   
one-twelfth of the greater of, (A) the Secretary's then annual salary; or (B)   
the average of the annual salary and bonus of the Secretary for each of the five
years preceding the year of retirement, for a period of 10 years from the date  
of retirement. Retirement shall be deemed to have occurred at the expiration of 
the Secretary's Agreement, or any renewal of the Secretary's Agreement, or at   
the mutual consent of the Secretary and the Company.                            

Secretary's Participation in the Future Expansion of the Company:               

During the term of the Secretary's Agreement, the Secretary or her designees    
shall have the right to participate in the future expansion of the Company      
whereby, if the Company, or any subsidiary of the Company proposes to form a    
subsidiary for any purpose, the Secretary shall have the right to purchase 1% of
the authorized securities of each class and series of such newly formed         
subsidiary at a purchase price that is equal to fair market value. The purchase 
price for such securities shall be payable by delivery of the Secretary's 10    
year recourse promissory note, bearing interest at the lowest rate necessary to 
avoid imputed interest under the Internal Revenue Code of 1986. If subsequent to
the formation of such subsidiary, the subsidiary issues any securities as a     
dividend, stock split or any other recapitalization, the Secretary shall be     
entitled to receive her proportionate share of such securities issued.          

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Secretary's Profit Sharing Bonus:                                               

In the event of the sale of any subsidiary or the business thereof or any       
business combination including any subsidiary or of any securities purchased or 
acquired by the Company or any subsidiary thereof as investment securities, the 
Secretary shall be entitled to a profit-sharing bonus equal to 1% of the gross  
profit, if any, received as a result of the sale or business combination.       

Secretary's Expense Reimbursement:                                              

The Company is obligated to reimburse the Secretary for all ordinary and        
necessary expenses incurred in the performance of her services. In the event    
that the Company moves its headquarters from the New York metropolitan area, and
the Secretary elects to move, the Company will pay the Secretary's moving costs,
including 6 months temporary housing, or if the Secretary elects not to move,   
the Company will provide the Secretary with an office and a staff in the New    
York metropolitan area. In the event that the Company establishes multiple      
offices, the Company will pay the Secretary a housing allowance of $1,000 per   
month for as long as more than one office is maintained.                        

(c)      Chief Financial Officer                                                

Mr. George W. Mahoney, chief financial officer of the Company, has an employment
agreement with Consolidated for a term commencing October 1, 1994 and ending    
December 31, 2007. Mr. Mahoney's annual salary increases to $202,000 for the    
current contract year, which ends on December 31, 1998 and increases annually   
thereafter until the twelfth year for which his annual salary is $353,000. The  
agreement also provides for two bonuses to Mr. Mahoney. One bonus is equal to   
the greater of 2.5% of Consolidated's net pre-tax profits or 2.5% of            
Consolidated's net cash flow, and the other is equal to the greater of 2.5% of  
IMI's net pre-tax profits or 2.5% of IMI's net cash flow. In addition, the      
Company paid Mr. Mahoney bonuses of $100,000 and $40,000 in 1996 for services   
relating to certain of the Company's loans from DVI pursuant to amendments to   
his employment agreement. Mr. Mahoney also receives a $6,000 allowance for an   
automobile which may be used for personal as well as business purposes and life 
insurance of $1,000,000 on which he may designate the beneficiary.              

(II) Contingent Liabilities - Although the Company is a party to certain legal  
proceedings that 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. Due to uncertainties in the legal process, it is at least     
reasonably possible that management's view of the outcome of the following      
contingent liabilities will change in the near term and there exists the        
possibility that there could be a material adverse impact on the operations of  
the Company and its subsidiaries.                                               

Holding Company and Discontinued Segments:                                      

(a) The Company is a defendant in a lawsuit filed in the Supreme Court of the   
State of New York, Queens County captioned 5 Boro Beverage Distributors, Inc. v.
Consolidated Technology Group, ltd. "Metro, 5" Absolute, et al. which was       
initiated in 1995.  The action has been filed by the owners of a company that   
the Company was contemplating acquiring in January 1995 for alleged unauthorized
use of proprietary information specific to that line of business. The plaintiffs
are seeking $1 million in damages and the Company has filed a counter claim for 
$35,000 advanced to the plaintiff. The action is presently in abeyance and there
has been no action by either side in over two years. Outside counsel handling   
this case has advised the Company that it has meritorious defenses.             

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(b) The Company is a defendant in a lawsuit filed in the United States District 
Court for the Southern District of New York captioned Naval Kapoor and Dirk     
Esselens v. SIS Capital Corp. that was initiated in 1998, whereby certain       
shareholders of 3D Technology, Inc., a subsidiary of the Company which has been 
discontinued, filed a lawsuit against the Company in December 1997. The         
complaint states that the Company wrongfully seized and transferred the assets  
of 3D Technology, Inc. for the benefit of the Company and at the detriment of   
the minority shareholders of 3D Technology, Inc. The plaintiffs are seeking     
$3,000,000 in damages. No assessments as to any outcome can be made at this time
as the matter is in its preliminary stages. The Company denies any allegation of
wrongdoing and intends to vigorously defend the action.                         

(c) On February 23, 1998, the Company was advised of the commencement of an     
action in the United States District Court for the Southern District of New York
captioned Grino Corporation, LLC and SMACS Holding Corp. ("SMACS"), individually
and as shareholders of and in the right of Consolidated Technology Group Ltd. v.
Consolidated Technology Group Ltd., SIS Capital Corp., Lewis S. Schiller, Norman
J. Hoskin, E. Gerald Kay and Grazyna B. Wnuk. The action sought to enjoin the   
Company from (a) proceeding with its 1998 Annual Meeting of Stockholders        
scheduled for March 26, 1998, and (b) making any payment to Mr. Schiller, Ms.   
Wnuk and others from the proceeds of the sale of International Magnetic Imaging,
Inc. ("IMI"). The complaint also alleges that the directors breached their      
fiduciary duty with respect to, and seeks to have declared void, (i) employment 
agreements with Mr. Schiller, which agreements ran from 1989, as amended and    
restated from time to time, resulting in a final agreement which was approved by
the Compensation Committee and the full Board of Directors in July 1997, and Ms.
Wnuk, (ii) agreements to issue stock or stock options of the Company and/or its 
subsidiaries to Messrs. Schiller, Hoskin and Kay and Ms. Wnuk, (iii) all        
completed transfers and issuances of stock and stock options by the Company to  
Messrs. Schiller, Hoskin and Kay and Ms. Wnuk without fair and adequate         
consideration by the Company, and (iv) all agreements to pay to Messrs.         
Schiller, Hoskin and Kay and Ms. Wnuk or any other officer of the Company or any
of its subsidiaries, any bonus, finder's fee, stock or option liquidation       
payment, consent fee, professional fee, or profit share or any other payment    
arising out of or resulting from or based upon the sale or the profits from the 
sale of IMI or the assets of IMI or the assets or business of IMI without fair  
consideration to the Company. The complaint also alleges violations of Section  
10(b) of the Securities Exchange Act of 1934, as amended, and common law fraud  
based upon the same and similar allegations, and seeks monetary damages to be   
proved at trial. On February 24, 1998, the Court granted a temporary restraining
order. On March 9, 1998, the United States District Court for the Southern      
District of New York vacated the temporary restraining order issued on February 
24, 1998. The Court vacated the temporary restraining order because, inter alia,
it did not appear that the plaintiffs had a likelihood of success in the        
ultimate action, particularly with respect to the alleged 10b-5 claim. On March 
19, 1998, the United States District Court for the Southern District of New York
dismissed the action.                                                           

(d) One of the plaintiffs in the Federal Court action described above, SMACS    
Holdings Corp. ("SMACS"), and certain affiliates of SMACS are plaintiffs in an  
action commenced in November 1997 in the Supreme Court of the State of New York,
County of New York, captioned Bridge Ventures, Inc. etal v. Lewis S. Schiller,  
etal. The action, brought against Mr. Schiller, the Company, SIS Capital Corp.  
and IMI by SMACS, certain affiliates of SMACS and others seeks, inter alia,     
monetary damages in excess of $500,000 allegedly due pursuant to consulting     
agreements with the Company, an alleged equity interest in IMI and punitive     
damages of at least $5 million. The Company believes that it has meritorious    
defenses to the claims made in this action. In March 1998, the plaintiffs sought
to amend the complaint to assert claims of a derivative nature alleging claims  
similar to those in the Federal Court action and obtained a temporary           
restraining order prohibiting payments to Mr. Schiller and others from the      
proceeds of the IMI sale. The temporary restraining order was lifted and, as of 
the date of this Form 10-K, the complaint had not been amended. At the time the 
temporary restraining order was lifted, the negotiations relating to the        
resignation of Messrs. Schiller, Hoskin and Kay and Ms. Wnuk, which are         
described in Item 1 under the caption "Organization and Changes in Management of
the Company" had been substantially negotiated and the courts were so advised.  
The Company has accrued $250,000 for this contingency which is included in      
selling, general and administrative expense.                                    

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(e) "Vanguard Limited ("Vanguard"), on its own behalf or on behalf of other     
persons who may be affiliated with Vanguard, based on a purported agreement     
relating to the introduction of Consolidated to IMI and assistance in the       
negotiation of the acquisition of IMI in 1994, has asserted a claim that it has 
the right, among other things, to a 10% interest in the Common Stock of IMI at  
or about the time of the acquisition for no cash consideration. In addition,    
Vanguard has claimed that it is entitled to a $200,000 fee due at the time of   
the acquisition of the Centers, consulting fees of $240,000 per year for five   
years, reimbursement of nonaccountable expenses and a 5% interest in any future 
medical acquisition by the Company. No assurance can be given that any          
litigation which may ensue would not seek damages exceeding the claim described 
above and, if decided unfavorably to the Company, would not have a material     
adverse affect on the Company."                                                 

(f) In January 1996, Drs. Ashley Kaye and James Sternberg, two former           
stockholder-directors of the company that sold diagnostic imaging centers to    
IMI, and Dr. Sternberg's wife, threatened to commence an action against two     
subsidiaries of IMI, Consolidated and Mr. Lewis S. Schiller, formerly chairman  
of the board of Consolidated, for alleged violations of securities laws and     
common law in connection with an asset purchase agreement which was executed in 
conjunction with the acquisition of IMI in September 1994 and non-payment of    
$3,375,000 subordinated notes of two subsidiaries of IMI. Company. In 1997 they,
along with Dr. Stephen Schulman, a holder of subordinated notes in the principal
amount of approximately $6.4 million issued by subsidiaries of IMI who was the  
president of the company that sold the diagnostic centers to IMI and was        
president and chief executive officer of IMI, commenced involuntary bankruptcy  
proceedings against certain subsidiaries of IMI. Such bankruptcy proceedings    
were dismissed. It is possible that any action which may be brought against the 
Company may include Dr. Schulman as a plaintiff. No assurance can be given that 
an adverse decision in any action based on such claims will not have a material 
adverse effect upon the Company.                                                

(g) In 1994, the Company purchased the assets of IMI and its partnerships for   
cash and stock of the Company. Certain of the limited partners of one of the    
partnerships from which assets were purchased, claim that one of the principals 
of IMI and the council of the seller, allegedly guaranteed that the common stock
given as a part of the purchase would have a value of $4 on the second          
anniversary following the closing of the purchase. Subsequent to December 31,   
1997, IMI settled this claim for $408,000 and such amount has been accrued as of
December 31, 1997 and is included in selling, general and administrative        
expense.                                                                        

Contract Engineering Services                                                   

(a) In November 1997, an action was commenced in the Supreme Court of the State 
of New York, County of Suffolk, by Ralph Corace against RMI seeking damages of  
approximately $1.1 million for an alleged breach of contract by the Company. Mr.
Corace was the president of Job Shop Technical Services, Inc., from which RMI   
purchased assets in November 1994. The Company believes that the action is      
without merit, will vigorously contest this matter and has filed counterclaims  
against Mr. Corace.                                                             

(b) On May 14, 1991, the Government Printing Office wrote Trans Global asking to
be reimbursed a total of $296,000 for "unauthorized time work" on two programs. 
Trans Global has been in contact with the Department of Justice, which has      
stated that they were declining prosecution of Trans Global regarding this      
matter. Management believes these claims are without merit and intends to       
contest these claims vigorously if reasserted by the Government Printing Office 
and believes that the ultimate disposition of this matter will not have a       
material adverse effect on the financial position of Trans Global.              

(c) Voluntary Settlement Agreement - As of December 31, 1997 Trans Global has a 
$150,000 obligation remaining with regard to an agreement it entered into with  
the United States Department of Labor and the independent trustee of the Job    
Shop Technical Services, Inc. 401(k) Plan ("collectively "DOL"). Trans Global   
agreed to pay the DOL an aggregate of $300,000 in 18 monthly installments of    
$16,667.                                                                        

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(d) Trans Global previously was delinquent in filing payroll taxes during the   
quarter ended March 31, 1996 and incurred significant penalties. In August 1996,
Trans Global entered into an agreement with the Internal Revenue Service ("IRS")
to pay those taxes, interest and penalties. Trans Global satisfied this         
agreement in full as of July 14, 1997, at which point it began proceedings to   
contest the penalties and is presently seeking to recover these amounts.        

Medical Information Services                                                    

In March 1997, an action was commenced against Netsmart and certain of its      
officers, directors and stockholders by Onecard Health Services Corporation in  
the Supreme Court of the State of New York, County of New York. The named       
defendants include, in addition to Netsmart, Messrs. Lewis S. Schiller, formerly
chief executive officer and a director of Netsmart, Leonard M. Luttinger, vice  
president and a director of Netsmart, Thomas L. Evans, formerly a vice president
of Netsmart, Consolidated and certain of its subsidiaries, other stockholders of
Netsmart and other individuals who were or may have been officers or directors  
of Onecard but who have no affiliation with Netsmart or Consolidated. Mr.       
Luttinger and Mr. Evans were employees of Onecard prior to the formation of     
Netsmart. Mr. Schiller was not an employee or director or, consultant to, or    
otherwise affiliated with, Onecard. The complaint makes broad claims respecting 
alleged misappropriation of Onecard's trade secrets, corporate assets and       
corporate opportunities, breach of fiduciary relationship unfair competition,   
fraud, breach of trust and other similar allegations, apparently arising at the 
time of, or in connection with, the organization of Netsmart in September 1992. 
The complaint seeks injunctive relief and damages, including punitive damages,  
of $130 million. Netsmart believes that the action is without merit, and it will
vigorously defend the action. Netsmart has filed an answer denying all of the   
plaintiffs' allegations and has asserted affirmative defenses. In addition,     
Netsmart believes that there is a difference in the technology used in the      
Onecard software and Netsmart's CarteSmart software and in the type of computer 
network on which the software operates. Netsmart has demanded that the plaintiff
particularize the broad allegations of the complaint and the produce documents  
referred to in the complaint. No assurance can be given as to the ultimate      
disposition of the action, and an adverse decision may have a material adverse  
effect upon the business of Netsmart.                                           

(17) New Authoritative Pronouncements                                           

The following describes new authoritative pronouncements that are expected to be
applicable to the accounting of the Company's operations:                       

The Financial Accounting Standards Board ("FASB") issued Statement of Financial 
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS   
No. 130 is effective for fiscal year's beginning after December 15, 1997.       
Earlier application is permitted. Reclassification of financial statements for  
earlier periods provided for comparative purposes is required. SFAS No. 130 is  
not expected to have a material impact on the Company.                          

The FASB has issued SFAS No. 131 "Disclosures about Segments of an Enterprise   
and Related Information." SFAS changes how operating segments are reported in   
annual financial statements and requires the reporting of selected information  
about operating segments in interim financial reports issued to shareholders.   
SFAS No. 131 is effective for periods beginning after December 15, 1997, and    
comparative information for earlier years is to be restated. SFAS No. 131 need  
not be applied to interim financial statements in the initial year of its       
application. SFAS No. 131 is not expected to have a material impact on the      
Company.                                                                        

During 1997, the Accounting Standards Executive Committee of the American       
Institute of Certified Public Accountants issued Statement of Position ("SOP")  
97-2, "Software Revenue Recognition." SOP 97-2 provides guidance on revenue     
recognition on software transactions and is effective for transactions entered  
into in fiscal years beginning after December 15, 1997. The Company is taking   
steps to meet the requirements of SOP 97-2 and expects that it will not have a  
material impact on the financial position or results of operations of the       
Company.                                                                        

(18) Acquisitions                                                               

In May 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 transferred to Concept all of the issued and         
outstanding common stock of Trans Global, in exchange for a controlling interest
in Concept. Concept's common stock and warrants are traded on the NASDAQ Small  
Cap Market. Trans Global's common stock was owned by SISC (91.6%), DLB (5.0%)   
and Mr. Sicinski (3.4%). DLB is owned by Ms. Carol Schiller, wife of Mr. Lewis  
S. Schiller, the Company's chairman of the board, president and chief executive 
officer. Mr. Schiller disclaims all beneficial interest in the securities owned 
by DLB. 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 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. Following the consummation of the transaction, the business of  
Trans Global became Concept's principal business. The acquisition was accounted 
for as a reverse acquisition with Trans Global being the surviving entity. The  
equity of Trans Global, as the surviving entity, and Concept, the acquired      
entity, was recapitalized including a reclassification of Concept's accumulated 
deficit of $11.1 million to additional paid-in capital of Trans Global.         
Furthermore, no goodwill was generated on the transaction because pursuant to   
reverse acquisition accounting, the book values of Concept were carried over to 
Trans Global and were not adjusted to fair market value. The operations of Trans
Global, the surviving entity, are included in the Company's consolidated results
of operations for 1997, 1996 and 1995.                                          

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The following pro forma unaudited results assume the above acquisition had      
occurred at the beginning of 1995.                                              

                    1995
                    ----
Net Revenues                                 $74,454,000                        
                     ===========
Net Loss                                    ($11,420,000)                       
                     =============
Net Loss per Share                                ($0.51)                       
                           =======

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.      

(19) Lafayette Settlement Agreement - On December 20, 1996, SIS Capital Corp., a
wholly-owned subsidiary of the Company ("SISC"), entered into an agreement among
SISC, DLB, Inc. ("DLB") and Lafayette Industries, Inc., ("Lafayette"), pursuant 
to which SISC and DLB transferred to Lafayette all of the issued and outstanding
common stock of SES Holdings, Corp. ("SESH"), in exchange for a controlling     
interest in Lafayette. At the date of the acquisition, SESH was an 80% owned    
subsidiary of SISC. Lafayette issued to SISC 1,000 shares of Class A preferred  
stock which is convertible at a ratio that will give SISC a 65% ownership of    
Lafayette's fully diluted common stock upon stockholder approval of an increase 
in the authorized number of common shares of Lafayette. Contemporaneously with  
the reverse acquisition, Lafayette issued 1,000 shares of Class B preferred     
stock which has a redemption value of $6,750,000. The Series B preferred stock  
was issued as payment to SISC for $4,000,000 of subordinated debt due to SISC   
and in exchange for the cancellation of $2,750,000 of preferred stock of the    
underlying entities of SESH, which was held by SISC. Lafayette's prior principal
business, which was principally the manufacture and sale of store fixtures, has 
been discontinued.                                                              

Lafayette's Form 10-KSB for its year ended December 31, 1996, filed April 15,   
1997, included a disclaimer of opinion by Lafayette's independent certified     
public accountants. This report disclosed that there was substantial doubt with 
respect to Lafayette's ability to continue as a going concern. In addition,     
Lafayette's accountants reported that they were unable to obtain written        
representations from Lafayette's counsel regarding litigation relating, among   
other things, to financial guarantees. Because of material uncertainties on the 
part of the Company and SISC with respect to Lafayette's guarantees, pending    
litigation, the accuracy of representations and warranties made by Lafayette in 
the December 20, 1996 Stock Purchase Agreement with SISC, DLB, Inc. ("DLB") and 
Lewis S. Schiller ("LSS") (the "Agreement"), the accuracy and completeness of   
Lafayette's financial statements with respect to material liabilities,          
Lafayette's financial condition and other matters, all of which were brought to 
the attention of Lafayette by SISC following the discovery thereof, SISC's and  
Lafayette's respective boards of directors determined that, in order to avoid   
costly and time consuming litigation, Lafayette and SISC would enter into an    
agreement providing for, among other things, the following: (a) Lafayette's     
transfer to SPECTEC, Inc., ("SPECTEC"), a majority owned subsidiary of SISC, and
to DLB and LSS, as their respective interest appear, of all of Lafayette's      
interest in SES Holdings Corp. ("SESH") acquired by Lafayette pursuant to the   
Agreement; (b) SISC's transfer (or the transfer to Lafayette by any other       
holder) of all of the Class A Convertible Preferred Stock and Series B          
Redeemable Preferred Stock of Lafayette issued by Lafayette in consideration of 
the purchase of the capital stock of SESH under the Agreement; (c) DLB's and    
LSS's waiver of their respective rights, as provided for in the Agreement, to   
receive any shares of Lafayette Common Stock; (d) the cancellation of all       
obligations for loans and/or advances by Lafayette to SESH or subsidiaries of   
SESH and the treatment of the amount of any such loans and/or advances as       
additional contributions to capital; (e) the indemnification by SPECTEC of      
Lafayette, on a limited basis, from and against any losses or damages resulting 
from claims by those investors who purchased from Lafayette 8,000,000 shares of 
Lafayette's capital stock in private transactions between December 20, 1996 and 
April 21, 1997; and (f) the delivery by SPECTEC to Lafayette of any of such     
securities purchased by such investors which were delivered to such investors by
Lafayette. A Settlement Agreement containing the foregoing provisions was       
consummated between Lafayette, SISC., DLB, Lewis S. Schiller and SPECTEC as of  
April 21, 1997.                                                                 

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At the time of the reverse acquisition, Lafayette's prior operations were       
discontinued and the statement of operations for 1996 and the 1997 operations do
not include any operating activity related to Lafayette. As of December 31,     
1996, the assets and liabilities of Lafayette included in the Company's         
consolidated balance sheet consisted of the following                           

Cash                                                           $1,020,000       
Loans receivable                                                   49,000       
Prepaid and other current assets                                   24,000       
Receivables, long-term                                            441,000       
Receivables, related parties                                       85,000       
Other assets                                                      469,000       
                                                           -------
Total assets                                                  2,088,000     
                                                         ---------
Accounts payable and accrued expenses                           1,202,000       
Notes payable, related parties                                    690,000       
Current portion of long-term debt                                 458,000       
Convertible debentures                                            700,000       
Current portion of capitalized lease obligations                   99,000       
                                                            ------
Total liabilities                                           3,149,000   
                                                         ---------
 Net liabilities disposed of                            $1,061,000
                                                        ==========

As of December 31, 1996, the Company's investment in Lafayette was in excess of 
Lafayette's equity resulting in a reduction in the Company's additional paid-in 
capital of $1,061,000. The December 31, 1996 balance sheet has been restated to 
conform with the current period presentation whereby the above assets and       
liabilities and the decrease in additional paid-in capital were reversed.       

(20) Discontinued Operations - During 1997, the Company discontinued the Audio  
Products Manufacturing, Three Dimensional Products and Services, Medical        
Diagnostics, Electro-Optical Electro Mechanical Products Manufacturing and      
Business Consulting Services segments.                                          

(a) Audio Products Manufacturing - On May 20, 1997, pursuant to a Comprehensive 
Agreement, (the "WWR Agreement") by and among Mr. Donald L. Shamsie and Malco   
Theatres, (the "Purchasers") and WWR Acquisition Corp., a majority owned holding
company of the Company which owned all of the capital stock of WWR Technology,  
Inc., ("WWR"), (the "Seller"), the Company sold all of the issued and           
outstanding capital stock of WWR, the subsidiary in which all of the operations 
of the Audio Products Manufacturing segment operating activities were conducted,
for $100,000. As a part of the WWR agreement, the Company was released as a     
guarantor on approximately $394,000 in debt obligations owed by WWR to two      
lenders. As a result of the sale, the Company received net proceeds of          
approximately $62,000 and recorded a gain of approximately $129,000 on the      
disposal. The revenues of the audio products manufacturing segment were $1.2    
million, 3.3 million and 2.8 million for 1997, 19996 and 1995, respectively. The
operations of WWR up to the date of the WWR Agreement are classified as loss    
from the operations of a discontinued segment.                                  

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As of December 31, 1996 the assets and liabilities of the Audio Products      
Manufacturing segment included in the Company's consolidated balance sheet      
consisted of the following:                                                     

Cash                                                               $50,000      
Accounts receivable, net                                           336,000      
Inventories                                                        386,000      
Prepaid and other current assets                                    10,000      
Property, plant and equipment                                      309,000      
Receivables, long-term                                               7,000      
Trademark, net                                                     368,000      
Other assets                                                        13,000      
                                                              ------
Total assets                                                   1,479,000    
                                                           ---------
Accounts payable and accrued expenses                            1,010,000      
Accrued payroll and related expenses                               146,000      
Accrued interest                                                     4,000      
Current portion of long-term debt                                  541,000      
Current portion of capitalized lease obligations                     4,000      
Capitalized lease obligations                                       10,000      
                                                              ------
Total liabilities                                            1,715,000  
                                                           ---------
  Net liabilities disposed of                             $  236,000
                                                          ==========
Presented in the balance sheet as follows:                                      
Net long-term assets of discontinued segment                      $687,000      
Net current liabilities of discontinued segment                    923,000      
                                                             -------
Net liabilities disposed of                                       $236,000      
                                                            ========

(b) Three Dimensional Products and Services - Effective June 30, 1997, (the     
Measurement Date"), the Company formulated a plan to discontinue the operations 
of all of the subsidiaries operating in the Three Dimensional Products and      
Services segment. As of the measurement date, the Company accrued an estimate of
$250,000 for anticipated losses from the measurement date until the date the    
disposal is completed, which is not expected to take longer than one year. The  
Company has written-off all assets of the Three Dimensional Products and        
Services subsidiaries, consisting primarily of capitalized product development  
costs and property, plant and equipment, and has recorded the remaining         
liabilities, including the estimated loss to be incurred until the plan is      
complete, as net liabilities of a discontinued segment. As a result of the plan,
the Company has recorded a loss of approximately $465,000 on the planned        
disposal. The revenues of the three dimensional products and services segment   
were $281,000, $839,000 and $1.8 million for 1997, 1996 and 1995, respectively. 
The operations of the Three Dimensional Products and Services segment up to the 
Measurement Date, have been restated to present the operations of the Three     
Dimensional Products and Services segment as a discontinued segment.            

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As of December 31, 1997 and 1996 the assets and liabilities of the Three        
Dimensional Products and Services segment included in the Company's consolidated
balance sheet consisted of the following.                                       

                                                    December 31,
                                                    ------------
                                                 1997               1996
                                                 ----               ----
Cash                                                   --              $48,000  
Accounts receivable, net                               --              100,000  
Prepaid and other current assets                       --               11,000  
Property, plant and equipment                          --              444,000  
Deferred offering costs                                --              115,000  
Other assets                                           --              350,000  
                                                 ------              -------
  Total assets                                       --            1,068,000
                                                 ------            ---------
Accounts payable and accrued expenses          $1,882,000            1,007,000  
Accrued payroll and related expenses              246,000              343,000  
Accrued interest                                   24,000                1,000  
Notes payable, related parties                    278,000              295,000  
Current portion of long-term debt                 175,000              175,000  
Current portion of capitalized                                                  
lease obligations                                      --               43,000  
Capitalized lease obligations                          --               68,000  
                                                 ------               ------
  Total liabilities                           2,605,000            1,932,000
                                              ---------            ---------
    Net liabilities to be disposed of        $2,605,000             $864,000
                                             ==========             ========

Presented in the balance sheet as follows:                                      
Net long-term assets of discontinued segment           --             $841,000  
Net current liabilities of discontinued                                         
segment                                       $2,605,000            1,705,000 
                                             ----------            ---------
Net liabilities to be disposed of              $2,605,000             $864,000  
                                             ==========             ========

(c) Medical Diagnostics - Effective September 1, 1997, (the Measurement Date"), 
the Company formulated a plan to discontinue the operations of all of the       
subsidiaries operating in the Medical Diagnostics segment. Pursuant to such     
plan, on April 2, 1998, the Company consummated the sale of substantially all of
the assets of International Magnetic Imaging, Inc. Such sale resulted in a gain 
on disposal, which will be recognized during 1998. The Company has classified   
all assets and liabilities disposed of as net assets of a discontinued segment. 
The revenues of the medical diagnostics segment were $29.4 million, $31.1       
million and $28 million for 1997, 1996 and 1995, respectively. The operations of
the Medical Diagnostics segment up to the Measurement Date have been restated to
present the operations as a discontinued segment.                               

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Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

As of December 31, 1997 and 1996 the assets and liabilities of the Medical      
Diagnostics segment included in the Company's consolidated balance sheet        
consisted of the following.                                                     

                                                    December 31,
                                                    1997              1996
                                                    ----              ----
Cash                                             $1,813,000        $1,539,000   
Accounts receivable, net                          9,803,000        11,822,000   
Prepaid and other current assets                    325,000           254,000   
Property, plant and equipment                     9,738,000        12,561,000   
Goodwill                                          9,181,000         9,729,000   
Covenant not to compete                                  --           826,000   
Customer lists, net                               4,430,000         4,807,000   
Deferred offering costs                                  --           322,000   
Receivable, long-term                             1,271,000                --   
Receivable, related parties                              --           308,000   
Other assets                                        735,000           882,000   
                                                 -------           -------
Total assets                                   37,296,000        43,050,000 
                                              ----------        ----------
Accounts payable and accrued expenses             5,049,000         4,134,000   
Accrued interest                                    814,000            61,000   
Income taxes payable                                249,000           652,000   
Subordinated debt related parties                   924,000           924,000   
Current portion of long-term debt                10,932,000         3,686,000   
Current portion of subordinated debt              5,721,000         6,268,000   
Current portion of capitalized lease                                            
obligations                                      1,240,000         1,273,000  
Deferred interest                                   498,000           568,000   
Long-term debt                                    7,710,000        16,240,000   
Capitalized lease obligations                     1,702,000         2,864,000   
Subordinated debt                                     8,000           313,000   
                                                   -----           -------
Total liabilities                              34,847,000        36,983,000 
                                              ----------        ----------
 Net assets to be disposed of                $ 2,449,000       $ 6,067,000
                                             ===========       ===========

Presented in the balance sheet as follows:                                      
Net current liabilities                                                         
of discontinued segment                        $12,987,000       $ 9,452,000  
Net long-term assets of                                                         
discontinued segment                            15,436,000         3,385,000  
                                              ----------         ---------
Net assets to be disposed of                    $ 2,449,000       $ 6,067,000   
                                             ===========       ===========

(d) Electro-Optical Electro-Mechanical Products Manufacturing - Effective       
December 31, 1997, the Company entered into an agreement to sell the            
Electro-Optical Electro-Mechanical Products Manufacturing segment. It is        
anticipated that such sale will result in a gain on disposal, which will be     
recognized during 1998. The Company has classified all assets and liabilities   
disposed of as net assets of a discontinued segment. The revenues of the        
electro-optical and electro-mechanical products manufacturing segment were $3.1 
million, $2.4 million and $3.9 million for 1997, 1996 and 1995, respectively.   
The operations of the Electro-Optical and Electro-Mechanical Products           
Manufacturing segment up to December 31, 1997 have been restated to present the 
operations as a discontinued segment.                                           

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Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

As of December 31, 1997 and 1996 the assets and liabilities of the              
Electro-Optical Electro-Mechanical Products Manufacturing segment included in   
the Company's consolidated balance sheet consisted of the following.            

                                                    December 31,
                                                    1997              1996
                                                    ----              ----
Cash                                                $29,000           $24,000   
Accounts receivable, net                            304,000           296,000   
Inventories                                       1,820,000         2,739,000   
Prepaid and other current assets                      4,000            40,000   
Property, plant and equipment                       161,000           186,000   
Other assets                                         20,000           101,000   
                                                  ------           -------
 Total assets                                  2,338,000         3,386,000
                                               ---------         ---------
Accounts payable and accrued expenses               778,000           797,000   
Accrued payroll and related obligations              34,000            54,000   
Accrued interest                                         --             2,000   
Notes payable, related parties                       34,000                --   
Current portion of long-term debt                   303,000           162,000   
Current portion of capitalized                                                  
lease obligations                                   54,000            17,000  
Capitalized lease obligations                            --            24,000   
                                                  ------            ------
 Total liabilities                             1,203,000         1,056,000
                                               ---------         ---------
     Net assets to be disposed of             $1,135,000        $2,330,000
                                              ==========        ==========

Presented in the balance sheet as follows:                                      
Net current assets of discontinued Segment       $1,044,000        $2,150,000   
Net current liabilities of                                                      
discontinued segment                                90,000            83,000  
Net long-term assets of discontinued segment        181,000           263,000   
                                                 -------           -------
Net assets to be disposed of                     $1,135,000        $2,330,000   
                                              ==========        ==========

(e) Business Consulting Services - Effective December 31, 1997, the Company     
entered into an agreement to sell the Business Consulting Services segment. It  
is anticipated that such sale will not result in a material loss on disposal.   
The Company has classified all assets and liabilities disposed of as net assets 
of a discontinued segment. The operations of the Business Consulting Services   
segment up to December 31, 1997 have been restated to present the operations as 
a discontinued segment.                                                         

As of December 31, 1997 and 1996 the assets and liabilities of the Business     
Consulting Services segment included in the Company's consolidated balance sheet
consisted of the following.                                                     

                                                    December 31,
                                                    1997              1996
                                                    ----              ----
Prepaid and other current assets                         --          $162,000   
Property, plant and equipment                        $1,000             3,000   
Receivables, related parties                             --            70,000   
                                                  ------            ------
 Total assets                                      1,000           235,000
                                                   -----           -------
Accounts payable and accrued expenses                    --             2,000   
                                                   -----             -----
 Total liabilities                                    --             2,000
                                                  ------             -----
     Net assets to be disposed of                 $1,000          $233,000
                                                  ======          ========

Presented in the balance sheet as follows:                                      
Net current assets of discontinued segment               --          $160,000   
Net long-term assets of discontinued segment         $1,000            73,000   
                                                  ------            ------
Net assets to be disposed of                         $1,000          $233,000   
                                                  ======          ========

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Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

(21)    Subsequent Events                                                       

Sale of Medical Diagnostics Segment:                                            

On January 28, 1998, International Magnetic Imaging, Inc. ("IMI"), a subsidiary 
of the Company, and certain of IMI's subsidiaries entered into an asset purchase
agreement with Comprehensive Medical Imaging, Inc. ("CMI"), a subsidiary of     
Syncor International Corporation, pursuant to which CMI agreed to purchase      
substantially all of the assets of IMI and such subsidiaries for approximately  
$20 million in cash and the assumption of $21 million in debt. The transaction  
was consummated on April 2, 1998.                                               

Resignation of Registrant's Directors, Chief Executive Officer and Corporate    
Secretary:                                                                      

On March 30, 1998, the "Company and its wholly-owned subsidiary, SISC, entered  
into a series of agreements with Lewis S. Schiller ("Schiller"), Grazyna B. Wnuk
("Wnuk"), E. Gerald Kay ("Kay") and Norman J. Hoskin ("Hoskin").  Pursuant to   
the agreements:                                                                 

a) Schiller, Wnuk, Kay and Hoskin agreed to resign as directors and officers of 
the Company and its subsidiaries contemporaneously with the closing of the sale 
by International Magnetic Imaging, Inc. and certain of its subsidiaries         
(collectively, "IMI") of substantially all of their assets pursuant to an asset 
purchase agreement (the "Asset Purchase Agreement") dated January 28, 1998      
between IMI and Comprehensive Medical Imaging, Inc. IMI is a subsidiary of the  
Company. The sale by IMI is referred to as the "IMI Sale."                      

b) In consideration for payments of approximately $4.0 million to Schiller and  
Wnuk, the Company agreed to purchase from Schiller and Wnuk all of their rights 
under their respective employment agreements and their stock interest in IMI.   
Such payments represent a significant discount from the amounts due under their 
respective employment agreements.                                               

c) Schiller agreed to transfer to the Company 1,190,000 shares of the Company's 
Common Stock owned by him.                                                      

d) The Company agreed to transfer to Schiller or his designees for nominal      
consideration, certain subsidiaries of the Company. Such subsidiaries operate at
a loss and have, in the aggregate, either a negative or zero net worth.         

e) Schiller agreed to enter into a three-year consulting agreement with the     
Company, for which he will receive annual compensation of $100,000.             

f) The Company, its subsidiaries and Schiller, Wnuk, Kay and Hoskin agreed to   
execute mutual releases and the Company will provide Schiller, Wnuk, Kay and    
Hoskin with certain indemnification rights.                                     

The negotiations were conducted with representatives of shareholders who are not
affiliated either with present management or with the plaintiffs in certain     
recent litigation against the Company, which is disclosed in footnote 16,       
"Contingencies".                                                                

Immediately prior to the completion of the IMI Sale, Schiller, Wnuk, Kay and    
Hoskin elected as their successors as directors three individuals who were      
designated by the representative of the shareholders and who are reasonably     
acceptable to the present directors.                                            

On April 15, 1998, Mr. George W. Mahoney gave the Company notice that he was    
exercising his right under his employment agreement with Consolidated to        
terminate his emmployment on 90 days' notice.  Mr. Mahoney has advised the      
Company that in his view the agreement requires the company to pay him a lump   
sum payment equal to his salary for the balance of the term of the agreement    
which is approximately $2.4 million.  The Company's board of directors is       
evaluating the Company's and Mr. Mahoney's respective rights under his          
employment contract.                                                            

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 Index to Exhibits
 December 31, 1997

1.  11.1  Calculation of earnings per share.                                    
2.  21.1  List of Subsidiaries of the Registrant                                
2.  27    Financial Data Schedule (filed only in electronic format with the SEC)

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Consolidated Technology Group, Ltd. and Subsidiaries
 December 31, 1997
Exhibit 11.1 Calculation of Earnings per Share

                         December 31,       December 31,      December 31,
                       1997               1996              1997
                       ----               ----              ----
Net Loss                   ($13,871,000)      ($ 9,570,000)     ($11,360,000)   
                        =============      =============     =============
Loss per Share:                                                                 
Loss per Share (note 1)         ($0.29)            ($0.23)           ($0.51)  
                              -------            -------           -------
Loss per Share -                                                              
Assuming Full Dilution                                                      
(note 2)                        ($0.29)            ($0.23)           ($0.51)  
                              -------            -------           -------

Note 1:                                                                         
Computed by dividing the net loss for the period by the weighted  average number
of  common  shares   outstanding,   47,161,799,   41,639,293   and   22,423,035,
respectively,  for 1997, 1996 and 1995 respectively.  No stock options, warrants
or  preferred  convertible  stock are assumed to be  exercised  because they are
anti-dilutive  for the period.  The  weighted  average  number of common  shares
outstanding is calculated by weighting common shares issued during the period by
the actual number of days that such shares are outstanding during the periods.  

Note 2:                                                                         
Computed by dividing the net loss for the period by the fully  diluted  weighted
average  number  of  common  shares  outstanding,   53,346,057,  43,087,307  and
25,136,125, respectively, for 1997, 1996 and 1995. The fully diluted calculation
comprehends the following assumptions:                                          

(i) Assumes  that a warrant to  purchase  1,000,000  common  shares at $0.75 per
share was  exercised at the  beginning of the  indicated  periods,  and that all
proceeds  from such  exercise  were used to purchase  treasury  stock at a price
equal to the average  market price of the Company's  common shares for the three
and nine month  periods  resulting  in a net decrease in  outstanding  shares of
4,098,572, 2,554,873, and 153,719, respectively, for 1997, 1996 and 1995.       

(ii)  Assumes  that for 1997 and 1996  approximately  2,980,000  shares of      
preferred  stock were  converted at the  beginning of the indicated periods.    

(iii) Assumes that for 1997,  outstanding  options to purchase  2,490,000 common
shares at $0.125 per share were  exercised  at the  beginning  of the  indicated
periods, and that all proceeds from such exercise were used to purchase treasury
stock at a price  equal to the  average  market  price of the  Company's  common
shares for the three and nine  month  periods  resulting  in a net  decrease  in
outstanding shares of 2,697,500.                                                

(iv) Assumes that for 1997 5,000,000 shares subscribed to the CEO were issued as
of the beginning of the respective periods.                                     

(v) Assumes that for 1997 the  subordinated  promissory  notes were converted to
4,644,000  common shares as of the beginning of the respective periods.         

NOTE - THIS  CALCULATION IS SUBMITTED IN ACCORDANCE  WITH THE  SECURITIES  ACT  
OF 1934 RELEASE NO. 9083,  ALTHOUGH IT IS CONTRARY TO PARA. 40 OF APB 15 BECAUSE
IT MAY PRODUCE AN ANIT-DILUTIVE RESULT                                          

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 Consolidated Technology Group, Ltd.
 December 31, 1997
 Exhibit 21.1 List of Subsidiaries of the Registrant

State of Company                                       Incorporation            
----------------                                       -------------            
Consolidated Technology Group Ltd.                     New York                 
SIS Capital Corp.                                      Delaware                 
The Trinity Group Inc.                                 Delaware                 
Carte Medical Holdings                                 Delaware                 
Carte Medical Corp.                                    Delaware                 
Creative Socio-Medics                                  Delaware                 
IMI Acquisition Corp.                                  Delaware                 
International Magnetic Imaging                         Florida                  
MD Corp.                                               Florida                  
MRI-Net                                                Florida                  
IMI Acquisition of Pine Island Corporation             Florida                  
IMI Ltd. Partner Acq. of Pine Island, Inc.             Florida                  
IMI Acquisition of North Miami Beach Corporation       Florida                  
IMI Ltd. Partner Acq. of North Miami, Inc.             Florida                  
IMI Acquisition of Boca Raton Corporation              Florida                  
IMI Ltd. Partner Acq. of Boca Raton, Inc.              Florida                  
IMI Acquisition of South Dade Corporation              Florida                  
IMI Ltd. Partner Acq. of South Dade, Inc.              Florida                  
IMI Acquisition of Oakland Park Corporation            Florida                  
IMI Ltd. Partner Acq. of Oakland, Inc.                 Florida                  
IMI Acquisition of Orlando Corporation                 Florida                  
IMI Ltd. Partner Acq. of Orlando, Inc.                 Florida                  
PODC Acquisition Corporation                           Florida                  
PODC Ltd. Partner Acq. Corporation                     Florida                  
IMI Acquisition of Puerto Rico Incorporated            Puerto Rico              
IMI Acquisition of Arlington Corp.                     Virginia                 
IMI Acquisition of Kansas Corporation                  Kansas                   
MD Acquisition Corporation                             Delaware                 
MD Ltd. Partner Acq. Corporation                       Delaware                 
TeleVend, Inc.                                         Delaware                 
ARC Networks Corp.                                     New York                 
Trans Global Services, Inc.                            Delaware                 
Resource Management International, Inc.                Delaware                 
ARC Acquisition Group, Inc.                            New York                 
Avionics Research Corp.                                New York                 
Avionics Research Corporation of Florida               Florida                  
SES Holdings Corp.                                     Delaware                 
Sequential Electronic Systems, Inc.                    Delaware                 
S-Tech, Inc.                                           Delaware                 
Industry Lighting, Inc.                                Delaware                 
3D Holdings, Inc.                                      Delaware                 
CDS Acquisition Corp.                                  Delaware                 
CDS, Inc.                                              Delaware                 
3D Technology, Inc.                                    Delaware                 
3D Imaging International, Inc.                         Delaware                 
Universal International, Inc.                          Delaware                 
Universal International of Orlando, Inc.               Florida                  
WWR Technology, Inc.                                   Delaware                 
Audio Animation, Inc.                                  Delaware                 
Prime Access, Inc.                                     Delaware                 
TGS Services Corp.                                     Delaware                 
Concept Technologies Group, Inc.                       Delaware                 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		12/31/07		71					10KSB,  10KSB/A,  5,  NT 10-K
		12/31/02		69					10KSB,  NT 10-K
		11/30/02		16
		10/31/02		16
		12/31/00		67					10-K,  NT 10-K
		10/1/99		63
		9/30/99		61		63			10-Q
		7/31/99		58
		3/31/99		16					10-Q,  10-Q/A
		2/28/99		16		59
		12/31/98		26		71			10-K,  5,  DEF 14A,  NT 10-K,  PRES14A
		7/31/98		58
Filed on:		4/16/98
		4/15/98		3		81
		4/14/98		1		33
		4/2/98		14		81			3
		4/1/98		58
		3/31/98		11					10-Q,  10-Q/A,  NT 10-Q
		3/30/98		36		81			8-K,  NT 10-K
		3/26/98		17		72
		3/19/98		17		72			8-K
		3/9/98		17		72			8-K,  SC 13D
		2/24/98		17		72
		2/23/98		17		72			8-K
		2/10/98		19
		1/29/98		26
		1/28/98		2		81			8-K
		1/1/98		14
For Period End:		12/31/97		1		84			10-K/A,  NT 10-K
		12/15/97		52		74
		10/22/97		22
		9/30/97		19					10-Q,  NT 10-Q
		9/1/97		14		78
		8/15/97		19		21
		8/14/97		69					NT 10-Q
		7/14/97		74
		6/30/97		14		77			10-Q,  10-Q/A,  NT 10-Q
		5/20/97		15		76			10-Q
		4/21/97		32		75			8-K
		4/15/97		75					10-K
		4/11/97		32
		4/1/97		14
		3/31/97		11		19			10-Q,  NT 10-K,  NT 10-Q
		3/15/97		12
		1/17/97		9
		1/15/97		9
		1/1/97		32
		12/31/96		2		80			10-K,  DEFS14A,  NT 10-K,  PRES14A
		12/20/96		32		75			8-K
		9/30/96		19					10-Q,  NT 10-Q
		6/30/96		19					10-Q,  NT 10-Q
		3/31/96		19		74			10-Q,  10-Q/A
		1/1/96		26		53
		12/31/95		2		63			10-K,  NT 10-K
		4/19/95		32
		4/1/95		24
		3/31/95		32		54			10-Q/A
		3/21/95		32
		12/31/94		20		62			10-K/A
		10/1/94		32		71
		9/30/94		63
		8/1/94		32
		7/31/94		20		32			10-K/A
		7/19/94		32
		6/16/94		32
		4/13/94		32
		9/11/93		54
		9/1/93		61
		8/20/93		60		61
		3/18/93		11
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