Sagemark Companies Ltd – ‘10-K’ for 12/31/96

As of:  Tuesday, 4/15/97   ·   For:  12/31/96   ·   Accession #:  89041-97-10   ·   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, 1996                        115    667K 
 2: EX-27       Financial Data Schedule                                1      7K 

10-K   —   Form 10-K – December 31, 1996
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 THESECURITIES EXCHANGE    
ACT OF 1934 [Fee Required]  For the fiscal year ended December 31, 1996.        

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 9, 1997
      -------------------             --------------------------------------

Common Stock, par value 0.01 per share              45,796,263                  

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                                             

None                                                                            

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PART I                                                                          

Item 1. Business                                                                

Introduction                                                                    

Consolidated Technology Group Ltd. (the "Company" or "Consolidated"), through   
its wholly-owned or controlled subsidiaries, is engaged in various businesses   
classified into eight business segments. The business consulting services       
segment consists of a wholly owned subsidiary of Consolidated. The remaining    
segments consists of subsidiaries that are indirectly controlled or owned       
through SIS Capital Corp., ("SISC"), a wholly owned subsidiary of Consolidated. 
During the years ended December 31, 1996, 1995 and 1994, Consolidated's segments
revenue as a percentage of total was as follows:                                

                                                                [Download Table]

                                                               1996  1995  1994
                                                               ----  ----  ----
                                                                               
Contract Engineering Services                                  54%   57%    60%
Medical Diagnostics                                            27%   25%    15%
Electro-Mechanical and Electro-Optical Products Manufacturing   3%    4%    9% 
Medical Information Services                                    7%    7%    7% 
Telecommunications                                              5%    3%    6% 
Three Dimensional Products and Services                         1%    1%    2% 
Audio Products Manufacturing                                    3%    2%    -- 
Business Consulting Services                                    --    1%    1% 

Additional financial information regarding the Company's business segments is   
presented in the Company's financial statements (see Part IV, 1) including      
revenues, operating 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          
Consolidated's business segments.                                               

CONTRACT ENGINEERING SERVICES                                                   

The contract engineering services segment reflects the operations of Trans      
Global Services, Inc. ("TGS"). TGS 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 TGS, Avionics, which was acquired in December
1993, and RMI, which was acquired in November 1994, were directly owned by SISC.
This segment's principal business is technical temporary staffing service. In   
performing such services, the segment, through its two wholly-owned             
subsidiaries, Avionics and RMI, 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. TGS 
believes that the market for outsourcing services such as those offered by this 
segment results from the trend in employment practices by major corporations in 
the 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. TGS 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. The      
employees provided by TGS are on temporary contract assignment, and although    
they work with the client's permanent employees; however, they receive different
compensation and benefits than permanent employees.                             

In providing its services, TGS engages the employees, pays the payroll and      
related costs, including FICA, worker's compensation and similar Federal and    
state mandated insurance and related payments. TGS charges its clients for      
services based upon the hourly payroll cost of the personnel. Each temporary    
employee submits to TGS 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.                            

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TGS also offers its clients a range of integrated logistical support services   
which are performed at TGS'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, TGS hires the necessary employees for its own account and may work    
with the client in developing and preparing the documentation. Payments would be
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 TGS will generate any significant revenue or profit from such 
services.                                                                       

TGS's strategy has been directed at increasing its customer base and providing  
additional services, such as integrated logistics support, to its existing      
customer base. TGS believes that the key to profitability is to provide a range 
of services to an increased customer base. In this connection, TGS 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 TGS's services is comprised of major corporations in such        
industries as 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.                                                     

TGS 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 TGS, referrals and 
responses to advertisements placed by TGS in a variety of local media, including
newspapers, yellow pages, magazines and trade publications. Part of its         
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 TGS's employees is performed at the
client's premises and under the client's direction, although TGS is the employer
of record.                                                                      

TGS 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. 
TGS also conducts an ongoing program to survey and evaluate the clients' needs  
and satisfaction with TGS's services, which it uses as part of its marketing    
effort.                                                                         

Although TGS has eight offices, including its main office in Long Island, New   
York, throughout the United States, there is no limited geographic markets for  
TGS's services. TGS 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. TGS 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   
TGS 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 TGS with a detailed job description. 
TGS then conducts an electronic search in its computerized resume data base 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 TGS's recruiters, who interview interested candidates. If a        
candidate is acceptable to TGS and interested in the position, TGS refers the   
candidate to the client. An employment agreement is executed with the TGS prior 
to the commencement of employment.                                              

TGS serves primarily the aerospace and electronics industries as well as the    
telecommunications, banking and computer science industries and public utilities
along with numerous manufacturing companies. TGS is expanding its effort to     
address the general trend of "downsizing" and "outsourcing" by major            
corporations on a national basis. To meet this goal, TGS 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,   
TGS 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, TGS has conducted         
marketing efforts with Manpower International, Inc., TAD Resources International
Inc. and Olsten Corporation. TGS's contracts are generally terminable by the    
client on short notice.                                                         

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TGS's largest customers for the year ended December 31, 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 $4 million, or 25.6%, 20.8%, 14.4%, 8% and 6.4% of TGS 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 TGS revenue, respectively. During the year ended      
December 31, 1994, Avionics was the only subsidiary operating in this segment   
and 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 the segment's       
revenue for 1994.                                                               

Competition                                                                     

The business of providing employees on either a permanent or temporary basis is 
highly competitive and is typically local in nature. TGS competes with numerous 
technical service organizations, a number of which are better capitalized,      
better known, have more extensive industry contracts and conduct extensive      
advertising campaigns aimed at both employers and job applicants. TGS 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 TGS 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 TGS competes with other companies in       
attracting employees.                                                           

Government Regulations                                                          

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

TGS does not have contracts with the government agencies. However, TGS does have
contracts with clients, including major defense contractors, that have contracts
with government agencies. TGS'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 renegotiation or cancellation for the        
convenience of the government. Since the manpower needs of each of TGS's clients
are based on the client's 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 TGS.                                           

Potential Business Agreements                                                   

TGS has filed an S-1 registration statement with the Securities and Exchange    
commission, and if the registration is successful, TGS may enter into joint     
ventures, acquisitions or other arrangements, such as joint marketing           
arrangements and licensing agreements, which TGS believes would further its     
growth and development. In negotiating such agreements or arrangements, TGS     
anticipates that such agreements would be based upon the manner in which TGS's  
business can be expanded, the extent to which TGS's services can be enhanced or 
the market for such services expanded into fields not then being addressed by   
TGS. In this connection, TGS may acquire businesses that are related directly or
indirectly to its technical temporary staffing services business. No assurance  
can be given that any agreement which TGS enters into will generate any net     
income. To the extent that TGS enters into an agreement with an affiliated      
party, the terms and conditions of such agreement will be on terms at least as  
favorable to TGS as those TGS believes it could achieve in negotiations at arm's
length with an independent third party.                                         

At December 31, 1996, TGS had 963 employees, of which 921 were contract service 
employees who performed services on the clients' premises and 42 were executive 
and administrative employees. Each of TGS's offices is staffed by recruiters and
sales managers. Each contract service employee enters into a contract with TGS  
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 TGS's clients for any reason, TGS has no further obligation to the  
employee. Although assignments can be for as short as 90 days, in some cases, it
has been for several years. The average assignment is in the range of six to    
nine months. TGS's employees are not represented by a labor union, and TGS      
considers its employee relationship to be good.                                 

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MEDICAL DIAGNOSTICS                                                             

The medical diagnostics segment reflects the operations of International        
Magnetic Imaging, Inc. and its affiliated entities ("IMI"). IMI is a Delaware   
corporation, organized on March 8, 1994 to acquire ten Centers which were       
managed by International Magnetic Imaging, Inc., a Florida corporation. Such    
acquisition was consummated on September 30, 1994. IMI owns and operates ten    
medical diagnostic imaging Centers, of which four are multi-modality Centers and
six are exclusively MRI Centers. One of the multi-modality Centers is operated  
by a joint venture in which IMI has a 50% interest. IMI also owns MRI Net, Inc. 
("MRI Net"), which operates a referral network through which patients are       
referred to diagnostic imaging centers throughout the state of Florida,         
including IMI's Florida Centers..                                               

Medical diagnostic imaging procedures, such as MRI, are used to diagnose various
diseases and physical injuries. The multi-modality Centers use various imaging  
procedures, such as MRI, CT, mammography, X-ray, ultrasound, fluoroscopy and    
other technologies while the MRI Centers only offer MRI. MRI systems enhance the
diagnosis of disease and medical disorders, frequently eliminating the need for 
exploratory surgery and often reducing the amount and cost of care required to  
evaluate and treat a patient. Since the introduction of MRI in the early 1980's,
the use of MRI has experienced rapid growth due to the technology's ability to  
provide anatomical images of high contrast and detail. MRI, which does not      
utilize x-ray or other radiation based technologies, employs high-strength      
magnetic fields, high frequency radio waves and high-speed computers to process 
data. In addition, the development of pharmaceutical contrast agents, software  
advancements and new hardware peripherals continue to expand the clinical       
applications and throughput efficiency of MRI technology.                       

MRI employs high-strength magnetic fields, high frequency radio waves and       
high-speed computers to obtain clear, multi-planar images of the body's internal
tissues without exploratory surgery or biopsy. In addition, MRI is able to      
obtain multi-planar slices of the body. These images are then displayed on film 
or on the video screen of an MRI system's console in the form of a multi-planar 
image of the organ or tissue. This information can be stored on magnetic media  
for future access, or "printed" on film for interpretation by a physician and   
retention in the patient's files, enabling healthcare professionals to study the
patient's internal conditions in detail. The superiority of MRI image quality   
compared to other imaging modalities generally makes possible a more accurate   
diagnosis and often reduces the amount and cost of care needed to evaluate and  
treat a patient.                                                                

The major components of an MRI system are (i) a large, cylindrical magnet, (ii) 
radio wave equipment, and (iii) a computer for data storage and image           
processing. During an MRI study, a patient lies on a table which is then placed 
into the magnet. Although patients have historically spent 30 to 45 minutes     
inside the magnet during which time images of multiple planes are acquired, the 
newest MRI machines allow patients to spend significantly less time inside the  
magnet. Additional time is required for computer processing of the images.      

Developments in imaging technology are either hardware or software related. Most
recent developments have been software upgrades which permit greater resolution 
and accuracy and greater efficiency of operations. However, there have been     
improvements in hardware. IMI seeks to offer the most current and accepted      
technologies, and, in this connection, it seeks to upgrade its equipment with   
selected software upgrades to the extent financially feasible. IMI also         
evaluates new hardware and if it determines that the purchase of the equipment  
will be advantageous to IMI and financing is available on acceptable terms, it  
may either purchase or lease new equipment. The decision to purchase new MRI    
equipment is based on the needs of the market and the advantages of such        
equipment over existing equipment.                                              

IMI is not engaged in the practice of medicine, and it does not employ any      
physicians. All professional medical services are performed by radiologists who 
are independent of IMI and who provide medical services pursuant to agreements  
with IMI. Payment for the radiologists' professional services is made to the    
radiologists pursuant to agreements with the radiologists. See "Agreements with 
Radiologists" below.                                                            

Outpatient Services and Patient Base                                            

Each Center is a fixed-site, outpatient facility that is designed, equipped and 
staffed to provide physicians and healthcare providers with high quality MRI,   
and, with respect to the multi-modality Centers, other medical diagnostic       
imaging services that historically were available only at hospitals. IMI        
schedules patients, prepares all patient billing and is responsible for the     
collection of all charges. IMI is also responsible for related administrative   
and record-keeping functions. IMI typically staffs its Centers with technical   
and administrative support personnel who assist physicians in obtaining MRI and 
other diagnostic scans. The Centers are designed to offer a pleasant environment
where patients are not subjected to the admission complexities and institutional
atmosphere of most hospitals.                                                   

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Many physicians and other healthcare providers who have a need for MRI and other
diagnostic imaging procedures do not have the financial ability or desire to own
their own equipment. As a result, such providers use outpatient MRI and         
multi-modality facilities such as the Centers for the following reasons, among  
others: (i) ability to receive comprehensive MRI and other medical diagnostic   
imaging services, including qualified technicians, equipment maintenance,       
insurance and equipment upgrades; (ii) desire to obtain quick access to MRI and 
other medical diagnostic imaging services; (iii) lack of sufficient patient     
volume to justify the capital cost of purchasing an MRI or other medical        
diagnostic imaging equipment; (iv) desire to use MRI or other medical diagnostic
imaging equipment to facilitate caring for their patients; (v) lack of financial
ability to purchase MRI or other medical diagnostic imaging equipment, and/or   
(vi) inability to obtain required regulatory approval to purchase or operate    
such equipment.                                                                 

In addition, many healthcare providers with sufficient patient utilization and  
resources to justify in-house MRI and other medical diagnostic imaging equipment
ownership prefer to use independent facilities such as the Centers in order to: 
(i) obtain the use of such equipment without capital investment; (ii) eliminate 
the need to recruit, train and manage qualified technicians; (iii) retain the   
flexibility to take advantage of all technological developments; (iv) avoid     
future uncertainty as to reimbursement policies; (v) provide additional imaging 
services when patient demand exceeds in-house capacity, and/or (vi) obtain      
radiological and other diagnostic and technical services.                       

Set forth below is information relating to the Centers.                         

                                                              Date Service
Center                    Location                               Commenced    
------                    --------                               ---------    
Pine Island               Plantation, Florida                   December 1986 

North Miami Beach         North Miami Beach, Florida            January 1988  

Boca Raton(1)             Boca Raton, Florida                   November 1988 

Physicians Outpatient     Ft. Lauderdale, Florida               November 1985 
Diagnostic Center(2)                                                          

South Dade(3)             Miami, Florida                        December 1989 

Oakland                   Oakland Park, Florida                 January 1990  

San Juan(4)               San Juan, Puerto Rico                 October 1990  

Arlington                 Arlington, Virginia                   December 1990 

Kansas City               Overland Park, Kansas                 October 1991  

Orlando(5)                Orlando, Florida                      September 1992

(1) IMI expanded the Boca Raton Center to a multi-modality Center in July 1996. 
The Center offers MRI and CT imaging services.                                  

(2) Physicians Outpatient Diagnostic Center ("PODC") has been a multi-modality  
Center since prior to IMI's acquisition of the Center. It offers CT,            
mammography, X-ray, ultrasound and other modalities.                            

(3) IMI converted the South Dade Center to a multi-modality Center and upgraded 
its MRI equipment in October 1996 at a cost of approximately $2.5 million. As   
part of the conversion, the Center was moved to larger facilities, its MRI      
equipment was upgraded, and the Center now offers CT, fluoroscopy and ultrasound
services in addition to MRI.                                                    

(4) In September 1996, this Center upgraded its MRI equipment.                  

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(5) The Orlando Center is operated as a joint venture with a non-affiliated     
party and is co-managed by IMI and its joint venture partner. The equipment used
in this Center has been provided by IMI's joint venture partner, and IMI's      
equipment is used for backup and patient overflow.                              

IMI has filed an S-1 registration statement with the Securities and Exchange    
Commission and if such registration is successful, IMI intends to use the       
proceeds for working capital.                                                   

Each Center generally has a full-time staff of eight to ten employees, typically
consisting of technicians, file clerks, a marketing representative, a           
transcriptionist, one or more receptionists and a center administrator. The     
Centers are open at such hours as are appropriate for the local medical         
community. Most are open from 7:00 a.m. to 9:00 p.m. each weekday, and many of  
the Centers offer extended evening and weekend hours. Each Center is supervised 
by a center administrator. IMI is responsible for patient scheduling and billing
the patient (or third party payer) directly. IMI has contracts with independent 
board-certified radiologists, some of which have sub-specialty training in      
orthopedic and neuroradiology, to interpret IMI's scans and provide the test    
results to the referring physician.                                             

IMI is not engaged in the practice of medicine and none of IMI's Centers employs
any physicians to provide medical services. IMI bills patients for both its     
services and those of the radiologist who provides professional services. Such a
bill includes both the technical and professional components. Payment for the   
radiologists' professional services is paid to the radiologist pursuant to      
agreements with the radiologists. Thus, a portion of the IMI's revenue is       
payable to the radiologists for their professional services.                    

IMI markets its services through open houses, lectures, symposia, direct mail   
and direct physician marketing. Each Center uses one or more marketing          
representatives, the Center's administrator and certain radiologists who        
interpret the Company's scans to market its services to the local medical       
community, while the Company's national accounts manager focuses on managed care
providers and third party payers. The Company also utilizes the marketing       
expertise and abilities of Dr. Schulman, IMI's President and one of three former
owners and founders of IMI.                                                     

Almost all of IMI's revenue is derived from third-party payers. For 1996 and    
1995, IMI derived approximately 86% and 91% of its revenue from non-government  
payers and approximately 14% and 9% from government sponsored healthcare        
programs, principally Medicare and Medicaid. IMI's revenue and profitability may
be materially adversely affected by the current trend in the healthcare industry
toward cost containment as government and private third-party payers seek to    
impose lower reimbursement and utilization rates and negotiate reduced payment  
schedules with service providers. Continuing budgetary constraints at both the  
Federal and state level and the rapidly escalating costs of healthcare and      
reimbursement programs have led, and may continue to lead, to significant       
reductions in government and other third-party reimbursements for certain       
medical charges and to the negotiation of reduced contract rates or capitation  
or other financial risk-shifting payment systems by third-party payers with     
service providers. Both the Federal government and various states are           
considering imposing limitations on the amount of funding available for various 
healthcare services. IMI cannot predict whether or when any such proposals will 
be adopted or, if adopted and implemented, what effect, if any, such proposals  
would have on IMI. In addition, rates paid by private third-party payers,       
including those that provide Medicare supplemental insurance, are generally     
higher than Medicare payment rates. Changes in the mix of IMI's patients among  
the non-government payers and government sponsored healthcare programs, and     
among different types of non-government payers and government sponsored         
healthcare programs, and among different types of non-government payer sources, 
could have a material adverse effect on the IMI. Further reductions in payments 
to physicians or other changes in reimbursement for healthcare services could   
have a material adverse effect on IMI, unless IMI is otherwise able to offset   
such payment reductions through cost reductions, increased volume, introduction 
of new procedures or otherwise, as to which no assurance can be given. IMI has  
consummated and is continuing to negotiate agreements with managed care         
organizations pursuant to which the Company provides and will provide MRI and   
other services; however, such agreements typically reflect a reduced level of   
revenue per scan. Although IMI's average net collection from MRI procedures     
increased to $695 for 1996, the net collections per MRI procedure decreased in  
prior periods. IMI's average net collection per MRI procedure decreased from    
$726 in 1994 to $639 for 1995. The increase for the year ended December 31, 1996
reflected an increase in higher paying procedures as well as a reduction in     
lower-paying procedures, principally in the San Juan Center which was not       
operational during a portion of the period while the equipment was being        
upgraded as well as during the period when San Juan was recovering from the     
effects of Hurricane Hortense. No assurance can be given that the average net   
collections per MRI Procedure will not decrease in the future. IMI's net        
collection per multi-modality procedure was $95 for 1994 and 1995 and $81 for   
1996.                                                                           

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IMI is highly dependent on referrals from physicians who have no contractual or 
economic obligation to refer patients to the IMI's facilities. Since the        
acquisition of the Centers, the percentage of revenue from the former           
physician-partners and other physician-equity owners of the Centers has         
decreased in terms of both total revenue and number of scans. The percentage of 
revenue derived from referrals from such physicians was 32% for 1994 and 24% for
1995 and 1996.                                                                  

Commencing in 1995, a portion of IMI's revenue was obtained by physician        
referrals which were generated by brokers who negotiated a price with the IMI   
for MRI and other scans. To the extent that a third party paid more than IMI    
charged for such scans, the broker received a portion of such excess. Effective 
October 1, 1996, this practice became illegal in Florida. Such scans accounted  
for 9% of IMI's revenue for 1996 and 9% for 1995. Although IMI intends to market
its services directly to physicians and health maintenance organizations, there 
may be a decline in revenue from physicians whose scans were obtained through   
brokers as a result of the change in the laws.                                  

Agreements with Radiologists                                                    

IMI engages independent radiologists and other specialists to read and interpret
the diagnostic imaging scans performed at the Centers. None of such radiologists
or other specialists are employed by the IMI. In December 1994, IMI entered into
a five-year agreement (the "ERN Agreement") with ERN, a Florida professional    
association owned by an independent radiologist, pursuant to which ERN was      
engaged by IMI to provide, on an exclusive basis, all radiology services for    
five of IMI's Florida Centers through radiologists and other specialists        
employed by ERN. ERN receives a fee for its radiology services in an amount     
equal to a percentage, ranging from 10% to 20%, of gross revenues received by   
the Centers, together with an annual consulting fee of $30,000. Upon the        
consummation of this Offering, ERN has the right to receive a five-year warrant 
to purchase 100,000 shares of the common stock of Consolidated at an exercise   
price equal to the market price of such Common Stock on the day preceding the   
date of exercise. IMI has been informed that ERN currently employs five         
radiologists and other specialists to perform such radiology services on behalf 
of ERN. Prior to December 1996, ERN also provided radiology services to another 
of IMI's Florida Centers on a exclusive basis pursuant to an oral agreement.    
Since December 1996, an independent radiologist, who had formerly performed such
services as an employee of ERN, has been performing services at such Center     
pursuant to an oral agreement with IMI. As of February 1, 1997, IMI entered into
a radiology services agreement with Premier Radiology Group, Inc. and will pay a
fee of 16.5% of net collections from the Center.                                

In October 1990, IMI entered into a Facilities Use Agreement with an independent
radiologist in Puerto Rico pursuant to which such radiologist performs all      
radiology services at the Center in Puerto Rico during the term of such         
agreement for which the radiologist receives an annual fee ranging from 10% to  
15% of the gross revenues of the Center, subject to increase with respect to    
gross revenues of the Center in excess of $2,000,000. In September 1994, in     
connection with IMI's acquisition of this Center, the agreement was amended and 
Consolidated issued 125,000 shares of its common stock to such radiologist. The 
agreement provides for IMI's subsidiary which owns the Center to pay the        
radiologist $500,000 as liquidated damages if it terminates the agreement       
without cause.                                                                  

IMI has also entered into agreements with independent radiologists with respect 
to the Centers in Virginia and Kansas. The radiologist engaged by the Virginia  
Center receives an annual fee of $275,000 plus 15% of the Center's gross        
revenues in excess of $2.4 million. The radiologist engaged by the Kansas Center
receives a fee for each study performed ranging from $75 to $150, depending on  
the number of studies read.                                                     

Certain of the radiologists engaged by IMI, including Dr. Steinberg and other   
radiologists employed by ERN, have been granted options to purchase the         
Company's Class A Common Stock.                                                 

MRI Net                                                                         

IMI, through MRI-Net, a wholly-owned subsidiary of IMI, operates a referral     
network through which patients are referred to 85 diagnostic imaging centers    
throughout the state of Florida, including IMI's Florida Centers. IMI markets   
MRI Net to HMOs, indemnity plans, workers compensation insurers and other       
third-party payers by making available to them at contract rates a range of     
imaging services at centers located throughout the state. Pursuant to contracts 
with the third-party payers, the participating centers provide diagnostic       
imaging services to persons who are covered by the contracting third-party      
payers. The Florida Centers are part of such network. During 1996, the centers  
participating in the network, including the Florida Centers, serviced a total of
approximately 600 patients per month. These patients were referred to the       
centers through MRI Net from approximately 40 different third-party payers. IMI 
receives a fee of at least $50 from the center performing the services for each 
patient which is referred to it by MRI-Net. Revenues from MRI-Net for 1996 and  
1995 constituted less than 2% of IMI's total revenues.                          

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Government Regulation - Reimbursement                                           

The healthcare industry is highly regulated and is undergoing significant change
as third-party payers, such as Medicare, Medicaid, Blue Cross/Blue Shield plans 
and other insurers increase efforts to control the cost, utilization and        
delivery of healthcare services. Legislation has been proposed or enacted at    
both the Federal and state levels to regulate healthcare delivery in general and
imaging services in particular. In addition, several states, including those in 
which IMI operates, have imposed limits on the reimbursement by Medicaid and    
Workers Compensation programs for imaging services. These and similar limits may
reduce the income generated by IMI's operations.                                

In general, Medicare reimburses radiology imaging services under a physician fee
schedule which covers services provided not only in a physician's office, but   
also in freestanding imaging centers. IMI believes that reductions in           
reimbursement for Medicare services may be implemented from time to time, which 
may lead to reductions in reimbursement rates of other third-party payers.      
Congress and the Department of Health and Human Services ("HHS") have taken     
various actions over the years to reduce reimbursement rates for radiology      
services and proposals to reduce rates further are anticipated. IMI is unable to
predict which, if any, proposals will be adopted. Any reductions in Medicare    
reimbursement for radiology services could have a material adverse effect on    
IMI. In addition, IMI cannot predict the effect healthcare reforms and efforts  
to control costs may have on its business, and there can be no assurance that   
such reforms or efforts will not have a material adverse effect on IMI's        
operations.                                                                     

Government Regulation - General                                                 

IMI's business is subject to extensive Federal and state regulation. Such       
regulations cover, among other things, certain reporting requirements,          
limitations on ownership and other financial relationships between a provider   
and its referral sources, approval by the FDA of the safety and efficacy of     
pharmaceuticals and medical devices, the confidentiality of medical records,    
antitrust laws, and environmental regulation regarding the use of various       
substances, including radioisotopes, and the disposal of medical waste. In      
addition, the requirements that IMI must satisfy to conduct its businesses vary 
from state to state and many of the state requirements overlap with the Federal 
requirements. IMI believes that its operations comply with applicable Federal   
and state regulations in all material respects. However, changes in the law or  
new interpretations of existing laws can have a material effect on permissible  
activities of IMI, the relative costs associated with doing business, and the   
amount of reimbursement for IMI's products and services paid by government and  
other third-party payers.                                                       

IMI believes that in the near future, all outpatient medical diagnostic imaging 
centers will be required to be accredited by certain accreditation entities. In 
anticipation of these requirements, IMI is currently in the process of having   
all of the Centers accredited by an accreditation organization, the requirements
of which IMI believes will satisfy any anticipated future requirements that may 
be imposed. There can be no assurance, however, that any such accreditation     
requirements will be imposed or, if imposed, what the scope of such requirements
will be or whether IMI will obtain any necessary accreditation.                 

Mammography                                                                     

Centers performing mammography services (including screening mammography) must  
meet Federal, and in some jurisdictions, state standards for quality as well as 
certification requirements. Under interim regulations issued by the Food and    
Drug Administration (the "FDA"), all mammography facilities are required to be  
accredited, to undergo an annual mammography facility physics survey, to be     
inspected annually and pay an annual inspection fee, to meet qualification      
standards for physicians, mammography technologists and medical physicists who  
interpret mammograms, to meet certification requirements for adequacy, training 
and experience of personnel, to meet quality standards for equipment and        
practices, and to meet various requirements governing record keeping of patient 
files. In addition, the FDA has proposed regulations governing standards for    
mammography X-ray equipment, medical physicists standards and minimum quality   
standards for mammography facilities including personnel standards and quality  
control. Sanctions for violating the Mammography Quality Standards Act of 1992  
("MQSA") are varied, ranging from civil monetary penalties, suspension or       
revocation of certificates and injunctive relief. Moreover, the MQSA requires   
conformity with these standards to obtain payment for Medicare services.        
Although the one Center that offers mammography is currently accredited by the  
Mammography Accreditation Program of the American College of Radiology, and the 
Company anticipates continuing to meet the requirements for accreditation for   
such Center as well as any Centers which offer mammography, the withdrawal or   
delay of such accreditation could result in the revocation of certification, if 
the FDA so determines.                                                          

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Permits and Licensure                                                           

Certain of IMI's facilities require state licensure and are also subject to     
Federal and other state laws and regulations governing imaging facilities and   
the staff hired by IMI, such as technicians, to provide services. IMI believes  
that it is in compliance with applicable licensure requirements. IMI further    
believes that diagnostic testing will continue to be subject to intense         
regulation at the Federal and state levels and cannot predict the scope and     
effect thereof.                                                                 

Anti-kickback Laws                                                              

IMI is also subject to Federal and state laws prohibiting direct or indirect    
payments for patient referrals and regulating reimbursement procedures and      
practices under Medicare, Medicaid and state programs as well as in relation to 
private payers. The Anti-kickback Statute prohibits the offer, payment,         
solicitation or receipt of any remuneration in return for the referral or       
arranging for the referral of items or services paid for in whole or in part    
under the Medicare and Medicaid programs (the "Anti-kickback Statute"). To date,
courts have interpreted the Anti-kickback Statute to apply to a broad range of  
financial relationships between providers and referral sources, such as         
physicians and other practitioners. Violations of the statute's provisions may  
result in civil and criminal penalties, including fines of up to $25,000 and    
exclusion from participation in Medicare and state health programs such as      
Medicaid and imprisonment for up to five years.                                 

Since July 1991, the U.S. Department of Health and Human Services has adopted   
regulations creating "safe harbors" from Federal criminal and civil penalties   
under the Anti-kickback Statute by exempting certain types of ownership         
interests and other financial arrangements that do not appear to pose a threat  
of Medicare and Medicaid program abuse. Although additional safe harbors have   
also been proposed, none of IMI's current activities fit within an applicable   
safe harbor that has either been enacted or proposed. Transactions covered by   
the Anti-kickback Statute that do not conform to an applicable safe harbor are  
not necessarily in violation of the Anti-kickback Statute, but the practice may 
be subject to increased regulatory scrutiny and possible prosecution. Several   
courts have rendered decisions interpreting the statute. In May 1996, the       
District Court of Appeal of Florida, Fourth District held that an arrangement in
which a company marketed the services of a durable medical equipment business to
potential clients and received a percentage of the sales it generated was in    
violation of the Anti-kickback Statute. While IMI believes that MRI Net's       
operations are different from those in such case, a court could reach a contrary
conclusion. The restrictions of the Anti-kickback Statute may limit the ability 
of IMI Company to enter into joint venture or service agreements with           
physicians, may restrict its dealings with any physician from whom it has       
purchased an interest in a facility and could, if interpreted broadly, preclude 
MRI Net from being paid for its services. Although the Company believes that it 
is in compliance with the Anti-kickback Statute, there is no assurance that it  
will not be found to have engaged in prohibited activities.                     

Significant prohibitions against physician referrals were enacted by Congress in
the Omnibus Budget Reconciliation Act of 1993. These prohibitions, commonly     
known as "Stark II," amended the prior physician self-referral ban known as     
"Stark I," by dramatically enlarging the field of physician-owned or            
physician-interested entities to which the referral prohibitions apply. Since   
January 1, 1995, Stark II has prohibited, subject to certain exemptions, a      
physician or a member of his immediate family from referring Medicare patients  
to an entity providing "designated health services" (including, among other     
things, radiological imaging services, which are the services provided by IMI), 
in which the physician has an ownership or investment interest, or with which   
the physician has entered into a compensation arrangement. Certain exceptions   
are available under Stark II, including the referral of patients to providers   
owned by certain qualifying publicly-traded companies in which a referring      
physician owns an investment security. At this time, however, the ownership of  
investment securities (including common and preferred stock, bonds, debentures, 
notes and other debt instruments) in IMI does not qualify for the exemption as  
IMI does not have presently shareholder equity of at least $75 million. Other   
exceptions exist under the Stark II which may or may not be available to IMI for
arrangements in which IMI may be involved. IMI has been advised by its          
healthcare counsel that there are no regulations, administrative pronouncements 
or judicial cases interpreting Stark II. While IMI believes that it is in       
compliance with the Stark legislation, the statute is broad and ambiguous, and  
interpretive regulations have not been issued. Future regulations could require 
IMI to modify the form of its relationships with physicians under the Stark II. 
Submission of a claim that a provider knows or should know is for services for  
which payment is prohibited under the Stark II could result in refunds of any   
amounts billed, civil money penalties of not more than $15,000 for each such    
service billed (and $100,000 for participation in a "circumvention scheme," and 
possible exclusion from the Medicare and Medicaid programs.                     

There are also Federal (and state) civil and criminal statutes imposing         
substantial penalties, including civil fines and/or imprisonment, on health care
providers that fraudulently or wrongfully bill governmental or third-party      
payers for health care services. The Federal law prohibiting false billings     
allows a private person to bring a civil action in the name of the U.S.         
government for violations of its provisions. The potential liability under the  
Federal False Claims Act can include treble damages plus a fine of $10,000 per  
claim. Courts are currently divided as to whether an Anti-kickback Statute      
violation may also be a predicate for false claims liability.                   

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On August 21, 1996, the Health Insurance Portability and Accountability Act of  
1996 (the "1996 Health Act") was signed into law. Title II of the 1996 Health   
Act contains significant provisions relating to healthcare fraud and abuse. The 
1996 Health Act codifies the long-standing implicit exception in anti-kickback  
liability for managed care discounts, if the provider, via the arrangement, is  
at "substantial financial risk." In addition, Federal criminal law was revised  
to create a new class of criminal healthcare offenses, standards for liability  
were clarified and new initiatives were launched to coordinate efforts at the   
Federal and state levels to control fraud and abuse. The 1996 Health Act also   
increased the penalties under the Federal False Claims Act and permits the      
government to reward sources who provide information that results in a recovery 
by the government.                                                              

Antitrust                                                                       

Federal and state antitrust laws and regulations may effect the operation of MRI
Net, which is a referral network through which patients are referred to         
diagnostic imaging centers in Florida. Because the centers to which patients are
referred are operated by independent entities, they may be deemed competitors   
and, therefore, subject to a range of Federal and state antitrust laws and      
regulations which prohibit anti-competitive conduct, including price fixing,    
division of the market and product tying. Violations of Federal and state       
antitrust laws can result in substantial penalties and restrictions on MRI Net's
business activities. Although IMI believes that MRI Net's activities do not     
violate the Federal or state anti-trust laws, no assurance can be given that a  
court or regulatory agency will not make a contrary determination, which could  
have a material adverse effect upon IMI.                                        

State Government Regulation                                                     

Many states, including the states in which IMI operates, have adopted statutes  
and regulations prohibiting payments for patient referrals and other types of   
financial arrangements with healthcare providers, which, while similar in       
certain respects to the Federal legislation, vary from state to state. Sanctions
for violation of these state restrictions may include loss of licensure and     
civil and criminal penalties. Certain states have also begun requiring          
healthcare practitioners to disclose to patients any financial relationship with
a provider, including advising patients of the availability of alternative      
providers.                                                                      

In addition, the laws of many states prohibit business corporations such as IMI 
from practicing medicine, employing physicians to practice medicine or sharing  
fees with physicians. IMI provides only non-professional services by providing  
non-medical (i.e., technical and administrative services), does not exercise    
control over the practice of medicine by physicians and does not employ any     
physicians for the purpose of providing medical services. All physicians engaged
by IMI are independent contractors. IMI may not dictate the manner in which a   
physician interprets a radiological examination or counsels patients. However,  
these laws generally have been subjected to limited judicial or regulatory      
interpretation, and therefore, there is no assurance that some of IMI's         
activities might be found not to be in compliance. If such a claim were         
successfully asserted against it, IMI could be subject to civil and criminal    
penalties, and could be required to restructure its contractual relationships.  
In addition, certain provisions of its contracts, including non-competition     
covenants by the contracting professionals, could be ruled unenforceable. Such  
results or the inability to successfully restructure contractual arrangements   
could have a material adverse effect on IMI's operations.                       

Many states limit the extent to which providers can engage in risk contracting, 
which involves the assumption of a financial risk with respect to providing     
services to a patient. In some states, only certain entities, such as insurance 
companies, HMOs or independent practice associations are permitted to contract  
for the financial risk of patient care. In such states, risk contracting in     
certain cases has been deemed to be engaging in the business of insurance. IMI  
believes that it is not in violation of any restrictions on risk bearing or     
engaging in the business of insurance under applicable state laws. If IMI is    
found to be unlawfully engaging in the business of insurance, such a finding    
could result in civil or criminal penalties or require a restructuring of IMI's 
operations that could have a material adverse impact on IMI's operations.       

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Florida                                                                         

In April 1992, the State of Florida adopted the Patient Self-Referral Act of    
1992 which prohibits referrals for certain designated health services by a      
healthcare provider to a facility (including a diagnostic imaging center), in   
which such provider has an ownership interest. In addition, effective October 1,
1996, the State of Florida enacted legislation which prohibits patient          
brokering. The law makes it unlawful for any person, including any healthcare   
provider or healthcare facility (including a diagnostic imaging center) to: (a) 
offer or pay any commission, bonus, rebate, kickback or bribe, or engage in any 
split fee arrangement, in any form whatsoever, to induce the referral of        
patients or patronage from a healthcare provider or healthcare facility or (b)  
solicit or receive any commission, bonus, rebate, kickback or bribe, or engage  
in any split fee arrangement, in any form whatsoever, in return for referring   
patients or patronage to a healthcare provider or healthcare facility.          
Violations of the law may be punishable by fines and imprisonment. There is an  
exception in the 1996 anti-brokering statute related to payments to or by a     
health care network entity that has contracted with a health insurer, a health  
care purchasing group, or the Medicare or Medicaid program to provide health    
goods or services under a health benefit plan when such payments are for goods  
or services under the plan. IMI believes that MRI Net is a health care network  
entity that falls within the statutory exception. However, there has been no    
regulatory or judicial interpretation of the statute clearly applying the       
exception to network structures and activities like those of MRI Net, as a      
result of which it is not certain that this exception would apply to MRI Net's  
activities. If MRI Net's activities are found not to be in compliance with the  
statute, it would be subject to fines, imprisonment, and/or a need to           
restructure its business. IMI has in the past used the services of "patient     
brokers," but discontinued such practice when the anti-brokering statute became 
effective. IMI believes that its current procedures otherwise comply with       
Florida laws regarding referrals and patient brokering.                         

Kansas                                                                          

The State of Kansas prohibits the practice of medicine by non-physicians and the
rebate or division of fees between physicians and non-physicians. IMI believes  
that its operations comply with such laws. Currently, the employees of the      
Kansas Center provide only technical services relating to the MRI scans.        
Professional medical services, such as the reading of the MRI studies and       
related diagnosis, are separately provided by licensed physicians pursuant to   
bona fide independent contractor agreements. There can be no assurance, however,
that state authorities will not determine that these relationships constitute   
the unauthorized practice of medicine by IMI. Such determinations could have a  
materially adverse effect upon IMI and would prohibit the Kansas Center from    
continuing its current procedures for conducting business. In addition, Kansas  
has recently adopted laws similar to the Federal "Anti-Kickback" statutes, which
prohibit the giving or receiving of remuneration's in exchange for the referral 
of patients for services for which payment is made by Kansas Medicaid. However, 
no Medicaid referrals are accepted by the Kansas Center from persons who receive
any remuneration of any kind from the Kansas Center, and thus the Company       
believes it is in compliance with such laws.                                    

Puerto Rico                                                                     

The Health Facilities Act of Puerto Rico and the Health Facilities Regulations  
promulgated thereunder set forth the provisions which regulate the establishment
and operation of health facilities in the Commonwealth of Puerto Rico, including
among others, diagnostic and treatment centers. No person may operate or        
maintain a Health Facility in Puerto Rico without a license granted pursuant to 
the provisions of the Health Facilities Act and the Health Facilities           
Regulations. A license granted under the Health Facilities Act and the Health   
Facilities Regulations is valid for two years unless otherwise revoked or       
suspended before said term. However, the Office of Regulation and Accreditation 
of the Health Department of Puerto Rico currently applies the provisions of the 
Health Facilities Act and the Health Facilities Regulations to MRI facilities   
which operate in conjunction with, or as part of hospitals. Independent MRI     
facilities, such as the one operated by IMI, are not presently regulated under  
the Health Facilities Act or Health Facilities Regulations. MRI facilities in   
Puerto Rico are subject to certificate of need and convenience ("CON") laws,    
which currently may serve to limit the competition for the Company because of   
the added time and expense of establishing and operating competing facilities.  
No major new health facilities can be constructed without obtaining a CON       
granted by the Secretary of Health. In addition, any professional clinical      
personnel providing services at IMII's MRI facility must satisfy local license  
requirements. The laws and regulations in this area may be subject to material  
change. Consequently, there can be no assurance that IMI will be in a position  
to comply with future laws and regulations. Moreover, the cost associated with  
compliance, including the cost of any additional personnel or contracting with  
other qualified organizations to provide certain services, may have a           
detrimental effect on the profitability of IMI's operations in Puerto Rico.     
Further, even if IMI currently possesses all the licenses and permits necessary 
to operate in Puerto Rico, there can be no assurance that IMI will be able to   
renew all such licenses and permits. To date, the Commonwealth of Puerto Rico   
has not enacted any laws or regulations prohibiting physicians from referring   
patients to MRI facilities in which they have an ownership or financial         
interest.                                                                       

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Virginia                                                                        

Under the Virginia Practitioner Self-Referral Act (the "Virginia Anti-Referral  
Law"), unless the practitioner directly provides health services within the     
entity and will be personally involved with the provision of care to the        
referred patient, a practitioner may not refer a patient for health services to 
any entity outside the practitioner's office or group practice if the           
practitioner or any of the practitioner's immediate family members is an        
investor in such entity. An "investor" is one directly or indirectly possessing 
a legal or beneficial ownership interest, including an investment interest,     
which is defined as the ownership or holding of an equity or debt security.     
Currently, no physician in a position to refer patients to the Virginia Center, 
nor any of their immediate family members, is an "investor", as defined in the  
Virginia Anti-Referral Law, in IMI or in the entity which owns the Virginia     
Center. A referring physician, or an immediate family member of a referring     
physician who purchases Common Stock or Warrants in this Offering or otherwise  
purchases such Securities in the public market, may be deemed an "investor" as  
defined in the Virginia Anti-Referral Law, in that he or she would have an      
indirect ownership interest in the entity which owns the Virginia Center,       
because such entity is a wholly-owned subsidiary of IMI. Three possible         
exceptions to the prohibition exist for such investors. The first exception     
permits a practitioner to refer to an entity which is publicly traded and which 
meets certain conditions. Even though the practitioner may be deemed an         
"investor" in the entity which owns the Virginia Center, it is unclear whether  
the exception applies, because the publicly traded entity is IMI, which is the  
parent of the owner of the Virginia Center, not the owner of the Virginia Center
itself. Assuming that the exception could apply, IMI, in any event, would be    
unlikely to meet all of the conditions set forth in the exception; consequently,
this exception would not be available. The second exception permits the Virginia
Board of Health Professions (the "Board of Health Professions") to grant an     
exception if it finds that there is a demonstrated need in the community for the
entity, and several other conditions are met. Once again, there is an issue of  
whether the exception applies because the entity in which the investment is made
is IMI, not the owner of the Virginia Center. Assuming the exception could      
apply, it is possible for the Company to meet the conditions set forth in this  
exception. It is unclear, however, whether the Board of Health Professions would
determine that there is a demonstrated need for the Virginia Center in the      
community. If such determination were made by the Board of Health Professions,  
assuming that the other conditions are met, this exception could be available to
a physician who purchases, or whose immediate family member purchases, Common   
Stock or Warrants in a proposed future public offering or otherwise purchases   
such Securities in the public market. Under the regulations adopted pursuant to 
the Virginia Anti-Referral Law, any such exception granted by the Board of      
Health Professions would be valid only for five years, but would be renewable.  
IMI has not yet determined whether to seek qualification under the foregoing    
exception. A third, more limited, exception applies if the practitioner refers a
patient who is a member of a health maintenance organization to an entity in    
which the practitioner is an investor, if the referral is made pursuant to a    
contract with the health maintenance organization. Although the practitioner,   
and not the entity to which the referral is made, is the focus of the Virginia  
Anti-Referral Law, the law also provides that once a determination of a         
violation has been made by the Board of Health Professions, any entity, other   
than the practitioner, that presents or causes to be presented a bill for       
services that the entity knows or has reason to know is prohibited shall be     
subject to a penalty of $20,000 per referral or bill. In addition to the        
anti-referral law described above, Virginia law contains a prohibition, similar 
to the Federal Anti-kickback Statute, that applies with respect to referrals of 
Medicaid patients.                                                              

IMI continues to review all aspects of its operations and believes that it      
complies in all material respects with the applicable provisions of the         
Anti-kickback Statute, Stark II and applicable state laws, although because of  
the broad and sometimes vague nature of these laws and regulations, there can be
no assurance that an enforcement action will not be brought against IMI or that 
IMI will not be found to be in violation of one or more of these laws or        
regulations. IMI intends to monitor developments under Federal and state fraud  
and abuse laws, including Stark II. At this time, IMI cannot anticipate what    
impact, if any, subsequent administrative or judicial interpretation of these   
laws may have on IMI's business, financial condition, cash flow or results of   
operations. Further, the laws and regulations in this area are subject to       
material change. Consequently, there can be no assurance that IMI will be in a  
position to comply with future laws and regulations in this area. Moreover, the 
cost associated with compliance, including the cost of any additional personnel 
or contracting with other qualified organizations to provide certain services,  
may have a material adverse effect on IMI.                                      

Insurance                                                                       

IMI or its subsidiaries are defendants in legal actions arising out of the      
performance of its imaging services. Damages assessed in connection with, and   
the cost of defending, any such actions could be substantial. MI obtained and   
currently maintains liability insurance which it believes is adequate for its   
present operations. There can be no assurance that IMI will be able to continue 
or, if necessary, increase such coverage or to do so at an acceptable cost, or  
that IMI will have other resources sufficient to satisfy any liability or       
litigation expense that may result from any uninsured or underinsured claims.   
IMI also requires all of its radiologists to maintain malpractice and other     
liability coverage.                                                             

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Potential Acquisitions                                                          

IMI may, in the future, seek to purchase additional medical diagnostic imaging  
centers, including MRI and multi-modality centers. However, IMI has no          
agreements or understandings and is not engaged in negotiations with respect to 
the acquisition of any such additional centers. No assurance can be given that  
it can or will be able to acquire any additional centers on reasonable terms or 
that any centers which it may acquire will operate profitably. Medical          
diagnostic imaging centers may be acquired from (i) radiologists who own and    
operate such centers (ii) physicians who may be required by law to divest       
themselves of such centers, and (iii) owners, including investment partnerships 
and limited liability companies formed to operate such centers, that are seeking
to leave the imaging business. IMI may also enter into joint ventures with      
hospitals or other entities which desire access to medical diagnostic imaging   
technologies but lack the financial or management resources to establish a      
separate imaging center. In evaluating the desirability of acquiring any such   
centers, IMI will consider a number of factors, including the net income and    
cash flow of the center, third-party reimbursement patterns, the condition and  
age of the medical diagnostic imaging equipment, the relationships with managed 
care organizations and physicians and hospitals in the area, competition, the   
demography of the region, the reputation of the center, the nature of the       
revenue base and available financing.                                           

Competition                                                                     

The health care industry, including the market for medical diagnostic imaging   
services in general and MRI services in particular is highly fragmented. Such   
services are performed by both hospitals and imaging centers, such as the       
Centers, which are not affiliated with any hospital. Competition varies by      
market and is generally higher in larger metropolitan areas where there are     
likely to be more facilities and more managed care organizations putting pricing
pressure on the market. IMI competes with both hospitals and independent medical
diagnostic imaging centers. Furthermore, to the extent that another center      
offers imaging services in addition to MRI, IMI may be in a competitive         
disadvantage in marketing to managed care organizations, physicians and         
patients. To a lesser extent, IMI competes with mobile MRI service providers.   
Because of the cost of equipping and staffing an MRI or multi-modality center,  
MRI and other medical diagnostic imaging modalities are rarely offered by a sole
practitioner or by a small group practice or by a large group practice that does
not have a substantial demand for such services. Competition often focuses on   
physician referrals at the local market level as well as participation in       
managed care organizations. Successful competition for referrals is a result of 
many factors, including participation in health care plans, quality and         
timeliness of test results, type and quality of equipment, the location of the  
center, convenience of scheduling and availability of patient appointment times.
Many competitors are larger and are better known than IMI in the market in which
the Centers are located. IMI believes that hospitals are its most significant   
competitors and have certain competitive advantages, including their established
community position, physician loyalty and convenience for physicians making     
rounds at the hospitals. IMI believes that its services are competitive with    
those offered by others in the areas serviced by its Centers. Furthermore, to   
the extent that IMI seeks to expand through the acquisition of other centers,   
IMI may compete with other, better capitalized companies seeking to make        
acquisitions. There can be no assurance that IMI will be able to compete        
effectively in the future. In addition, the establishment or transfer of        
ownership in some jurisdictions may be subject to CON laws. In some states, such
laws may hinder IMI's ability to expand, while in others such laws may affect   
the ability of potential competitors to enter the market. Except for Puerto     
Rico, none of the states in which the Centers are located have CON laws which   
affect independent free-standing diagnostic imaging centers. Any change in CON  
laws which reduce the restrictions on potential competitors, such as hospitals, 
may have a materially adverse effect upon IMI's business and operations.        

Employees                                                                       

As of December 31, 1996, IMI had 189 employees, 128 of whom were involved in    
Center operations, nine of whom were involved in sales and marketing, 22 of whom
were executive and management employees and 30 of whom were involved in billing 
and other administrative activities. None of IMI's employees are represented by 
a labor organization, and IMI believes that its employee relations are good.    

ELECTRO-MECHANICAL AND ELECTRO-OPTICAL PRODUCTS MANUFACTURING                   

The electro-mechanical and electro-optical products manufacturing segment       
reflects the operations of Sequential Electronic Systems, Inc., ("SES"), S-Tech,
Inc., ("S-Tech"), Televend, Inc., ("Televend") and FMX Corporation, ("FMX"), all
of which are wholly owned subsidiaries of SES Holdings, Inc., ("SESH") with the 
exception of FMX which is 51% owned by SESH. SESH is a Delaware corporation that
was organized in July 1992. On December 20, 1996, SISC sold all of its ownership
in SESH to Lafayette Industries, Inc., ("Lafayette"), in exchange for a         
controlling interest in Lafayette.                                              

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Sequential Electronic Systems, Inc.                                             

SES is a Delaware corporation organized in 1985. The principal products         
manufactured by SES are optical encoders, encoded motors and limit programmers. 

Products Manufactured                                                           

Optical encoders, like those that are produced by SES, are utilized in almost   
every manufacturing process where position is required as a part of the         
manufacturing process. Encoders are used as position sensors on CNC machines,   
packaging machinery, etc., in industries such as food packaging, manufacture of 
paper products, and as measurement devices on medical equipment. Additionally,  
SES furnishes encoders to the military for such applications as position        
transducers for the Multi-Launch Rocket System and for the Patriot Missile      
Defense System. Both of these systems were extensively used in the Gulf War. SES
encoders are also used in the latest state-of-the-art NEXRAD weather system. SES
high resolution encoders provide azimuth and elevation data on the National     
Aeronautics and Space Administration's telemetry tracking antennas located      
around the world.                                                               

Encoded motors are used as capstan drives in weather map recorders and          
state-of-the-art instrumentation tape recorders. These recorders are used by the
government in antisubmarine warfare detection systems in seismic measurement    
recording systems.                                                              

Limit programmers are primarily designed in industry to control the sequence of 
events required during the manufacturing process. SES limit programmers are     
found in machinery to manufacture tires, toilet tissue, disposable diapers, as  
well as machinery used to package bread, cake, coffee, soap and other consumer  
purchased products. SES limit programmers provide direct digital position       
output, allowing for the direct transfer of digital position information to     
microcomputer based control systems.                                            

Markets, Marketing and Competition                                              

Revenues for SES has decreased from the prior periods amounting to $1,363,000,  
$2,556,000 and $3,035,000 for 1996, 1995 and 1994 respectively. Revenues from   
two U.S. government agencies amounted to $893,000 and $563,000 for 1995 and     
1994, respectively, which comprised 20% and 15% , respectively, of total        
revenues for 1995 and 1994. No revenues were earned from these government       
agencies in 1996. SES believes that the high resolution encoder market is       
becoming a significant market to the U.S. government again after a no-budget    
year for 1996. Primary areas of sales for high resolution encoders are the      
missile test ranges under the heading of Missile Range Instrumentation. U.S.    
government facilities that are anticipated to be covered are Air Force bases    
that are tied into respective weapons test centers. In order to take advantage  
of fiscal 1997 U.S. government budgets and new programs, an effort is being made
to determine the level of upcoming new procurements and upgrading of existing   
range instrumentation. Photo-Sonics, a Burbank, California company is a major   
supplier of missile range instrumentation devices to the U.S. government and a  
significant portion of Photo Sonics devices use encoders manufactured by SES. In
order for SES to reestablish itself as a leader in the military type hardware,  
it will require visits and presentations to weapons test centers and the        
utilization of the Photo-Sonics sales force.                                    

Related to non-military applications, SES presently completed an order for      
prototype units for ABB Daimen Benz for encoders. These units are currently in  
evaluation for use as part of the speed control system for rail cars.           

The future growth of SES will require a restructuring of existing product lines 
as the current product lines may not be sufficient to sustain the growth of SES.
The future spending of the U.S. government on military related projects has been
and will continue to be volatile due to unpredictability of amounts budgeted for
military spending. As such, no assurances can be given that SES will be able to 
produce sales volumes that will sustain its planned growth.                     

Government Regulation                                                           

As a manufacturer of products that are used in devices purchased by the Defense 
Department or its contractors, SES is subject to the provisions of the          
procurements regulations of the Defense Department. These regulations generally 
provide the government with the right to terminate the contract for the         
convenience of the Defense Department, and, in certain cases may include        
provisions for renegotiation. The Department of Defense also has regulations    
pursuant to which the Defense Department may inspect a contractor's or          
sub-contractor's manufacturing facilities. Such inspectors frequent SES's       
facilities on a regular basis.                                                  

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Employees                                                                       

As of December 31, 1996, SES had 21 employees. None of SES's employees are      
represented by a labor organization, and SES believes that its employee         
relations are good.                                                             

S-Tech, Inc.                                                                    

S-Tech is a Delaware corporation that was organized in June 1992. S-Tech is a   
design and manufacturing facility which has several unique and specialized      
product lines which consist of specialized vending machines, avionics equipment 
and industrial lighting.                                                        

Markets, Marketing and Competition                                              

Specialized vending is used to describe a vending product which includes        
sophisticated electronic circuitry and or computer software. The vending        
products presently being manufactured under contract include prepaid telephone  
debit card machines, automated payment centers, information kiosks and stamp    
machines. S-Tech has entered into contracts with such major companies as        
ConEdison, NYNEK and Kinkos. Previously, S-Tech manufactured in excess of 11,000
stamp machines for the United States Postal Service and designed and            
manufactured the token vending machines for the New York City Transist          
Authority.                                                                      

The avionics equipment manufactured by S-Tech consists primarily of various     
cockpit instruments and oil pressure transmitters. The majority of these        
products require a qualified product list designation ("QPL"). The QPL list     
consists of qualified products, with a limited number of approved sources, which
are purchased by the Department of Defense, contractors and subcontractors. In  
many instances this QPL designation places the company in a highly advantageous 
competitive position as it pertains to government contracts by limiting the     
number of qualified bidders. In addition, S-Tech responds to "build-to-print"   
solicitations which are subject to competitive bidding. These products are      
manufactured in accordance with drawings and data packages provided by the      
Department of Defense or other procuring agencies.                              

S-Tech's revenues for 1996, 1995 and 1994 was $1,015,000, $2,556,000 and        
$619,000, respectively.                                                         

Telephone Debit Card Vending                                                    

The specialized vending product line offers the maximum opportunity for         
long-term growth and profitability. The specific products that S-Tech is        
currently targeting are the prepaid telephone calling card machines and the     
automated bill payment centers. The prepaid telephone calling card machines     
require that S-Tech be able to provide its customers with a card that is        
dispensed from the machine. In response to a recent industry demand, S-Tech has 
designed a prepaid telephone calling card machine for the purpose of dispensing 
calling cards. Pre-paid calling cards are already used worldwide as the most    
convenient and affordable means of making long-distance telephone calls made    
away from home. The telephone debit card vending machines are used in a variety 
of locations such as bus stations, airports, cruise lines, rental car locations,
hotel lobbies, gift shops, nursing homes, train stations and gas stations.      

Automated Payment Centers                                                       

S-Tech's experience in the USPS programs and in specialty vending products      
permitted the company to expand their product base into a number of new areas.  
The most important of these is the Automated Bill Payment Center. S-Tech is     
presently under contract to design, develop and manufacture a customer operated 
Bill Payment Center for a major utility company and is being considered by two  
(2) other public service companies for a similar unit. The unit is simple in    
operation, aids the user with visual prompts, accepts currency, prints a        
transaction report, and provides change to the customer. Customer interface with
the system begins with a touch screen selection button, Start Transaction or    
English/Spanish selection. The system responds with the first help screen       
showing an animated version of the bill form. The screen will then show how the 
bill is to be inserted into the bar code scanner on the payment machine.        
Software identifies when the bill form is in place, and will automatically begin
the scan. Three attempts will be programmed, after which, the system will flag  
the second help screen. The second help screen will show in animated form the   
proper method for reading and manually punching in the account number as it     
appears on the bill form. The animation shows where the account number appears, 
the number of characters, and how to use the touch screen keypad.               

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Once the account number has been entered the system uses the existing public    
service company's software to interface with their main-frame system. This      
interface retrieves the customer name, address, and all other pertinent billing 
facts such as usage, current balance due, and account status (i.e. the same     
information that is available to the current clerk operated system). When the   
system asks for a confirmation, the touch screen will again be enabled for a    
response. Upon a positive response the system provides a help screen to aid in  
the selection of the account payment. An animated screen will demonstrate a     
complete or partial payment, enable the currency validator and display how bills
are to be inserted. The system will also instruct the customer to insert large  
bills first so that an undesired change situation will be avoided. Once payment 
is received and validated, the account is credited and the account transaction  
is forwarded to the main frame where it is registered. Change is always given in
the largest denomination available. The payment centers use intelligent routines
which will prevent the input of currency in an undesirable manner and in turn   
prevent situations where a larger than normal amount of change must be          
dispensed. The program will be used to dispense change in the most efficient    
manner to assure that the system will remain in operation for as long as        
possible. For the average $6.50 of change dispensed, the unit will be able to   
service several hundred clients in terms of change in $5 and $1 bills, quarters,
nickels and pennies.                                                            

The final step in the transaction sequence is the printing of a receipt and     
recording of the transaction. The machine will automatically switch to the      
display mode in English until a customer initiates the transactions or bilingual
mode. A telephone line is provided on the payment center to permit the customer 
to speak with a representative of the public service company if clarification is
required or verification is needed such as "reinstalling a disconnect notice".  
The system automatically requests service when any of the utility functions     
approach a level which can cause an "out of service" condition within several   
transactions. If service is not accomplished a threshold is established upon    
which the system disables. Items such as a low currency dispenser, low coin     
hopper, printer paper low, floppy disc near full condition, or the bill         
validator is full will generate an alert signal to be sent to the appropriate   
monitor. Special software monitors bill volume so that a stacker full signal is 
avoided (which will remove the unit from operation). This condition must be     
avoided because it could occur in the middle of a transaction where it will lead
to an unacceptable level of customer stress and inconvenience.                  

The following options can also be provided:                                     
Single frame video of customer(s).                                            
 Audio (interactive) or message upon initial customer contact with touch screen.
Special signage.                                                              
Credit/Debit card payments.                                                   
Permit payment for other public service companies                             
Bilingual graphics.                                                           
Vending of standard Prepaid Telephone Calling Cards                           
Alarm system (security)                                                       

The most significant of these options is the ability to support other public    
service companies by providing an interactive communications network that will  
permit interfacing with different devices, external networks and proprietary    
hosts on the same network as well as easily add on new devices with a minimum of
change and in a relative short period of time. This system will permit the      
Payment Center to facilitate collections for other public service companies,    
payment by credit card and payment by bank debit card thus expanding the centers
capability and sharing of the systems cost. This proposed system would ensure   
that an internationally standards-oriented baseline technology architecture is  
implemented to facilitate connection to a much broader variety of host-based and
network-based technologies and expand the potential products and services       
offered by the system within the context of its current strategies as well as   
beyond.                                                                         

S-Tech believes this system represents the best possible combination of         
architecture, technology, support and experience available. The proposed network
system enables access to all types of shared cash dispensing networks. The      
system will control and manage all aspects of bill payment authorization on     
behalf of the host system, with features such as:                               

Authorization Processing                                      
Network Interface                                             
Host System Interface                                         
Message Management                                            
Security Processing                                           
Failure Monitoring                                            
Reporting/MIS                                                 
Bill Payment Device Handling                                  

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The market potential is significant since over 30% of the customer base do not  
have checking accounts or credit cards. Most public service companies prefer    
their customers to pay by mail. However, a considerable number of customers     
continue to use the service company's payment centers which operate like        
mini-banks or use various retail stores such as pharmacies, card shops and check
cashing facilities for the payment of bills. These methods cost the service     
company a commission or fee. The service company's payment centers are generally
busy during lunch hour, on Fridays (pay day), at the end of the month or before 
and after normal working hours resulting in a large waiting lines to pay their  
bills thus adding to their frustration. The Customer Operated Bill Paying       
Machine provides a means for the customer to pay, either in full or in part,    
their bill, reconcile accounts, and to do so with 24 hour availability and      
independent of any clerical assistance unless required by the customer.         

Information Kiosks                                                              

The automated payment center paves the way into another market. The kiosk       
provides access to forms for municipalities and the federal government, Internet
accessibility, "how to get-to" information centers, postal information centers, 
court house directories, and for college registration and student services.     
Expanding capabilities in this field leads to other similar kiosk related       
products. S-Tech negotiated for a contract to design and develop the hardware   
for a Municipality Forms Kiosk that will permit individuals to obtain computer  
generated forms used by the various agencies of a municipality at one central   
location. At present, 21 units are on order with the potential sales of over 100
units. These new products have broad base applications for public service       
companies, municipalities governments and postal services for both domestic and 
on an international basis. S-Tech is presently negotiating to design and        
fabricate a cash payment machine that can be utilized as a customer interactive 
customer selection and payment machine in fast food locations. This concept will
also be applicable to customer interactive machines for checkout and payment in 
supermarkets. Special signage and kiosk designs are also included to provide    
other revenue sources and unique vending designs will be incorporated in these  
designs for money handling and MIS data transmission.                           

Stamp Vending Products                                                          

S-Tech manufactures automatic postage stamp booklet vending machines, automatic 
postage stamp vending machines and currency to coin change machines. S-Tech's   
postage stamp booklet vending machines dispense one or two different stamp      
booklet denominations booklets and are programmable for price. S-Tech's         
programmable stamp booklet vending machines contain an electronic control board 
of electronic components, integrated circuits and micro-switches, which allow   
for channel and price selection instead of requiring replacement of the entire  
coin changer. In addition, this design permits adaptation of the machine to     
foreign currencies. The units have a self- testing capability, cold temperature 
compensation and anti-tampering devices. The coin changer has slug and bent coin
protection and is adjustable in $.05 increments up through $12.75 with change   
being returned in nickels and quarters.  The units are usually "through the     
wall" mounted, allowing for servicing from the rear.                            

The automatic postage stamp vending units operate in a similar manner to the    
automatic postage stamp booklet vending units and also contain multi-channels   
for the dispensing of various denominations of stamps. For example, if so       
selected, one channel may dispense four 32 cent stamps, a second channel may    
dispense one 32 cent stamp and a third channel may dispense three 32 cent       
stamps. In the event that the post office changes the stamp price, the machine  
has the capability of returning penny stamps and/or change to the customer. For 
example, if the stamp price is 32 cents and the customer inserts four dimes into
the machine, he would receive one 32 cent stamp, three penny stamps and one     
nickel change. The bulk of S-Tech sales of postal products to date have been to 
the United States Postal Service. However, over the past two years the company  
has developed commercial applications and is presently marketing in the         
commercial area. These locations include hospitals, colleges and universities,  
office supply stores and a number of other specialty stores. Sales to Kinkos, an
office supply store, over the past two years were approximately 250 stamp       
machines with bill validators.                                                  

Token Vending                                                                   

Several years ago the S-Tech management team designed and manufactured the token
vending machines for the New York City Transit Authority. The contract provided 
for the design, manufacture and the installation and maintenance of 59 machines 
that are located in the NYC transit system. The system is fully operational     
today and has never experienced a break-in. S-Tech's marketing will be expanded 
for this product line. The United States Postal Service has recently embarked   
upon a program called "the Future Electronic Marketplace" in order to improve   
their image as a public communications facilitator and regain revenues lost to  
other carriers through the use of computers and fax machines. This program      
consists of three revenue sources: vending machines for their prepaid telephone 
calling card in association with American Express; a customer interactive system
linked to 200 million home TV's, 40 million PC's and 15,000 kiosks which will   
provide information on government forms, payment of fees, retail catalog sales  
and postal services. S-Tech is meeting with the United States Postal Service in 
an attempt to participate in this program.                                      

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Avionics Products                                                               

The S-Tech avionics product line consists of both new and spare (replacement)   
items to maintain existing aircraft in an operational status. The products      
consists of a variety of approximately 20 synchro repeater instruments and 2 oil
pressure transmitters. This product line had been relatively flat in sales with 
a range of $1 to $3 million dollars annually. The last few years have been seen 
a significant reduction in sales due to a reduction in Department of Defense    
(DOD) expenditures. Although there is no guarantee of an upswing in the late    
90's, it must be anticipated that inventories are low and spares will be        
required. Projected annual sales for this product area is anticipated to        
increase slightly because of the low inventory levels coupled with S-Tech's     
strategy to expand the instrument product line. In the event that the DOD 5 year
forecast indicate future procurement of these items, S-Tech will be requalifying
nine (9) indicators and one transmitter in anticipation of future procurements. 
In addition to the DOD sales, a limited number of sales are made in the         
galvanometer type indicator area to commercial accounts. Approximately 95% of   
S-Tech's business in this product line is defense related.                      

The total market is in the billions of dollars. Selection of biddable items will
include only those products which are within our capability and when competition
has not forced the price down to a level which does not meet our ROI objectives.
Competition is fairly aggressive and solicitations may have as few as 2 or 3    
bidders or as many as 15 to 20 bidders. It is reasonable to expect an award     
percentage, based upon previous experience, of approximately 4% for build to    
print programs.                                                                 

The majority of S-Tech sales are obtained through the bidding process for the   
military items that are identified by CBD announcements, filing of 129 Forms at 
cognizant agencies and by repeat bid requests as a prior manufacturer. S-Tech   
carefully reviews the CBD publications and seeks out those instruments that     
align themselves with the QPL and desired technology.                           

As part of its marketing strategy, S-Tech actively identifies other avionics    
products that will be:                                                          
Separated as small business set-aside.                        
Competition Advocacy break-outs.                              
SBIR requirements.                                            
Major OEM subcontract requirements.                           

Catalogs, advertising and visits to major avionics centers and aircraft         
manufacturers is essential to maintain this product line growth. Attendance at  
major avionics related shows and membership in key national organizations such  
as SAE, Air Force Association and the Navy League is essential. Financing will  
provide the assets to accomplish these tasks.                                   

Recent solicitations for oil pressure transmitters similar to ones currently    
manufactured by S-Tech were bid and are presently pending. These units if       
awarded to S-Tech will require design modifications to our existing design.     
However one contract in this family of units will permit us a better competitive
opportunity to bid on the other items in this family of units since the         
differences are only the operating pressure range.                              

The requirements for night vision compatible instruments (green illumination    
instead of white or red) is becoming an increasing requirement for low level    
support aircraft and helicopters. This is a requirement to avoid blooming (pilot
blindness) when using night vision image intensified goggles. S-Tech presently  
has a proposal submitted to Lockheed to modify two QPL instruments for this type
of application.                                                                 

S-Tech intends initially to: (1) bid on items that are repeat items or similar  
to repeat items to minimize our risk(s); (2) bid on items to reduce inventory   
excess levels; and (3) select items that are well within our capability (low    
risks). In the long term, S-Tech will expand its QPL instruments and            
transmitters to allow for increased sales.                                      

Government Regulation                                                           

As a manufacturer of products purchased by the Department of Defense or its     
contractors, S-Tech is subject to the provisions of the procurement regulations 
of the Department of Defense. These regulations generally provide the government
with the right to terminate the contract for the convenience of the Department  
of Defense, and, in certain cases may include provisions for renegotiating. The 
Department of Defense also has regulations pursuant to which the Department may 
inspect a contractor's or subcontractor's manufacturing facilities. Such an     
inspector is present at S-Tech's facility on a regular basis.                   

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Employees                                                                       

As of December 31, 1996, S-Tech had 11 employees. None of S-Tech's employees are
represented by a labor organization, and S-Tech believes that its employee      
relations are good.                                                             

Televend, Inc.                                                                  

Televend is a Delaware corporation that was organized in December 1995. Televend
has developed and markets a line of telephone cards for general use. Televend   
intends to ultimately sell the telephone cards using S-Tech's telephone calling 
card vending machines and is currently selling the cards through an independent 
network of sales representatives.                                               

Markets, Marketing and Competition                                              

Prepaid phone cards were first issued in Italy nearly 20 years ago. They are now
used in over 200 countries and enable the holder to place a call from a public  
telephone without the use of a coin or token. These prepaid phone cards are     
"smart cards" with the value stored in the card itself utilizing optical,       
magnetic strip or chip technology. These types of cards were issued by the      
country's PTT (Public Telephone & Telegraph) and require telephones specially   
designed for their acceptance. European sales are estimated at $5 billion per   
year, Japanese sales alone are approximately $4 billion.                        

The vast majority of cards issued in the United States are "remote memory" cards
with all information stored in a network-based central computer. These cards are
used from any touchtone phone by dialing a toll-free 800 number and entering the
PIN number unique to the card and then dialing any domestic or international    
call. Many cards are "rechargeable" which enable the holder to add additional   
time to the card after the initial amount purchased runs out. The market for    
prepaid cards in the United States is estimated at $10 billion per year. To     
date, U.S. market penetration is estimated to be less than 4%.                  

The prepaid phone cards have a promotional value. Several national promotional  
programs have already been implemented by companies such as American Express,   
Ryder, NBC, Mienekie, Dollar Rent-A-Car, and Monroe Mufflers. Over the next few 
years, public awareness will increase dramatically as consumers are inundated   
with millions of cards to be given away or sold by corporate and retail giants  
such as Coca-Cola, Pepsi, Philip Morris, RJR, Nabisco, APT, Kodak, K Mart and   
Walmart, Sears and major car rental companies.                                  

The market for telephone cards in the United States is arguably the largest in  
the world at between $5.0 billion to $15.0 billion. A survey of the market for  
prepaid phone cards in the United States has shown that it has developed into   
five primary segments. These markets are: utility, promotional, corporate,      
affinity and collector. The utility component of the market is based upon sales 
to consumers through retail establishments such as convenience stores, travel   
agents, newsstands, check cashing stores and supermarkets. The consumer is      
typically charged rates ranging from $.29 to $.60 per minute for domestic long  
distance calling time. The promotional premium segment is based upon cards that 
are given away to reward customer loyalty or promote specific products. Prepaid 
phone cards have been given away with purchases of frozen dinners, baby food,   
dog food, sneakers, soft drinks and clothing just to name a few. This has proven
to be a particularly effective marketing tool since long distance calls have    
nearly universal appeal. The corporate segment of the market is based upon the  
use of prepaid cards by corporations for use by their employees for calls made  
outside the office. Not only does this achieve a cost savings for the business, 
but additionally allows for effective budgeting. The affinity component of the  
market is based upon a group or organization distributing prepaid cards to its  
members. Affinity groups such as motor clubs religious organizations, alumni    
groups, unions, etc., receive commissions and residuals for the use of          
group-issued cards by their members. The collector portion of the market is     
based upon the card itself (the image, its desirability and its availability) as
well as the underlying economics. Many collectors expect the value of their     
cards to increase which also brings into consideration soundness as a financial 
investment.                                                                     

The market for prepaid phone cards in the United States has developed slowly.   
Although prepaid cards have been issued for several years, current estimates of 
annual sales of approximately $150 million indicate a market penetration of less
than 4 percent, with rapid growth predicted. The U.S. has been the last major   
market to develop due to the general lack of public awareness about the use and 
benefits of prepaid calling. Public awareness will increase dramatically with   
the development and implementation of promotional and premium programs currently
being planned by many Fortune 500 companies. Consumers will be inundated with   
millions of cards which will be given away by such corporate and retail giants. 
Additionally, companies currently issuing membership and charge cards to their  
customer base (e.g. AAA, Exxon, Sunoco, Fingerhut and Blockbuster) are planing  
to market and distribute telephone cards to their existing data base.           

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Once there is a widespread recognition of prepaid phone cards and their use,    
distribution of cards to the utility segment will increase dramatically. Since a
typical call (3 to 5 minutes in duration) with a prepaid card is substantially  
less expensive and does not have the attendant fraud problems associated with   
conventional credit cards. It can be assumed that a large part of that market   
will convert to the use of a prepaid card. Given the fact that Nippon Telephone 
& Telegraph sells over $4.0 billion of cards through more than 140,000 points of
distribution (retail stores and vending machines) with a customer base of       
approximately 125 million, the utility market in the United States can be       
conservatively projected to a similar level.                                    

As the market expands, consumers will become sensitive to items such as the cost
per minute and the availability of network-based enhanced features such as voice
mail, store and forward of voice and data, audio text and other interactive     
services. These features, combined with the rechargeable feature of the cards   
will also lead to a dramatic increase in the corporate and affinity segments of 
the market. Numerous corporations and organizations will custom tailor a        
telephone card program for their employees and members.                         

Another factor affecting the market is regulation by various federal and state  
agencies, including the Federal Communications Commission, as well as state     
Public Utility and Tax Commissions.                                             

Although competition is high for this product area, Televend intends to capture 
its share of the market by innovative design, improved reliability, customized  
features for large quantity purchases, special signage, and use of state of the 
art components. The United States Postal Service is presently in a pilot program
with American Express and MCI (telephone carrier) to sell prepaid telephone     
calling cards over the counter.                                                 

Televend has generated revenues of $387,000 and $357,000 in 1996 and 1995,      
respectively, and has incurred net losses of $268,000 and $134,000 for 1996 and 
1995. No assurances can be given that Televend will be able to generate revenues
significant enough to penetrate the competitive environment of selling telephone
calling cards as Televend is competing with competitors that have a current     
market share, a more competitive pricing arrangement and significantly greater  
capital resources.                                                              

Employees                                                                       

As of December 31, 1996, Televend had one employees. None of Televend's         
employees are represented by a labor organization, and Televend believes that   
its employee relations are good.                                                

FMX Corp.                                                                       

FMX is a Delaware corporation that was organized in 1995. FMX is a development  
stage company which designs, develops and integrates all of the critical        
building blocks of a Fingerprint ID System ("FIDS"). In conjunction, FMX has    
completed development of a proprietary unique optical fingerprint scanner,      
VLS-10, which has a live-scan ten print touch/roll and single print touch/roll  
capability. Presently in development is the VLS-IFP, which is of the same genre 
as the VLS-10. This unit is significantly smaller and is designed to be         
integrated with SmartCard technology. Presently, there are no comparable units  
available to OEM system integrators. FMX expects that its FIDS can be           
implemented into a super high reliability product because of the tight control  
of the individual building blocks and the connecting interfaces. This is a cost 
effective package which will be offered to OEMs in the security, entitlement,   
and law enforcement markets as well as positioning FMX to be able to participate
and directly compete in the "low end" access control market.                    

FMX considers that one of the major impediments to general acceptance of        
fingerprint as opposed to retinal and hand geometry biometric constructs has    
been the inability of all fingerprint scanners to satisfactorily scan and/or    
reliably image the broad spectrum of fingerprint quality evidenced in any user  
population of the representative randomly chosen subjects. FMX expects that its 
scanners will allow a much increased spectrum of user acceptance, which in this 
crucial area, will be on a par with the very much less accurate systems based on
retinal patterns or hand geometry.                                              

FMX anticipates an immediate market for the sale of the VLS-10 to OEMs who      
currently buy fingerprint scanners from only one source. FMX's penetration of   
this market is based upon the superior performance and ergonomic comfort of the 
VLS-10. There are at least 10 OEMs using fingerprint identification systems and 
significantly more using only the scanner.                                      

The VLS-IFP is structured to appeal to the credit card companies, who are       
interested in integration of fingerprint scanners into smart cards, and         
periodically attempt to tantalize television audiences with the predicted       
technical advancements.                                                         

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A patent application on the unique electro-optical mechanization of VLS-10 and  
VLS-IFP is in progress but has not been completed to date.                      

FMX has not generated any revenues and no assurances can be given that the      
future revenues generated by FMX, if any, will be substantial. Additionally, a  
lack of sufficient funding will delay the development of the prototypes and     
could result in the competitor companies developing a product of similar        
capability prior to FMX's prototype completion. Further development and         
perfection of other biometric devices may effect the marketability of FMX's     
product. During 1996, FMX has incurred $144,000 in research development         
expenses. The research and development and all substantial engineering is       
performed by the 49% minority interest owner of the company. Administrative     
support is provided by Consolidated.                                            

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, the   
Company's name was changed to Netsmart Technologies, Inc. Substantially all of  
Netsmart's revenue during 1995 and 1994 was 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 the stock of CSM was      
transferred by Carte Medical Holdings, Inc. to Netsmart.                        

Netsmart develops, markets and supports computer software designed to enable    
organizations to provide a range of services in a network computing environment.
A network computing environment is a computer system that provides multiple     
users with access to a common database and functions. A network system can be a 
local system, such as a local area network, known as a LAN, which operates      
within an office or facility, or a distributed system which provides            
simultaneous access to a common data base to many users at multiple locations.  

There are typically three parties in Netsmart's network system - the sponsor    
(the party that maintains the data base, and may be a managed care organization,
a university or a financial institution), the users (the users are the          
individuals who use the system, and may be the subscribers of a managed care    
organization, the students at a university or the bank care or credit card      
holders of a financial network) and the service providers (the service providers
are those who provide goods or services to the users, and may be physicians,    
pharmacies, banks and merchants who provide goods, services or funds to bank    
card or credit card holders).                                                   

Netsmart has developed proprietary network technology utilizing smart cards     
which it markets in the health care, financial and education fields as the      
CarteSmart System.                                                              

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. The smart card software provides access to the          
information stored in the chip, the ability to update stored information and    
includes security elements to restrict unauthorized access to or modification of
certain information stored on the card utilizing a smart card reader system. The
smart card reader system and the software provides the ability to include       
information on both the smart card and the organization's computer system.      
Netsmart also supplies network applications which use telecommunications rather 
that than smart cards to obtain access to and manage data.                      

Health Information Systems and Services                                         

Since the 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.                                                                   

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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. During 1996, 1995 and 1994, CSM         
installed health information systems licensing of such systems represented      
approximately $329,000, $162,000 and $375,000, for 1996, 1995 and 1994,         
respectively, accounting for approximately 3.9%, 2.2% and 7.4% of revenue for   
such periods.                                                                   

Netsmart offers software systems developed by CSM which are designed to meet the
requirements of providers of long-tern specialty care treatment. Certain of its 
systems were developed to meet the requirements of Federally funded target      
cities projects and is installed in Baltimore, Los Angeles, Atlanta and Cuyahoga
County (Cleveland), Ohio                                                        

A customer's purchase order may also include third party hardware or software.  
For 1996, 1995 and 1994, revenue from hardware and third party software         
accounted for approximately $1.1 million, $2.1 million and $900,000,            
representing 13%, 29.1% and 18.1%, 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. During 1996, 1995 and    
1994, CSM's service bureau operation generated revenue of approximately $2.2    
million, $1.7 million and $1.6 million, respectively, representing approximately
25.8%, 23.6% and 32.5% of CSM's revenues for such periods. The largest user of  
the service bureau is the State of New York Office of Alcohol and Substance     
Abuse Services, which uses CSM's service bureau to maintain its statewide       
database of methadone users, however, such customer accounted for less than 4%  
of CSM's revenues 1996, 1995 and 1994. Netsmart intends to augment the marketing
effort for the service bureaus, although no assurance can be given that such    
operations will continue to be profitable.                                      

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.                                           

The CarteSmart System                                                           

Netsmart's CarteSmart System software was designed to operate on                
industry-standard computer networks and smart cards. A smart card is a plastic  
card the size of a standard credit card which contains an embedded              
microprocessor chip. The card has data storage and computing capabilities and   
the smart card software includes security elements to restrict unauthorized     
access to or modification of certain information contained on the card. A smart 
card may also include a magnetic stripe to allow it to be used in networks that 
do not include smart card functionality. The smart cards are designed to be     
issued only by the sponsor organization, such as a managed care organization,   
specialty care facility, administrator of an entitlement program or other       
similar organization, a university or a bank or credit card organization.       

The CarteSmart software consists of components which allow Netsmart to develop  
network applications for sponsors with less effort that would be required if    
those network applications were developed from scratch. The CarteSmart software 
consists of an Application Program Interface ("API") and an API Generator which 
shows fast customization of the API for specific network applications. The API  
is a set of software modules that provide the common functions required to      
support a computer network using smart cards. By using the API, Netsmart or a   
sponsor may develop network systems more quickly than if all of the software    
necessary to Implement the network were custom written for a particular network 
application. The API Generator is a tool developed by Netsmart that it designed 
to allow Netsmart or a network sponsor to develop a custom API for a particular 
network and reduce the effort required to build network systems.                

The CarteSmart System is designed to operate on file servers and personal       
computers which utilize the DOS, Windows 3.1, Windows 95, Windows MT or UNIX    
operating systems, depending upon the application. The software used in the     
smart card can be used or adapted for use in most commercially available smart  
CarteSmart cards generally meet international standards and are considered      
commodity products, although each manufacturer has its own software to interface
with a computer. Accordingly, Netsmart believes that a manufacturer would       
provide any necessary assistance in order to market its cards.                  

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Although Netsmart's CarteSmart System software has general applications, its    
experience with each of its four CarteSmart clients reflects a need to customize
the software to meet the specific need of the client. Although the customization
need not be significant, each user has its unique requirements that must be met.
These requirements may include the need to enable the CarteSmart System to      
interface with the client's existing systems to the development of a range of   
software products to meet needs which are not presently being served.           

Netsmart's initial applications 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. Each time a patient visits a        
participating health care provider, the health care provider adds to the        
patient's data base information concerning the visit, including the date,       
procedures performed and diagnosis. At the time of the first visit to a         
participating physician, the physician enters information relating to the       
diagnosis and treatment given on that visit together with such information      
relating to chronic conditions, such as allergies and medication, as the        
physician deems important. Netsmart does not anticipate that the health care    
provider will be expected to include information relating to earlier diagnosis  
or treatment; however, the organization which provides the smart card may       
require additional information to be input at the initial visit. This           
information is input into the patient's smart card and may also be transmitted  
to the managed care organization's central data base, where, unless             
dissemination of such information has been restricted by the patient other      
health care providers will have access to the information. The health care      
provider can read information from, and write information onto the smart card   
through a card interface device, which is standard computer peripheral equipment
readily available from composer outlets and can be easily connected to a        
personal computer. The information transferred to the smart card is first input 
by the health care provider on a computer and includes the date of service,     
diagnosis, treatment including any prescribed medication, and any other         
information which the health care provider determines.                          

At the time of the visit, the health care provider inputs the standard codes for
use diagnosis and procedures performed. Errors in inputting the diagnosis and   
the procedure code delay payment or affect the amount of payment. The SmartCard 
System can be integrated with the health care provider's existing practice      
management system, without incurring any additional personnel. The CarteSmart   
System software has integrated within it an easy to use diagnosis and procedure 
code look-up capability, as well as error checking and other safeguards which   
assist the health care provider in inputting the proper codes based upon normal 
medical terminology.                                                            

The smart card stores only a limited amount of information, and is intended to  
reflect current medical conditions and not a record of medical treatment from   
birth. When the storage capacity of the card, which is equivalent to            
approximately ten typed pages, is reached, items are deleted on a chronological 
basis, with the earliest items being deleted first, although there is an        
override procedure by which certain crucial medical information, such as        
allergies and chronic conditions, can be retained, regardless of the date when  
the patient was diagnosed or treated for the condition. The card also includes  
information on each prescription which the patient is taking. A smart card is   
different from a magnetic stripe card, such as is used at Virginia Commonwealth 
University ("VCU"), in that it has an updatable data storage capacity, which a  
magnetic stripe card does not.                                                  

To date, Netsmart has licensed its CarteSmart software in conjunction with pilot
projects for San Diego County and the Albert Einstein School of Medicine, 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 negotiating 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.                                   

In November 1995, Netsmart entered into an agreement with the Albert Einstein   
School of Medicine to add the CarteSmart System to its existing system to       
provide smart card network capabilities for use in its clinics and out-patient  
facilities. Netsmart is presently customizing the CarteSmart health care        
application software to meet the requirements of the Albert Einstein School of  
Medicine, including the ability to interface with its present computer systems  
in addition to the health information system licensed from Netsmart.            

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During 1995, Netsmart commenced marketing its CarteSmart based products to      
markets other than the health care field. In July 1995, Netsmart entered into an
agreement pursuant to which it installed a magnetic stripe identification system
which uses CarteSmart technology to provide for the centralized issuance of a   
single card to all persons allowed access to the facility and its services. The 
card contains the individual's name, photo, signature and unique card           
identification number, which defines the holder's entitlement to food service   
and library services. Approximately 20,000 students are using the system.       
Netsmart is negotiating with respect to an agreement to expand the program to   
support additional services, however, no assurance can be given that the program
will be expanded. A magnetic card differs from a smart card since it does not   
have an independent updatable data storage capability. 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 is negotiating 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. Netsmart's agreement with IBM is not contingent upon the success of IBN's
installations in the former Soviet Union, although the extent of its revenues   
from royalties will be based on the number of cards issued and may be adversely 
affected by political developments in the former Soviet Union. The system being 
delivered to IBN includes Oasis Technologies IST/Share Financial Transaction    
System software and other third party software which Netsmart is integrating    
with its CarteSmart software to complete the IBN system.                        

In developing the CarteSmart System for the financial services industry,        
Netsmart is using networking technologies that use telecommunications networks  
as well as smart cards. In addition, Netsmart, through a subsidiary, purchased  
the SATC Software, which processes retail plastic card transactions and merchant
transactions. The purchase price is $650,000, of which $325,000 was paid by     
Netsmart and the remaining $325,000 was paid by Oasis. The SATC Software is     
designed to perform functions required by credit card issuers, including        
applications processing and tracking credit evaluations, credit authorization   
and the printing of statements. Netsmart has an agreement with Oasis pursuant to
which the subsidiary will become a joint venture corporation owned 50% by       
Netsmart and 50% by Oasis and/or its principals.                                

Markets and Marketing                                                           

Although the market for smart card systems includes numerous applications where 
a secure distributed data base processing system in important, CSM's initial    
marketing efforts were directed to the health and human services market,        
including managed care organizations and entitlement programs. In the United    
States alone, CSM believes that there are presently more than 75 million persons
who participate in managed care programs, which are sponsored by almost 600     
organizations or health insurers. Because of the relationship between the       
organization and the participating medical care providers and patients, the     
organization can institute a smart card system without the need for CSM to      
conduct a separate marketing effort directed at the medical care providers.     
Although independent health insurers which do not operate a managed care        
organization may, in the future, be a market for a smart card system, because   
the relationship between the insurer and the medical care provider is different 
from that of the managed care organization and its participating medical care   
providers, CSM is not treating independent insurance companies as a market for  
the CarteSmart System, an no assurance can be given that it will ever become a  
market for the system.                                                          

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.                                         

Netsmart believes that the acquisition of the CSM business and assets           
complements its CarteSmart business and personnel. Following the acquisition,   
Netsmart developed the graphical and smart card interface tot he CSM health     
information system and commenced a marketing effort directed to the Netsmart's  
customer base. The two smart card agreements, San Diego County and the Albert   
Einstein School of Medicine, represent amendments to existing contracts to      
include smart card services.                                                    

Netsmart's health information systems are marketed principally to specialized   
care facilities, many of which are operated by government entities and include  
entitlement programs. During 1996, 1995 and 1994, approximately 31%, 54% and    
47%, respectively, of CSM's 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.                                                                    

For one customer accounted for more than 10% of Netsmart's  revenue.  IBN       
Limited generated revenue of approximately $1.9 million representing 22% of     
Netsmart's revenue.                                                             

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For 1995, one customer accounted for more than 10% of Netsmart's revenue. The   
State of Colorado generated revenue of approximately $1.4 million, representing 
18.5% of revenue for the year. CSM's largest customer for 1994 was Cuyahoga     
County (Cleveland) Ohio, from which CSM recognized revenue of $250,000, or 7.0% 
of revenue.                                                                     

Netsmart believes that the CarteSmart software has applications beyond the      
health and human services market and is seeking to market the software to       
educational institutions and in the financial services industry. In April, 1995,
Netsmart entered into a joint marketing agreement with Oasis, pursuant to which 
each company markets the software of the other company. Oasis, an independent   
software developer, has developed and markets a transaction processing system,  
known as IST/Share, designed for high volume users in the financial services    
industry. Mr. Storm R. Morgan, a director of and consultant to Netsmart, is an  
office of, and has an equity interest in Oasis. Netsmart believes that its      
agreement with Oasis will enhance its ability to market and introduce its       
product to the financial services industry where Oasis has an existing client   
base.                                                                           

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 CarteSmart System.                                           

At December 31, 1996, Netsmart had a backlog of orders, including ongoing       
maintenance and data center contracts, in the aggregate amount of $3.7 million, 
substantially all of which are expected to be filled during 1997. Such orders   
and contracts relate substantially to health information sales and services.    

Netsmart's sales force is comprised of three full-time sales representatives, as
well as Mr. Leonard M. Luttinger, chief operating officer, John F. Phillips,    
president of CSM, and SMI, a consultant to Netsmart. Mr. Storm R. Morgan's      
services include activities relating to the marketing of the CarteSmart System  
to industries outside of the medical field. His present efforts are devoted     
principally to the financial services industry. In addition Mr. Luttinger and   
other members of Netsmart's technical staff are available to assist in market   
support, especially for proposals which contemplate the use of smart card       
transaction processing networks.                                                

Product Development                                                             

During 1995 and 1994 Netsmart developed and enhanced the CarteSmart System, and 
six of its employees were engaged in such activities. For 1995 and 1994,        
research and development expenses were $699,000 and $367,000, respectively,     
representing a 90.4% increase. The increase reflects research and development   
for smart card and related products and the graphical interface for Netsmart's  
health information systems. During 1996 the Company did not incur any research  
and development expenses, since the personnel who had been engaged in such      
activities were reassigned to work on the IBN contract and the development of   
Smart Card products. As a result, their salaries and related expenses were      
included as costs of revenue with respect to their work on the Smart Card       
product. As a result of such product development the Company incurred $279,000  
in capitalized software costs. In 1997 Netsmart intends to expand its           
development activities. Netsmart intends to develop a product based on both the 
SATC Software and its own technologies including the CarteSmart System, and to  
develop a network support tool for the financial services industry. The proposed
enhancements include an increased language capability so that it can be         
multilingual, an interface with the CarteSmart System and an interface with     
Oasis' IST/Share, which is a transaction processing system for high volume users
in the financial services industry.                                             

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Competition                                                                     

Netsmart is in the business of licensing software to entitlement programs and   
managed care organizations, specialty care institutions and other major computer
users 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 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. The market is    
very cost sensitive. 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 lower effective cost. Major systems and consulting 
vendors, such as Unisys, AT&T Corp. and Andersen 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.       
Netsmart believes the health insurance industry is developing switching software
to be used in transmitting claims from health care providers to the insurers,   
and insurers or managed care organizations may also develop or license or       
purchase from others the software to process such claims, which would compete   
with certain functions of the CarteSmart System. 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. Netsmart believes that price competition is a       
significant factor in its ability to market its health information systems and  
services.                                                                       

Netsmart also faces intense competition as it seeks to enter the education and  
financial services markets. Competition for the education market includes not   
only major and minor software developers, but credit card issuers and           
telecommunications companies. In marketing its CarteSmart-based products to     
educational institutions, Netsmart can focus on the benefits to the university  
of providing an all-purpose card to ease administration and reduce costs.       

Major credit card issuers and communications companies, such as American        
Express, AT&T and MCI, can offer similar services by permitting the university  
to link their cards with the university's services. Such organizations can also 
use these marketing efforts so a part of their overall corporate marketing      
strategy to familiarize the students with their particular cards and services in
hopes of attracting the students with their particular cards and services in    
hopes of attracting the students as a long-term user of their cards and         
services. As part of a marketing plan, rather than a profit center, such card   
issuers may be able to offer the universities services similar to Netsmart, but 
at a lower cost to the university. In this context, it is possible that, unless 
Netsmart can enter into a marketing arrangement with a major card issuer or     
telecommunications company, Netsmart may not be able to compete successfully in 
marketing its CarteSmart products to educational institutions.                  

The financial services industry is served by numerous software vendors. In      
addition, major banks, credit card issuers and other financial services         
companies have the resources to develop networking software in house. At        
present, most financial institutions use magnetic stripe cards rather than smart
cards. Netsmart believes that its CarteSmart System together with the SATC      
Software and its joint marketing agreement with Oasis, which presently serves   
the financial services industry, will assist Netsmart in selling and licensing  
its products and services in the financial services industry. However, to the   
extent that smart cards become more important in the financial services         
industry, more companies in the financial services industry, as well as the     
major computer and software companies, all of whom are better known and         
substantially better capitalized than Netsmart, and numerous smaller software   
developers, are expected to play an increasingly active role in developing and  
marketing smart card based products. No assurance can be given as to the ability
of Netsmart to compete in this industry.                                        

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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. 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 CSM. 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.                                 

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.                                          

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Potential Business Agreements                                                   

Netsmart may enter into joint ventures, acquisitions or other arrangements, such
as joint marketing arrangements and licensing agreements, which Netsmart        
believes would further Netsmart's growth and development. In negotiating such   
agreements or arrangements, Netsmart anticipates that such agreements would be  
based upon the manner in which Netsmart's business can be expanded, the extent  
to which either Netsmart's technology can be introduced or developed in fields  
not then being addressed by Netsmart or the extent to which additional channels 
can be developed for Netsmart's products and technology. Netsmart is a          
participant in a joint marketing vehicle by which Netsmart's products can be    
marketed by other parties to the marketing arrangement, including IBM, and      
Netsmart would have access to customers of the marketing partners. Netsmart's   
proposed joint agreement with Oasis to purchase the SATC Software and its joint 
marketing agreement with Oasis are other examples of such agreements. Although  
Netsmart is engaged in negotiations and performing its due diligence            
investigations, with respect to a potential acquisition, Netsmart has not       
entered into any letters of intent or agreements with respect to any such       
arrangements or transactions. Furthermore, no assurance can be given that any   
agreement which Netsmart enters into will generate any revenue to Netsmart. To  
the extent that Netsmart enters into an agreement with an affiliated party, the 
terms and conditions of such agreement will be on terms at least as favorable to
Netsmart as those Netsmart could achieve in negotiations at arm's length with an
independent third party. If any such agreement is with an affiliated party,     
Netsmart will seek the approval of a majority of the directors who have no      
affiliation with the other party.                                               

Employees                                                                       

As of December 31, 1996, Netsmart had 71 employees, including five executive,   
five marketing and marketing support, 54 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 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 Company issued,
in exchange for all of the issued and outstanding shares of capital stock of    
Arc-NY, an aggregate of 3,000,000 shares of Common Stock and 1,000 shares of    
Series A Convertible Preferred Stock. 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") which is 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. ARC 
also sells prepaid telephone debit cards. 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. Prior to the 1980s, there
was little competition with respect to either local or long-distance telephone  
service. Pursuant to the AT&T Divestiture Order in 1984, AT&T transferred the   
business and assets of its 22 BOCs to seven regional telephone holding companies
known as the Baby Bells. The AT&T Divestiture Order also created approximately  
200 local access and transport areas ("LATAs"). As a result of this decree,     
separate markets developed for local and for long-distance service, and the BOCs
offered local telephone service and AT&T offered long-distance telephone        
service. Service between LATAs within a state (inter-LATA service) and, in some 
states within a LATA (intra-LATA service) may be provided by both the local     
telephone operating company and long-distance carriers.                         

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Prior to the AT&T divestiture, the BOCs as well as telephone operating companies
not affiliated with the Bell System, for the most part operated                 
government-regulated monopolies for most local telephone service. While the     
divestiture encouraged competition in the markets for long-distance telephone   
service and terminal equipment, the BOCs retained monopoly control over the     
market for local telephone service. Since 1984, competition for long-distance   
service has dramatically increased, and long-distance providers other than AT&T 
presently carry a significant portion of domestic long-distance calls. While the
AT&T Divestiture Order did not directly provide for competition for local       
telephone service, a number of factors served to promote competition for such   
service. These factors included (i) the desire of major commercial customers for
an alternative to the local telephone operating company for local telephone     
service, (ii) technological advances in the transmission of data and video      
requiring a greater capacity and reliability than was available over the        
then-predominant copper-based local telephone networks, (iii) the development of
fiber optic and digital electronic technology, (iv) the monopoly position of the
local telephone operating company whose rate-of-return based pricing structure  
provided little incentive to upgrade networks or seek to meet specialized       
customer needs, and (v) the significant access charges which long-distance      
carriers were required to pay the local telephone operating company to originate
and terminate long-distance calls on the local telephone operating company's    
telephone networks.                                                             

While long-distance telephone service has become highly competitive, with MCI,  
Sprint and a number of smaller companies, such as Frontier, offering            
long-distance service in competition with AT&T, local telephone service has been
dominated by the local telephone operating companies, including the BOCs. In    
1993, despite FCC attempts to encourage local service competition for switched  
and special access services, local competition had not developed as quickly as  
long-distance, in part because of both the dominance of the local telephone     
company as well as state regulatory restrictions. However, in major metropolitan
areas, a number of carriers offered limited local exchange telephone service in 
competition with the local telephone operating company.                         

In providing telephone service, CLECs have their own telephone switching        
equipment, and some CLECs, such as TCG, have their own telephone lines, which   
are generally fiber optic lines. These lines run from the CLECs switching       
equipment to the end users. CLECs also lease lines from ILEC. Because of the    
cost of installing telephone lines throughout a major city or metropolitan area,
CLECs have generally marketed their services, at least initially, to commercial 
users in business districts, such as the financial and mid-town business        
districts in New York City.                                                     

Telephone Services                                                              

Local Telephone Service                                                         

Local telephone services, which are provided by the ILECs and CLECs 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. 

CLECs initially entered the local telephone service market by providing only    
dedicated services to customers directly connected to the CLECs' networks. As a 
result of Federal and state regulatory decisions beginning in 1989, CLECs were  
being permitted to interconnect their networks with those of the local telephone
operating company. These decisions gave the CLECs the ability to access         
customers either by leasing facilities from the local telephone operating       
company or installing extensions to the CLECs own network and also resulted in  
the creation of CLECs which offered a full range of service. As a result of     
certain recent Federal and state regulatory actions and the 1996 Act, in        
particular by the requirement that ILECs make available for resale most services
they offer end user customers, the range of local telephone services which can  
be offered by CLECs has increased.                                              

ARC offers local and long-distance, including international, telephone services,
principally to commercial users in New York City and, since November 1996, in   
Chicago and South Florida. The local telephone services offered by ARC includes 
all of the local telephone service which are offered by the CLECs from which ARC
purchases services and all services offered by Nynex. In New York, Chicago and  
South Florida, ARC resells telephone service provided by TCG. In New York City, 
the Company also offers service provided by three other CLECs and Nynex. ARC is 
engaged in negotiations with the local telephone operating companies covering   
Chicago and South Florida to resell their services, however, no assurance can be
given that ARC will be successful in obtaining such a contract                  

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ARC purchases local telephone services from CLECs and, in New York City, Nynex, 
and it resells such service to its customers. The principal supplier of local   
telephone service to ARC is TCG, from which ARC has purchased local telephone   
service since 1993. 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, the Company has purchased Nynex local telephone service for      
resale pursuant to Nynex' tariffs. ARC's agreements with CLECs provide it with  
the ability to offer services in certain regions of the United States which are 
not served by TCG. See "Business -- Agreements with Telephone Carriers."        

ARC's contracts with the CLECs from which it purchases telephone services       
requires ARC to commit 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 March
1997, the minimum monthly commitments as of April 1998 will be approximately    
$86,000 with respect to local telephone service. ARC's purchases from TCG are   
presently in excess of its minimum requirements. See "Business -- Agreements    
with Telephone Carriers."                                                       

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 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    
CLECs and the other for services provided by an ILEC, which, in New York City,  
is Nynex. ARC does not have agreements with other ILECs. Although it is engaged 
in negotiations with ILECs in Chicago and South Florida, no assurance can be    
given that ARC will be successful in obtaining such agreements.                 

ARC has no minimum usage obligations with Nynex. However, the prices paid to    
Nynex are higher than they would be if there were a provision for guaranteed    
usage. Although the rates paid by ARC under its agreement with Nynex are        
typically higher than the rates paid to the CLECs, ARC believes that its ability
to offer Nynex service is important to ARC's customers. The rates paid by ARC to
Nynex for local telephone service are set forth in Nynex's tariffs, which are   
subject to change with notice. Nynex is required to file tariff changes with the
New York Public Service Commission, and such filings which are monitored by ARC.
ARC can change its pricing with respect to Nynex service in response to changes 
by Nynex. Although ARC must file new tariffs any time it changes its rates or   
rate structure, 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 Nynex. ARC's agreements with the CLECs require the CLECs to provide ARC with
15 to 30 days notice prior to any note 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 CLECs or ILECs 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 ILEC to the customer and any servicing of the telephone lines is
performed by ARC. ARC bills the customer and provides any service which may be  
required.                                                                       

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 Nynex 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 CLECs, 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 Nynex 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.                                                                   

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long-distance and International Telephone Services                              

ARC also offers long-distance and international telephone service, which it     
purchases from Frontier, a national long-distance carrier which is a subsidiary 
of Rochester Telephone Company Interstates, including New York, Illinois and    
Florida, and it has applied for authorization to offer such services in other   
states. Although the long-distance telephone market is dominated by AT&T, MCI   
and Sprint, many long-distance companies such as Frontier offer such service on 
a regional or national basis. Frontier offers such service on a national basis, 
and ARC may resell such from any location in the United States. Frontier also   
provides ARC's international long-distance service for calls made outside of the
New York City metropolitan area.                                                

ARC provides switched access long distance service, which means that the        
customer can obtain access to the long-distance service by dialing the number 1,
plus the area code and number ("1+ " service). 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 Frontier's switching equipment, but ARC bills the customers and has the 
obligation to provide any required service.                                     

International long-distance telephone services for telephone debit cards and    
calls originating in the New York City metropolitan area are provided by a      
number of international long-distance carriers, other than Frontier. ARC also   
offers its customers a dedicated international line, and it presently provides  
such service to two customers -- a major accounting firm and a major mail-order 
clothing company.                                                               

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.           

Telephone Credit and Debit Cards                                                

A telephone credit card is a card on which telephone calls can be charged. ARC  
offers calling cards to users of its local and long-distance telephone service. 
Users of ARC's telephone credit cards dial a toll-free number and place the     
call. In order to place the call, the caller must input a personal              
identification number ("PIN"). ARC bears the credit risk with respect to calls  
charged to its cards, since it must pay the long-distance carrier and bill the  
customer. ARC bills its customers monthly, generally within 25 days after the   
end or a monthly billing cycle. If payment is not received within 25 days of the
billing date, ARC charges its customers a finance charge. ARC pays its          
international carriers on a bi-monthly or monthly basis and it bills its        
customers monthly, with the result that ARC must finance its telephone costs.   

The calling cards can be used for local, long-distance and international        
service. The user of the calling card must dial a local or toll-free number to  
place the call. So-called "0+" service is not available for ARC's calling cards.
0+ service enables a telephone credit card holder to place a call by dialing "0"
and the telephone number and provide the card number after a prompt which asks  
for the card number. A user of the calling card cannot designate the underlying 
carrier, which is determined by ARC, based on a least cost routing program.     
Domestic long-distance service for the telephone debit and credit cards is      
provided by Citizens Telecommunications Company ("Citizens").                   

While telephone credit cards have been available from telephone companies since 
the 1960s, the issuance and use of telephone debit cards developed during the   
1980s. Telephone debit cards are debit cards which provide telephone users with 
a preset dollar value of long-distance, including international long-distance,  
telephone calls. The face value of the cards, which represents the dollar value 
of the telephone service to be provided and the price paid by the user, ranges  
from a few dollars, which may entitle the holder to one or two calls, to $20,   
$50 or more.                                                                    

ARC's telephone debit cards entitle the holder to a set number of units,        
depending on the price of the card. The number of units charged for any call is 
a function of the number of minutes and the destination. All calls within the   
continental United States cost the same number of units per minute. Calls to    
Europe have a higher cost per minute than domestic calls and calls to Asia have 
a higher cost per minute than calls to Europe. The amount ARC charges per unit  
is based upon the cost to the Company of the call.                              

The long-distance and international telephone service providers for ARC's       
telephone debit card are different from those used by the Company for its 1+    
service. Domestic long-distance service for ARC's telephone debit cards is      
provided by Citizens.  International service is provided by a number of         
companies.                                                                      

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ARC owns a debit card platform in New York City which it uses for processing    
calls for users of its prepaid telephone debit cards as well as its credit      
cards. A debt card platform is a computer system designed to perform various    
functions for a provider of telephone debit and credit cards, including call    
processing, voice prompts, pricing tables, management reports and certain       
routing procedures.                                                             

Cabling and Wiring Services                                                     

ARC also offers data cable installation services for computer systems for       
commercial 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. With the increase of ARC's local telephone service and the     
addition of domestic and international long-distance service and telephone debit
cards in 1996, the cable and wiring services are becoming a less important part 
of ARC's business.                                                              

Markets and Marketing                                                           

ARC markets its products and services through a staff of ten persons, including 
the vice president -- sales. ARC directs its marketing efforts toward medium to 
large businesses that have significant telecommunications requirements. In      
addition, ARC's long-distance service and telephone debit cards are sold through
its independent commission sales staff. In general, ARC's employees market its  
local and long-distance service to commercial users, principally medium to large
telephone users, and the commission sales personnel market ARC's long-distance  
and telephone debit card services to a broader range of telephone users. The    
commission sales personnel are not employees of ARC, and their compensation     
consists solely of commissions based on revenues generated.                     

In marketing its services directly to commercial customers, ARC seeks to develop
a program for the prospective client that may include local, long-distance      
and/or international telephone services. To the extent that a client only       
requires local, long-distance or international telecommunications, the package  
offered by ARC is structured to the specific requirements of the client. One    
element of ARC's marketing strategy is to offer redundant capabilities to       
provide the client with continuous service even when the main telephone provider
is having service difficulties. ARC's ability to offer the services of Nynex as 
well as service provided by CLECs provides it with the capability of offering   
the services of more than one provider of local service. Furthermore, ARC       
believes that its ability to offer Nynex local telephone service at a rate which
may be lower than the client could receive directly from Nynex can be important 
in its marketing program towards clients who want Nynex, as the ILEC, to provide
the underlying service. ARC also offers a dedicated international line to one or
more countries to clients who have significant international telecommunications 
requirements.                                                                   

ARC's long-distance service is offered both as part of a package with local     
service and calling cards and as a separate service independent of local        
service. ARC generally markets it telephone credit cards as an ancillary service
for clients who use ARC's local telephone service. ARC does not market such     
cards to the public generally.                                                  

The end-user market for telephone debit cards consists principally of low income
households with little or no credit, including immigrant populations, who use   
the cards for substantially all of their long-distance and international        
telephone calls, middle income households who use the cards for travel and      
away-from-home calls, students and military personnel. A significant portion of 
the international telephone debit card use is generated by the immigrant        
population, and ARC's international telephone debit card service is marketed by 
ARC's distributors to this segment of the population.                           

Most of ARC's debit cards are sold to distributors, who pay ARC a price         
reflecting a discount from the face amount of the card. The face amount of the  
card represents the price paid by the end user and the value of telephone       
service provided. The agreements with distributors are generally short term. The
distributor must pay for all cards taken by the distributor before the cards are
activated, regardless of whether the cards are ultimately sold by the           
distributors. ARC does not sell its telephone debit cards on a consignment      
basis. The distributors may manufacture their own cards, but the cards cannot be
used until electronically activated by ARC. During 1996, two distributors of    
telephone debit cards accounted for more than 5% of ARC's revenue. No purchaser 
of telephone debit cards accounted for 10% of total revenue for 1996.           

ARC also markets its telephone debit cards for use as a promotion or premium in 
connection with the services being offered by ARC. Under such programs, the     
customer would provide its clients with a telephone debit card with a modest    
face value, which the customer would use as part of its own marketing or        
promotion program. These promotions could be one time promotions or an ongoing  
part of the customer's marketing plan. Through February 28, 1997, ARC has sold  
telephone debit cards to two customers for promotions. One of such customers, a 
major toy chain, used the cards for a short-term promotion. The other customer, 
a wire transfer company, has been purchasing the cards from ARC as part of an   
ongoing promotion since September 1996.                                         

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In 1997, ARC commenced a marketing effort for the sale of telephone debit cards 
through vending machines. ARC has agreements for the placement of such vending  
machines in a hospital in Newark, New Jersey and in one casino-hotel in each of 
Atlantic City, New Jersey and Las Vegas, Nevada. The initial unit is scheduled  
for installation in late March 1997. ARC owns the vending machines and pays the 
hospital and holds a commission on all cards sold through the machine.          

The market for ARC's data cabling installation services is primarily            
institutional customers, including hospitals and government agencies. ARC's     
largest customer for such services in 1996 was Mitel, from which ARC provided   
such services for the New York City Board of Education. Revenue from Mitel was  
approximately $869,000 (15.6% of revenue), $629,000 (19.4%) and $768,000 (33.9%)
in 1996, 1995 and 1994, respectively. During 1996, 1995 and 1994, the only other
customers for data cabling installation services that accounted for more than   
10% of total revenue were Newark Beth Israel Hospital, which accounted for      
revenue of approximately $542,000 (16.7%) in 1995 and $283,000 (12.7%) in 1994, 
and University School of Medicine and Dentistry of New Jersey, which accounted  
for revenue of approximately $503,000 (22.7%) in 1994. 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.                                              

ARC is also an authorized vender for data cable installation services for New   
York State. 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 has not generated any revenue pursuant to such contract.                    

With the expansion of its local telephone service and the addition of           
long-distance and international telephone service and telephone debit cards in  
1996, ARC believes that data cabling and wiring services will become an         
increasingly less important portion of its business.                            

At March 15, 1997, the Company had a backlog of firm orders for data cabling and
wiring services of approximately $600,000, all of which is expected to be       
completed during 1997. There is no backlog for telephone service                

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 letter of credit as a 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. ARC is conducting negotiations with other long-distance         
telephone companies who offer such service on a regional or national basis,     
although no assurance can be given that ARC will be successful in these         
negotiations. 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 for its debit card 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 February 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.                                                     

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Although ARC does not have a formal agreement with Nynex, it purchases for      
resale Nynex' local telephone service based on Nynex' tariffs for the sale of   
such services to resellers. ARC has no minimum obligations under the Nynex      
tariffs and it has a $4,375 deposit with Nynex.                                 

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                                                                     

The telecommunications industry in general is highly competitive. Major industry
participants such as AT&T, MCI, Sprint and the BOCs have far more resources and 
experience than ARC in providing local, long-distance and prepaid telephone     
debit card services. 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.                                                          

Local telephone service                                                         

The market for local telephone service highly competitive and is becoming       
increasingly competitive. Since the AT&T Divestiture Order, local telephone     
service has been provided solely or dominated by either one of the regional     
BOCs, such as Nynex in New York City, or other independent operating companies, 
including subsidiaries of GTE and Sprint. The ILECs have significant customer   
bases and provide local telephone service to a vast majority of the commercial  
and residential telephone users in their respective service areas. These        
companies have significantly greater assets and revenue and are better known    
than ARC. No assurance can be given that ARC can or will successfully compete   
against the ILECs.                                                              

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. For example, AT&T and MCI have       
reportedly begun offering local service in some 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, CLECs,  
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.  
Long distance service                                                           

The market for long-distance telephone service is highly competitive.           
Long-distance telephone service is dominated by AT&T, MCI and Sprint, which     
offer long-distance telephone service on a national basis. In addition, a number
of major national and international telecommunications companies, such as       
Frontier, as well as regional telephone operating companies, offer long-distance
telephone service on a regional or national basis. Such corporations have       
significantly greater assets and revenue and are better known than ARC. No      
assurance can be given that ARC can or will successfully compete with such      
companies in the long-distance telephone market.                                

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Telephone debit cards                                                           

The market for prepaid telephone calling cards is a relatively new              
telecommunications service. The market for prepaid telephone calling cards is   
highly competitive. In addition to the major long-distance telephone companies, 
which offer or have announced the intention of offering prepaid telephone cards,
a large number of smaller companies offer such cards. Competition for such cards
is based largely on price. To the extent that the major telecommunications      
aggressively market such cards at relatively low prices, they may quickly       
dominate the market. No assurance can be given as to the ability of ARC to      
operate this business profitably.                                               

A key factor in the prepaid telephone card business is the price and            
distribution structure of the company offering the cards. In establishing a     
pricing structure, the issuer of telephone debit cards must consider the cost of
service, the amount charged for various types of calls and the discount given to
the distributor. A large number of companies offer and have offered prepaid     
telephone debit cards. However, in recent years, many have such companies have  
discontinued their business.                                                    

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 CLECs, ILECs 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 ILECs 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      
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, long-distance or prepaid debit card 
service, 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 intends to offer local telephone service in  
California following completion of this Offering. ARC has applied for, but has  
not received, authorization to offer such service, and no assurance can be given
that such authorization will be obtained.                                       

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  
sets 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 CLECs and the other for services provided by Nynex. 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 ILECs.       

During the late 1970s and early 1980s, many companies offered discount          
long-distance service. Of those companies only MCI and Sprint and a small number
of companies, including Frontier, have been able to penetrate the long-distance 
market to any significant extent and each of those companies incurred very      
significant costs in both marketing and capital expenditures in order to attain 
their present market position. No assurance can be given that the same or       
similar factors will not also affect the local telephone market or that ARC will
be able to survive the anticipated industry consolidation.                      

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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 ILECs, 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.                                                        

Potential Business Agreements                                                   

ARC may enter into joint ventures, acquisitions or other arrangements, such as  
joint marketing arrangements and licensing agreements, which ARC believes would 
further its growth and development. In negotiating such agreements or           
arrangements, ARC anticipates that such agreements would be based upon the      
manner in which ARC's business can be expanded, the extent to which ARC's       
services can be enhanced or the market for such services expanded. In this      
connection, ARC may acquire businesses that are related directly or indirectly  
to its telephone service business. No assurance can be given that any agreement 
which ARC enters into will generate any net income. To the extent that ARC      
enters into an agreement with an affiliated party, the terms and conditions of  
such agreement will be on terms at least as favorable to ARC as those ARC       
believes it could achieve in negotiations at arm's length with an independent   
third party.                                                                    

Employees                                                                       

At December 31, 1996, the Company had 21 employees, of which nine were executive
and administrative, nine were sales and marketing, including the vice president 
-- sales and three were technical service and support. ARC's employees are not  
represented by a labor union, and ARC considers its employee relationship to be 
good.                                                                           

THREE DIMENSIONAL PRODUCTS AND SERVICES                                         

The three-dimensional products and services reflect the consolidated operations 
of 3D Holdings International, Inc., ('"3D"), a Delaware corporation. The        
consolidated operation of 3D includes the operating activity of 3D Technology,  
Inc., 3D Imaging International, Inc. and Vero International, Inc., all of which 
are directly or indirectly controlled by 3D.                                    

3D is engaged in the development and marketing of products based on             
three-dimensional imaging and digitizing technology. Three-dimensional          
digitizing is the process of constructing a digital image of an object.         
Three-dimensional digitizing products are used in various phases of the         
development and manufacture of a product, including rapid prototyping,          
manufacturing of components and quality control. 3D's scanning products can     
generate digitized images which can be input into Computer Assisted Design or   
Computer Assisted Manufacturing ("CAD/CAM') software systems.                   

3D was founded to develop solutions using three-dimensional imaging technology  
in response to a perceived need by the manufacturing and metrology industries   
for products to enable them to develop and introduce new products and to improve
the quality control and maintenance operations. As a result of developments in  
laser and other imaging technologies, it became possible in many instances for a
manufacturer to design products more efficiently using three-dimensional imaging
technology either by itself or combined with CAD/CAM systems. It also became    
easier to duplicate products for which the manufacturer did not have drawings of
the molds. Similarly in metrology, which is the science of measuring, it became 
possible to determine rapidly whether a product or part meets the specifications
and tolerances, either at the manufacturing facility at the time of production  
or in the field as part of continued maintenance.                               

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CAD/CAM systems are software systems used to design products and to generate the
necessary computerized instructions for the manufacture of an object in         
accordance with the computerized design. The resulting computer instructions can
be translated into instructions for Computerized Numeric Control ("CNC") or     
Computerized Measuring Machines ("CMM") or stored as a database for future      
reference. CNC is manufacturing equipment, which is programmed to manufacture a 
part, or component based on computerized instructions. The computerized         
instructions can be generated by either CAD/CAM systems or directly from        
scanning equipment. CMM equipment is used in quality control to ascertain       
whether the product conforms to the specification.                              

Rapid prototyping is the generation of a physical model of a product. The model 
can be either designed on a CAD system or produced from digital information     
generated by a scan of the object. Scanning equipment, such as 3D's OpticaTM    
laser scanner, can generate a digitized image of an object in a form, which can 
be input into a CAD program and modified in the CAD system to meet the design   
requirements of the manufacturer. The use of rapid prototyping systems is       
intended to reduce the development time of a product. Rapid prototyping systems 
are used in industries such as the automotive, aviation and medical fields,     
which reduce substantial time and resource to product design.                   

In the manufacturing process, a laser scanner can be mounted directly onto      
manufacturing equipment, principally CNC, which uses the digitized information  
to generate an object having the same outside dimensions as the scanned object. 
In addition, in the same manner as rapid prototyping, the scanned image can be  
used as the basis for the further development of a product, and the data        
generated can be used either to make the product or to make the molds and dies  
used in the manufacture of the product. 3D's optical laser scanner is designed  
to enable a manufacturer to perform these functions.                            

Since the scanning operations generate a computer file setting forth the        
dimensions and other measurements of an object, this information can be used in 
quality control and maintenance to determine whether the object being scanned   
meets the required specifications and tolerances. 3D's Lazer TracerTM is        
designed to be used by quality control and maintenance personnel to determine   
whether the finished product complies with the specifications.                  

Vero International, Inc., one of the 3D subsidiaries, distributes VISI-CAD and  
VISI-CAM software pursuant to an exclusive distribution agreement with Vero     
International Software Srl, an Italian corporation. VISI-CAD is a PC-based      
surface and solids modeling and designs package which is used to create         
three-dimensional designs. VISI-CAM is a PC based multi-axis, multi-surface,    
milling and turning and EDM CAM package which can use information generated by  
Surfacing software packages or VISI-CAD to complete the manufacturing of a      
product.                                                                        

In addition to the hardware and software products which 3D markets, 3D          
Technology, Inc., one of the subsidiary, offers scanning and digitizing services
for customers who do not require a scanning system but can use a folio which can
be used in the customer's CAD/CAM systems.                                      

3D has completed the development of a foot digitizer, which is used to develop  
shoes and shoe-lasts for a person based upon the digitized image of his foot. 3D
has an informal agreement with a manufacturer of non-laser scanners, to develop 
an initial prototype of a foot digitizer. 3D is discussing with four major shoe 
companies, the potential of marketing the foot digitizer system for custom shoe 
and orthopedic shoe applications.                                               

During 1996, the European Community Counsel ("EEC") awarded one of their BRITE  
contracts to a consortium of partners headed by BIBA, a highly reputable        
computer science institute in Germany and 3D Imaging International, Inc., for   
the development of a software for industrial applications in the field of Rapid 
Prototyping via CAD and CAM. The project titled " An Engineering Workbench for  
Industrial Application of Rapid Prototyping Techniques" is being jointly        
developed by the consortium members and sub contracted to Vero International    
Software Srl of Italy. The EEC provided the funding for the development and upon
completion, 3D will market and sell this product through world wide distribution
network of Vero International Software, Srl.                                    

Optical Laser Scanner and Lazer Tracer                                          

3D has developed a number of laser scanning sensors and integrated systems - its
Optica laser scanner which can be mounted on CNC or CMM equipment and digitized 
data from this scanner can be transferred to CAD/CAM systems. Replica series    
products are stand alone digitizing systems, which come in different sizes, and 
its Lazer Tracer, which is a hand-held contour-measuring system, designed to use
for quality control. The computerized instructions can be either generated by   
CAD/CAM equipment or directly from scanning equipment. The Lazer Tracer is based
on certain patents ("GE patent rights") being acquired by 3D from General       
Electric Company ("GE") pursuant to a January 1994 agreement. Pursuant to the   
agreement with GE, 3D acquired four uncompleted prototypes for the Lazer Tracer 
and is required to complete the development of the prototypes and to deliver    
them to GE.                                                                     

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3D's Optica laser scanner takes a three-dimensional picture of a solid object by
recording the reflection of a beam of light that is "reflected" off the solid   
object and is recorded by a special camera that converts the light emitted by   
the laser and projected onto the object's surface into electrical impulses and  
digitizes the input. It enables a user to reconstruct a physical object by      
converting the image generated by the sensor into a three-dimensional           
replication by identifying the points on the surface of the object into a series
of mathematical x, y and z coordinates, These coordinates represent the height, 
width and depth of each point on a three-dimensional grid. The proposed laser   
scanner is designed to interface with most standard CNC controllers and can be  
mounted directly onto a CNC machine. The digitizing software incorporated into  
the laser scanner can generate data in formats which are accepted by standard   
CAD/CAM software. Once the data is input into a CAD/CAM system, it can be       
modified to meet the manufacturers specific needs. The Optica laser scanners are
manufactured by a nonaffiliated company, which is using its own base technology 
to meet 3D's specific needs. However, 3D does not have any long-term commitments
with the supplier.                                                              

The principal uses for 3D's Optica laser scanner include rapid prototyping and  
reverse engineering; duplication of parts or components for which there is no   
CAD design. The software in the scanner enables the user to see a virtual image 
of the product on a computer screen in addition to producing a physical model of
the product. By being able to visualize and feel a model of a product, a        
manufacturer can save substantial time and effort and introduce the product to  
market earlier than would otherwise be the case. In cases where the manufacturer
has a part, but not a computer design, the scanner can be used to produce a     
virtual image that is needed to create a CAD model from which a die or mold can 
be produced. Using this method, a manufacturer can make an exact duplicate of   
almost any item ranging from antique furniture to plastic bottles and containers
to automobile and aircraft parts.                                               

3D's Lazer Tracer, which is based on a GE patent, is designed for the metrology 
industry and uses laser technology to measure geometric features such as radii, 
angles and curves. Unlike the Optica laser scanner, which can also perform      
measuring tasks, the Lazer Tracer is hand held and is designed for use on the   
assembly lines and in maintenance operations where the continued performance of 
a part is important. The Lazer Tracer is designed to measure the various        
parameters against stored information as to the specifications and permissible  
tolerances. The unit is intended to be used in any environment and will provide 
quick indications whether the product meets the specifications. The quality     
control functions can be used in any facility where it is important to know     
rapidly whether the product complies with the specifications, especially when it
is difficult for another measuring device to determine whether the product      
conforms to specifications. One such application is aircraft maintenance where  
another measuring device may have difficulty in determining whether the blade of
a jet engine continues to meet specifications. The patents cover hand-scanning  
devices which can be used in the metrology industry. 3D commenced marketing both
the Optica and Replica scanners in 1996, and have received a number of orders   
from Jewelry, Automotive and aerospace industries. Two service bureaus, one in  
Ohio and other in Massachusetts have purchased these equipment and start using  
the equipment for their customers.                                              
Management believes that this trend will continue during 1997.                  

VISI-CAD and VISI-CAM                                                           

VISI-CAD is a state-of-the-art PC-based surface and solids modeling software and
design package used to create three-dimensional models using both MS-Windows 95 
and MS-Windows NT software environments. The different VISI-CAD modules allow a 
designer to elaborate on models by using a flexible and intelligent sketcher    
without the need for concentration on choosing detailed geometry commands. For  
example, in constructing a line that connects two other elements, VISI-CAD      
presents all tangency and separation possibilities according to the position of 
the cursor line without recourse to the menus.                                  

VISI-CAM is a state-of-the-art PC-based multi-axis, multi-surface milling,      
turning and EDM CAM software package which uses information generated by        
Surfacing software packages or VISI-CAD, or other CAD system to complete the    
manufacturing of a product. VISI-CAM offers surfacing, milling and editing      
modules. VISI-CAM is an easy to use series of software packages featuring       
pop-down menus and dialogue boxes and powerful commands, all available by       
clicking a mouse. It also offers a range of CNC applications and an integrated  
geometry generation and machine tool simulation package.                        

Digitizing and Design Services                                                  

3D has recently begun to offer imaging, digitizing and product development      
services at its Connecticut facility. These services involve the digitizing of  
an object provided by the client, the use of the Surfacing software to generate 
an image with the desired surface and the delivery of a computer file, which can
be used in any CAD/CAM system. 3D offers these services both as an independent  
source of revenue and as a part of its marketing program for its products and   
services.                                                                       

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Foot Digitizer                                                                  

3D has an informal agreement with a nonaffiliated West German manufacturer of   
nonlaser based three-dimensional scanning equipment pursuant to which such      
manufacturer has developed for 3D a prototype of the Foot Digitizer. The Foot   
Digitizer is a three dimensional scanner which rapidly scans a human foot. The  
resulting scan is designed to be used to develop shoe lasts which are custom    
designed for the scanned foot. The Foot Digitizer is expected to be marketed to 
manufacturers of orthopedic shoes and custom made footwear. The ability of 3D to
market the Foot Digitizer will be dependent upon 3D's ability to demonstrate to 
custom shoe manufacturers that the Foot Digitizer represents a method of        
increasing revenues and gross profit, as to which no assurance can be given.    

This system has gone through clinical testing at the Norway Orthopedic Center   
for European FDA approval. 3D, through its offices in Belgium, filed an EEC     
project during March 1995, with other industrial market leaders from Europe, to 
make a total system that will be utilized to produce foot casts automatically   
from a digitized foot. Upon approval, the EEC may fund this project on an       
installment basis. 3D would manage the project and upon proper funding,         
establish worldwide marketing and distribution channels.                        

Other Products                                                                  

In addition to its products and software, 3D has marketing rights with respect  
to CAD/CAM software and hardware. As a result, 3D is able to market an          
integrated system to meet the specific needs of its clients. Such a system could
include an Optica scanner or Lazer Tracer, the Surfacer software, CAD/CAM       
software and hardware.                                                          

Markets and Marketing                                                           

The market for three-dimensional scanning equipment and the Surfacer software   
includes a range of manufacturing and industrial companies in industries as     
varied as the automotive and aircraft, manufacturers of molds and dies for      
plastic containers, toys and any industry or application where the creation of a
product requires the development of an accurate three-dimensional scanning and  
the metrology market, where precise measurements are required to determine      
whether a product meets the specifications. With the recent market introduction 
of the Optica and Replica laser scanners and the Lazer Tracer, 3D has commenced 
marketing its products both directly to end users, including customers who would
purchase the products on an OEM or VAR basis, and it is seeking to establish a  
network of representatives.                                                     

Competition                                                                     

3D competes with other laser scanning products as well as products which scan   
objects using technologies which are not laser based. Competition is based on   
the cost and safety or perceived safety of the equipment, the specific          
requirements of the user and the compatibility of the scanning equipment with   
the user's CAD/CAM and manufacturing equipment. 3D's competitors include a      
number of small and medium sized companies that offer products that are designed
for certain specific applications. No assurance can be given that 3D will be    
able to compete successfully with such competitors.                             

Intellectual Property Rights                                                    

In January 1994, 3D entered in to an agreement with GE pursuant to which it     
agreed to purchase from GE a patent and patent application relating to the      
technology used in the Lazer Tracer. The agreement requires 3D to pay the       
purchase price of $175,000 as follows: $25,000 on signing the contract, which   
payment has been made, and three payments of $50,000 due at various times after 
3D has delivered the fourth Lazer Tracer units. The agreement also grants 3D a  
license to use certain GE technology relating to the Lazer Tracer. The agreement
also gives GE a non-exclusive irrevocable right to sell the GE patent rights,   
subject to any licenses previously granted by GE. GE has agreed to give 3D      
notice prior to granting any such licenses, which will enable 3D to take title  
to the GE patent rights prior to the grant of any license by GE. No assurance   
can be given that the GE patent rights will be effective in limiting the        
development of competing products by others who could design around the patents.
Except for the GE patent rights, 3D has no other patent or copyrights on its    
products. Although 3D has signed non-disclosure agreements with its employees   
and others to whom it discloses proprietary information, no assurance can be    
given that such protection will be sufficient. The unauthorized use or          
disclosure of 3D's proprietary software and other proprietary information may   
have a materially adverse effect upon its business.                             

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Government Regulations                                                          

The Lazer tracer sensors and other laser-based products are subject to          
regulation by the Federal Bureau of Radiation Health ("BRH") of the Occupational
Safety and Health Administration, which requires that all such products meet    
certain standards. 3D has filed with the BRH applications with respect to its   
laser products, and 3DT may sell the products in the United States. Other       
countries, including Canada, also may subject laser products to regulation. 3D  
intends to make application under applicable laws to market its products in     
Canada.                                                                         

Employees                                                                       

As of December 31, 1996 3D had approximately 10 employees None of 3D's employees
are represented by a labor organization, and 3D believes that its employee      
relations are good.                                                             

AUDIO PRODUCTS MANUFACTURING                                                    

The Audio Products Manufacturing segment reflects the operations of WWR         
Technology, Inc., ("WWR"), which is a wholly owned subsidiary of SESH. WWR was  
incorporated in 1992 for the purpose of acquiring the professional products     
business segment of the KlipschTM loudspeaker line from Klipsch and Associates, 
Inc. ("KA"). WWR acquired the inventory, tooling, equipment and certain licenses
from KA as part of such purchase. The predecessor to KA was founded in the mid  
1940's by Paul W. Klipsch and has established itself as a leader in loudspeaker 
design and innovation. KA's primary market traditionally has been the home high 
fidelity loudspeaker business. Concurrently, it has developed a reputation as a 
manufacturer of rugged, well designed loudspeakers for the professional,        
commercial and theater sound markets. The acquisition of the Klipschtm          
Professional product line gives WWR one of the most long-established and, WWR   
believes, recognizable brand names in the industry. After WWR's acquisition of  
the Klipschtm professional loudspeaker line from KA, KA continued to manufacture
products and provide other related services to WWR pursuant to a manufacturing  
agreement between WWR and KA. In August 1994, WWR entered into a lease for a    
manufacturing facility in Hope, Arkansas and between August and October 1994    
moved all of its manufacturing and related services into the newly leased       
facility. In connection with the completion of this move, the manufacturing     
agreement with KA was terminated.                                               

The nature of WWR's business is to market and sell loudspeakers and related     
products to the professional audio market. The professional audio market is     
defined as any application for loudspeakers other than those used for home and  
automotive entertainment purposes. Generally, this is a definition of the       
difference between "home entertainment" and commercial sound reproduction. As   
part of the future development of commercial sound reproduction, WWR believes   
that the application of digitally controlled and processed signals to control   
and enhance the performance of professional loudspeakers will become a          
significant factor in the marketplace. WWR believes it has access to the        
resources needed, on an as-needed contractual basis with original equipment     
manufacturers, to successfully develop these products although there can be no  
assurance that it will be able to do so.                                        

Markets and Marketing                                                           

Products are sold through a network of domestic and international independent   
manufacturers' representatives who are compensated on a commission basis to     
retailers, distributors, sound contractors installers and occasionally to end   
users. WWR assumed the responsibility for international sales from KA in the    
spring of 1993, and such sales currently constitute a significant portion of    
WWR's total sales. During 1996, 1995 and 1994 international sales constituted   
approximately 20%, 20% and 23% of total sales, respectively. International sales
are made to appointed distributors in individual countries and the distributors 
resell and service the products within their respective countries.              

The Markets for the products include, but are not limited to: contractor        
installation of sound systems, paging systems, musical instrument sound         
re-enforcement, public address, concert sound, fixed installation, touring      
sound, theater and sound re-enforcement. End users of the products include:     
churches, synagogues, stadiums, concert halls, restaurants, schools, musical    
performers, movie theaters and all other applications where information and/or  
entertainment is presented to the public in a commercial venue.                 

The contractor installation market is comprised of customers of WWR. These      
customers bid on installation of audio systems based on specifications provided 
by acoustical consultants in the process of designing or renovating commercial  
properties, restaurants, nightclubs, churches, concert halls, stadiums and other
similar buildings. The requirements for each project vary according to the need 
and purpose of the facility and the sound systems and the types of loudspeakers 
range from small speakers for simple paging systems to very large speakers for  
concert halls, theaters or stadiums. WWR sees this market as having significant 
growth potential for its products and has developed and continues to develop    
products targeted to the various needs of this market.                          

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The musical instrument market include retail sale of products to professional   
and amateur musicians. Loudspeakers in this market have two general purposes:   
(1) the reproduction of amplified or electronic instruments, and (2) the        
re-enforcement of voice and acoustic instruments. A portion of WWR's product    
line is targeted specifically to this product and the product line for this     
market has been expanded by WWR with new loudspeakers introduced in 1994 and    
plans to continue to introduce additional new products in 1995.                 

The motion picture theater market has improved over the past few years as a     
result of the increase in the number of motion pictures including digital film  
sound tracks. Digital based sound reproduction systems were subsequently        
introduced in motion picture theaters and while there has been little new       
construction of movie theaters, the current trend is to upgrade the sound       
reproduction systems in current theaters. WWR is upgrading its motion picture   
product line to meet the needs of this market. The concert and touring sound    
market is comprised of two segments: (1) the tours of the "big" name            
entertainers handled by major international touring sound companies, and (2) the
smaller regional or national sound companies that provide services to lesser    
known performers and events. While there are significant sales in the major     
international touring sound companies market as a whole, the loudspeaker portion
is dominated by the proprietary enclosure (cabinet) designs of the large touring
sound companies using the raw frame components made by original equipment       
manufacturers ("OEMs"), including WWR. WWR has a number of raw frame component  
drivers that have significant potential in this market. Success in this portion 
of the market must be viewed as a marketing tool; by having its products        
selected for use on major tours, WWR has the opportunity to be associated with  
the success of the tour and/or the artist. The smaller regional touring         
companies represent a greater opportunity for WWR as these customers are not as 
likely to be building their own enclosures and, therefore, purchase whole       
speaker systems.                                                                

New Products                                                                    

WWR is engaged in market research to determine the specific needs of the end    
user so as to develop new market oriented products. Two new trapezoidal shaped  
loudspeakers have been introduced for use in various commercial applications.   
Currently under development are the following: a new line of loudspeakers       
designed for the musical instrument market, two new medium format (size) horns  
for use in fixed installations and updating of the motion picture product line  
utilizing newly developed components. A line of loudspeakers designed for the   
musical instrument market were put into production and became available for     
purchase in October 1994 and it is expected that the new construction techniques
and materials for this line of loudspeakers will enable WWR to achieve higher   
gross profit margins.                                                           

Competition                                                                     

The industry is comprised of a large number of competing manufacturers, the     
majority of which are of little overall impact in the market. Generally, the    
smaller firms specialize in selected portions of the market as opposed to       
offering a wide array of products. However, there are two dominant competitors  
in the overall professional loudspeaker industry - Harmon International         
Industries, Inc. (Harmon) which owns a number of product lines including JBL and
Mark IV industries, Inc. which owns Electro Voice (EV), Altec Lansing (Altec)   
and University Sound (University). Other competitors include, but are not       
limited to, Bose Corporation, Peavey Electronics, Inc., Apogee Sound, Inc.,     
Meyer Sound Laboratories, Inc. and Eastern Acoustic Works, Inc. WWR provides    
high quality products for all segments of the market but, due to the relatively 
smaller size of the product line offered by WWR, it is not able to compete with 
JBL and EV on a model by model basis. It is the plan of WWR to continue niche   
marketing, while expanding is product offerings as business conditions allow.   
WWR's general pricing policy and distribution is to offer its high quality      
products at competitive prices and to limit the distribution of KlipschTM       
Professional products to a selected group of retail and contractor customers. By
doing so, WWR is able to position KlipschTM Professional as a "limited          
distribution" product line offering the contractor and retailer the opportunity 
to differentiate themselves in the range of products they offer and to further  
enhance their profit margins by offering products that are not as easily        
"shopped for price".                                                            

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Licenses                                                                        

As part of the purchase of substantially all of the assets of the KlipschTM)    
Professional loudspeaker business from KA, WWR received a non-exclusive         
trademark license for the use of KA's trademark "KlipschTM" in conjunction with 
various professional loudspeaker products ("Licensed Products") provided that   
the trademark is used only in combination with the terms "Professional          
Loudspeakers," "Professional Products," "Pro Loudspeakers," Pro Products" or a  
similar designation pre-approved by KA. WWR also has agreed to indicate that    
"KlipschTM" is a registered trademark of KA. The licenses are world-wide and    
royalty free, and KA has agreed not to grant licenses and/or otherwise permit   
others to use in the professional market the trademarks and certain design      
patents licensed to WWR. However, the licenses are terminable if WWR defaults in
certain of their respective obligations to KA, becomes bankrupt or insolvent or 
reorganizes or ceases to use the "KlipschTM" trademark for 18 or more           
consecutive months. The loss of these licenses would effectively eliminate the  
ability of WWR to continue to sell under the KlipschTM Professional brand,      
however it would not prohibit WWR from seeking other professional loudspeaker   
products to distribute through its distribution network. WWR believes that WWR's
relationship with KA is good, there can be no assurance that there will be no   
future developments which will cause a termination of the licenses.             

Employees                                                                       

As of December 31, 1996 WWR had 42 employees None of WWR's employees are        
represented by a labor organization, and WWR believes that its employee         
relations are good.                                                             

BUSINESS CONSULTING SERVICES                                                    

The business consulting services segment reflects the activity of The Trinity   
Group, Inc., ("Trinity"). Trinity is a Delaware corporation that was organized  
in May 1989. Trinity provides management and related services both to           
Consolidated's subsidiaries as well as nonaffiliated entities. Trinity's        
management services include management, finance, accounting, operations,        
marketing and other services, which are typically rendered pursuant to a        
consulting agreement. In the early stages of the subsidiaries' development,     
Trinity's officers, may serve as senior executive officers of the subsidiaries. 
In addition, Consolidated, either through Trinity or one of the other           
subsidiaries, may provide or arrange financing for the subsidiaries. To the     
extent that the subsidiaries are not generating an operating profit, Trinity may
defer the receipt of payment until the subsidiary has the resources to pay the  
fee. Transactions between Trinity and the subsidiaries are eliminated in        
consolidation.                                                                  

In addition to performing services for its subsidiaries, Trinity provides       
similar management services for other companies which are not affiliated with   
Consolidated. Services for both the subsidiaries and non-affiliated companies   
are performed principally by the president and chief executive officer of       
Consolidated. Other services may be performed by other officers of Trinity or   
Consolidated or by independent consultants who are engaged on an ad hoc basis.  
The fee structure, which is set prior to the engagement, may be paid in cash or 
securities. Trinity does not conduct any advertising or any active marketing    
program. Typically, Trinity is engaged as a result of personal contacts by      
Consolidated's president and chief executive officer.                           

Trinity competes with numerous consulting firms, including major international  
firms, consulting divisions of major accounting firms, consulting divisions of  
equipment manufacturers and numerous independent firms, some of which may have  
ongoing relationships with the potential clients, including relationships       
resulting from a prior employment or other affiliation. Trinity's ability to    
compete successfully in providing consulting services is presently dependent    
upon the personal contacts of Mr. Lewis S. Schiller, and no assurance can be    
given that Trinity can or will be able to perform services for nonaffiliated    
entities. To the extent that Trinity's resources are required for the           
management, operation and funding of Consolidated's subsidiaries, Trinity's     
ability to perform services for nonaffiliated parties is now significantly      
limited.                                                                        

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HOLDING COMPANIES                                                               

The activity of the holding companies reflects the operations of Consolidated   
Technology Group Ltd., the Registrant, and SISC, a wholly owned subsidiary of   
the Registrant.                                                                 

Consolidated Technology Group, Ltd.                                             

Consolidated Technology Group, Ltd., ("Consolidated" or "the Company"),         
(formerly Sequential Information Systems, Inc.) is a New York corporation       
organized on August 2, 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 December 31, 1996,          
Consolidated had four employees, including the chief executive officer, that    
provide management and administrative services for Consolidated, SIS Capital    
Corp. and The Trinity Group.                                                    

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 1996, 1995 and 1994, SISC advanced funds to a related company that is    
accounted for under the equity method and is not a consolidated subsidiary.     

Item 2.  Property                                                               

Contract Engineering Services                                                   

TGS leases an aggregate of approximately 12,800 square feet of office facilities
at two locations in Long Island, New York, where it maintains its executive     
offices. 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 TGS is approximately  
$160,000, which is subject to annual increases. TGS 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 Diagnostics                                                             

IMI's executive and administrative facilities are located in approximately 8,000
square feet of space at 2424 North Federal Highway, Boca Raton, Florida, which  
are leased from a nonaffiliated landlord for a term expiring in February 2000,  
at an annual rental of approximately $200,000. The Pine Island, Boca Raton, San 
Juan and Kansas City Centers are located in facilities owned by IMI. The        
remaining Centers occupy premises which are leased by IMI from nonaffiliated    
landlords at an annual aggregate rental of approximately $750,000, inclusive of 
the rent for IMI's executive and administrative facilities. The leases provide  
for annual escalation's and expire during the period from 1997 to 2000. IMI     
believes that its present facilities are adequate. To the extent that IMI moves 
its MRI or other imaging equipment, IMI may incur significant expenses in both  
moving the equipment and adapting the facility for MRI use.                     

Electro-Mechanical and Electro-Optical Products Manufacturing                   

SES leases on a month to month basis approximately 15,000 square feet of office 
and manufacturing space in Elmsford, New York at an annual rental of            
approximately $141,000 S-Tech leases approximately 6,500 square feet of         
manufacturing and office space in West Babylon, New York at an annual rental of 
approximately $28,000 under a lease expiring in 1997. Televend leases 500 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 $7,500 which represents the cost 
of such space to SISC. The companies operating in the electro-mechanical and    
electro-optical products manufacturing segment believe that their space is      
adequate for their immediate needs and that, if additional space is required, it
would be readily available at commercially reasonable rates.                    

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Medical Information Services                                                    

Netsmart's executive offices and facilities are located in approximately 18,000 
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 $248,000.  
This lease provides for fixed annual increases ranging from 4% to 5%. Netsmart  
believes that such space is adequate for its immediate needs. 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 1,500 square 
feet of office space in Wethersfield, Connecticut, at a monthly rental of       
$2,000. 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.                                                             

Three Dimensional Products and Services                                         

The companies operating in the three dimensional products and services segment  
lease approximately, 3,000 square feet of office space in Trumbull, Connecticut 
for an annual rental of approximately $44,000 and approximately,2,800 square    
feet of office space in Hartford, Connecticut for an annual rental of           
approximately $35,000.                                                          

Audio Products Manufacturing                                                    

WWR Technology occupies approximately 70,000 square feet of usable              
manufacturing, office and storage space located in Hope, Arkansas at an annual  
rental of approximately $76,000.                                                

Business Consulting and Holding Companies                                       

Consolidated, SISC and Trinity lease approximately 7,000 square feet of office  
space at 160 Broadway, New York, NY, at an annual rental of approximately       
$100,000. 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.                                                     

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Item 3.  Legal Proceedings                                                      

Holding Company                                                                 

Consolidated has been named as a defendant in a lawsuit filed by a company it   
was contemplating acquiring in January 1995 for alleged unauthorized use of     
proprietary information specific to that line of business. Outside counsel      
handling this case has advised the Consolidated that it has meritorious defenses
to obtain a dismissal of the lawsuit.                                           

Contract Engineering Services                                                   

The DOL has filed a complaint against Job Shop and its principal stockholder for
civil violations of ERISA resulting from the failure of Job Shop to deposit     
employee contributions to Job Shop's 401(k) retirement plan. A similar complaint
was filed by former employees of Job Shop against Job Shop, its principal       
stockholder and others. At November 22, 1994, the amount due to the Job Shop    
401(k) plan was approximately $3.0 million, which amount may have increased     
since such date as a result of interest and penalties. Neither TGS nor RMI, the 
subsidiary which acquired assets and assumed certain obligations of Job Shop in 
November 1994, has been named as a defendant in either of such actions. The DOL 
has raised with TGS the possibility that RMI may by liable with respect to Job  
Shop's ERISA liability as a successor corporation or purchaser of plan assets,  
even though RMI did not assume such obligations and paid value for the Job Shop 
assets which it did purchase. Although TGS believes that RMI is not a successor 
corporation to Job Shop and is not responsible for Job Shop's ERISA violations, 
the DOL may take a contrary position. If the DOL takes such a position and      
prevails, it would have a material adverse effect upon the operations of RMI and
possibly TGS as a whole. Although TGS is engaged in discussions with the DOL, no
assurance can be given that such discussions will result in any settlement      
acceptable to TGS. During 1996, TGS established a $300,000 reserve with respect 
to the DOL's claim, however, no assurance can be given that such reserve will be
adequate.                                                                       

In May 1991, prior to the acquisition of Avionics by TGS, the Government        
Printing Office wrote TGS asking for reimbursement of approximately $300,000 for
allegedly unauthorized work on two programs. TGS believes that these claims are 
without merit and intends to contest these claims vigorously if reasserted. TGS 
believes that the ultimate disposition of this matter will not have a material  
adverse affect on TGS's consolidated financial position.                        

Medical Diagnostics                                                             

In May 1996, IMI commenced an arbitration proceeding before the American        
Arbitration Association in Los Angeles, California against Radman, Inc.         
("Radman"), a manufacturer of teleradiology systems and equipment, entitled     
International Magnetic Imaging, Inc. v. Radman, Inc., alleging fraud and breach 
of contract and seeking rescission of a purchase agreement between IMI and      
Radman for a teleradiology system as well as an award of money damages in an    
amount not less than $485,000, together with interest, attorneys' fees and      
costs. Radman has asserted certain counterclaims against IMI in such proceeding 
seeking an award of money damages in the sum of at least $236,000, together with
interest, 'exemplary and punitive damages, reasonable attorneys' fees and other 
costs of the action. This matter is presently pending. IMI believes that it has 
meritorious defenses to Radman's counterclaims.                                 

In December 1994, IMI placed a purchase order with Advanced NMR Systems, Inc.   
("ANMR"), for Instascan MRI equipment upgrade systems for an aggregate of $1.5  
million. Three of the systems have been installed at the Centers and the        
remaining two have not yet been installed at IMI's facilities. By letter dated  
February 25, 1996, IMI notified ANMR that it was terminating and rescinding the 
purchase agreements for such equipment as well as certain other related         
agreements between the parties and seeking the return of the approximate        
$723,000 previously paid to ANMR as well as money damages as a result of certain
material deficiencies in such equipment. By letter dated March 22, 1996, ANMR's 
counsel denied such claimed deficiencies, disputed IMI's right to terminate such
agreements and claimed that IMI is in breach thereof for, among other things,   
failing to pay the approximate $752,000 balance of the purchase price for such  
equipment. ANMR also threatened to commence an action against IMI to assert its 
rights under such agreements. In October 1996, IMI commenced a state court      
action against ANMR in Florida.                                                 

In January 1996, Drs. Ashley Kaye and James Sternberg, two of the former        
stockholder-directors of IMI-Florida, and Dr. Sternberg's wife, threatened to   
commence an action against two subsidiaries of IMI, Consolidated and Mr. Lewis  
S. Schiller, chairman of the board of Consolidated and IMI, for alleged         
violations of securities and common law in connection with the execution in 1994
of an asset purchase agreement between MD Corp. and a subsidiary of IMI and     
non-payment of the $3,375,000 Subordinated Notes of two subsidiaries of the     
Company issued to MD Corp. in connection therewith. Although IMI reflects the   
principal and interest on such Subordinated Notes as liabilities on its         
consolidated balance sheet and no notice of default has been given, no assurance
can be given that an adverse decision in any action based on such claims will   
not have a material adverse effect upon IMI.                                    

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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 and the Company to IMI-Florida and assistance in the negotiation of
the acquisition of the Centers, has asserted a claim against the Company and/or 
SISC that it has the right, among other things, to a 10% interest in the Common 
Stock of the Company, on a fully-diluted basis, prior to this Offering and prior
to the issuance of certain warrants to DVI, 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. If Vanguard commences an action against the      
Company and prevails, it would have a material adverse effect upon the Company, 
and, furthermore, if it prevails with respect to its claim for Common Stock, the
issuance of such Common Stock could result in a non-cash charge to earnings for 
the value of such Common Stock, dilution to the stockholders, including the     
stockholders who purchased stock in this Offering, and a reduction in the net   
tangible book value per share. In addition, the Company may not be able to use  
Consolidated's net loss or tax loss carryforward to reduce its tax liability if 
a sufficient number of shares of Common Stock were issued to Vanguard.          

Electro-Mechanical and Electro-Optical Products Manufacturing                   

Lafayette Industries, Inc., a subsidiary acquired during 1996 via a reverse     
merger, whose business prior to the reverse merger was the manufacturer and sale
of store fixtures, was discontinued in 1996. The manufacturing facilities for   
these operations were located in Mexico and were seized by the landlord.        
Although Lafayette is contesting the seizure, no assurances can be given that   
Lafayette will be able to realize any future benefit from these assets and has  
placed a reserve on the full amount of such assets. Lafayette and its           
subsidiaries, including SES Holdings and its subsidiaries, are contingently     
liable individually and jointly with others as guarantors of long-term debt and 
obligations principally relating to various debt agreements, leased equipment   
and facilities. In connection with those transactions, Lafayette has been       
notified that it is party to various litigation with individual claims ranging  
to approximately $1,600,000.  Although management has made what it feels is its 
best estimate of the liability, the nature of the liability is subject to       
substantial uncertainty.  The amount of potential additional liability above    
that accrued can not be reasonably estimated.  Due to the uncertainty of the    
pending litigation, substantial doubt about Lafayette's ability to continue as a
going concern, and certain scope limitations, Lafayette and its subsidiaries    
received a disclaimer of opinion from its independent auditors who are the same 
as Consolidated's independent auditors. Lafayette and its subsidiaries          
represents 5.2% of Consolidated's consolidated revenue and 6.8% of              
Consolidated's consolidated assets.                                             

Medical Informations Services                                                   

On or about September 29, 1995, an action was commenced against Netsmart by the 
filing of a summons with notice in the Supreme Court of the State of New York,  
County of New York. The action was commenced by Jacque W. Pate, Jr., Melvin     
Pierce, Herbert A. Meisler, John Gavin, Elaine Zanfini, individually and        
derivatively as shareholders of Onecard Health Systems Corporation and Onecard  
Corporation, which corporations are collectively referred to as "Onecard". The  
named defendants include, in addition to the subsidiary, officers and directors 
of the subsidiary and the Company. A complaint was filed on November 15, 1995.  
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 the subsidiary in September 1992. The complaint seeks       
injunctive relief and damages, including punitive damages of $130,000,000.      
Management believes that the action is without merit, and it will vigorously    
defend the action. Nevertheless, due to uncertainties in the legal process, it  
is at least reasonably possible that management's view of the outcome will      
change in the near term and there exists the possibility that there could be a  
material adverse impact on the operations of Netsmart.                          

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

No matters were submitted to security holders for a vote during the year ended  
December 31, 1996.                                                              

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PART II                                                                         

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters  

Consolidated's common stock is traded on the Nasdaq SmallCap Market under the   
symbol COTG. Set forth below is the reported high and low bid prices of the     
common stock for the quarters listed.                                           

Quarter Ending                                    High Bid          Low Bid     

March 31, 1995                                     $1.28             $0.63      
June 30, 1995                                      $1.19             $0.88      
September 30, 1995                                 $0.94             $.050      
December 31, 1995                                  $0.63             $0.25      

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      

As of December 31, 1996, there were approximately 19,175 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, 1996, 1995 and 1994.                                   

Item 6.  Selected Financial Data                                                

                                                        [Enlarge/Download Table]

                                                Year Ended December 31,                   Year Ended July 31,
                                                -----------------------                   -------------------
                                      1996          1995              1994          1994             1993    
                                      ----          ----              ----          ----             ----    
                                                                                                             
Selected Statements of                                                                                       
Operations Data                                                                                              
Revenues                         $114,924,000   $110,097,000     $41,578,000    $15,742,000        $3,839,000
                                 ============   ============      ===========   ===========        ==========
Loss from Operations             ($ 9,338,000)  ($11,112,000)   ($10,464,000)  ($10,566,000)      ($1,403,000
                                   ==========     ==========      ==========    ==========          =========
Income (Loss) before                                                                                         
  Extraordinary Item             ($ 9,570,000)  ($11,360,000)   ($11,428,000)  ($10,772,000)         $594,000
Extraordinary Item - Net of Tax            --             --              --             --           146,000
                                  -----------     ----------      ----------     ----------           -------
Net Income (Loss)                ($ 9,570,000)  ($11,360,000)   ($11,428,000)  ($10,772,000)         $740,000
                                  ===========     ==========      ==========     ==========           =======
Net Income (Loss) per Common                                                                                 
Share                                  ($0.23)        ($0.51)         ($0.80)        ($1.35)            $0.18
                                         ====           ====            ====           ====              ====

Selected Balance Sheet Data                                                                                  
Total Assets                      $71,814,000    $66,312,000     $68,089,000     $7,381,000        $4,775,000
                                   ==========     ==========      ==========      =========         =========
Long-term Obligations:                                                                                       
 Debt and Capital Lease           $19,448,000     $8,408,000     $11,183,000             --                --
Obligations                                                                                                  
 Convertible Debentures               700,000             --              --             --                --
 Deferred Interest                    568,000             --              --             --                --
 Subordinated Debt                    312,000      5,003,000      17,926,000             --                --
                                  -----------    -----------      ----------                                 
   Total Long-term Obligations    $21,028,000    $13,411,000     $29,109,000                                 
                                   ==========     ==========      ==========                                 

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

The following factors make the above selected financial data non comparable for 
the following indicated periods and reasons:                                    

(1) The fiscal year ended July 31, 1993 includes other income of $1,523,000 from
the reacquisition of a subsidiary.                                              

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(2) The fiscal year ended July 31, 1994 includes expense of $7,140,000 from the 
issuance of stock options to consultants.                                       

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

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

(5) 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.                                                        

(6) In September 1994 the Company acquired International Magnetic Imaging, Inc. 
and in November 1994, the Company acquired Job Shop Technical Services and      
Computer Engineering Services. Such acquisitions resulted in: (i) an increase in
assets of approximately $47,200,000 as of December 31, 1994; (ii) an increase in
revenues of approximately $11,500,000 for the year ended December 31, 1994; and 
(iii) a net decrease in net loss of approximately $270,000 for the year ended   
December 31, 1994.                                                              

(7) 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.                                                        

(8) In December 1996, the Company acquired Lafayette Industries, Inc. resulting 
in an increase of assets of approximately $2,100,000, an increase in long-term  
obligations of approximately $700,000.                                          

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

Financial Condition - Liquidity and Capital Resources                           

At December 31, 1995, it was determined that the ability of the Company to      
continue as a going concern was dependent upon the success of the Company's     
subsidiary's marketing efforts and their efforts to obtain sufficient debt and  
equity to enable them to continue operations. As of the second quarter of 1996, 
the Company had a significant reduction in losses for five of the segments      
compared to the second quarter ended June 30, 1995 and also had a significant   
reduction in corporate and other expenses. However, during the third and fourth 
quarters, losses increased in such that only two of the segments ended up with  
significant yearly reduced losses. During the third and fourth quarters, the    
Contract Engineering Services and Medical Information Services segments incurred
significant single item expenses that are not expected to be of a recurring     
nature, including $300,000 for a contingency settlement and $3,493,000 of       
noncash expense related to stock issuance's. Furthermore, the Medical           
Diagnostics segment reported a fourth quarter loss which is the first quarterly 
loss of this particular segment since it was acquired. As a result of the above,
the ability of the Company to continue as a going concern as of December 31,    
1996 will depend primarily on the ability of the Company to efficiently utilize 
the funding it received for certain subsidiaries during 1996. Such funding      
consisted of the following via various sources as follows:                      

Debt Refinancing                                                                

In January and September 1996, the Company refinanced a significant portion of  
the current subordinated debt that was to be paid by the Medical Diagnostics    
segment in 1996. Such financing consisted of term loans of $6,000,000, an       
accounts receivable revolving loan of $6,000,00. As a result of the financing,  
approximately $12,400,000 of debt that was currently due was replaced by        
long-term debt.                                                                 

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Equity Offerings                                                                

During August 1996, NetSmart, a subsidiary of the Company operating in the      
Medical Information Services segment, completed an initial public offering      
issuing common shares representing approximately 22% of the outstanding shares  
and received net proceeds of approximately $3,800,000 and additionally, received
approximately $1,600,000 upon the exercise of 800,000 stock purchase warrants.  

In July 1996 a subsidiary operating in the contract engineering services segment
(which is already publicly held), raised $2,000,000 from the sale of common     
stock via a Regulation S offering. This subsidiary has filed a S-1 registration 
with respect to the sale of additional equity shares, however, no assurances can
be given that such offering will be completed.                                  

A subsidiary of the Company, operating in the Medical Diagnostics segment, filed
an S-1 Registration statement with the Securities and Exchange Commission with  
respect to an initial public offering. No assurances can given that the public  
offering will be completed.                                                     

Working Capital Condition                                                       

As of December 31, 1995, the Company had a working capital deficit of           
$13,359,000. As of December 31, 1996, the Company has negative working capital  
of $6,729,000 representing a decrease in the working capital deficit of         
$6,630,000. Due in large part to the aforementioned debt refinancing in the     
medical diagnostics segment. The Company's continued ability to reduce the      
working capital deficit relies primarily on the success of continuing efforts to
increase the profitability of the underlying subsidiaries. As further explained 
in the following "Sources of Cash" discussion, restrictions exist with regards  
to the Company's use of the Medical Diagnostics segment's cash.                 

Sources of Cash                                                                 

The Company's principal working capital consists of cash and cash equivalents.  
Cash and cash equivalents were $3,866,000 at December 31, 1996 compared to      
$1,636,000 at December 31, 1995. During 1996, International Magnetic Imaging,   
("IMI") generated approximately $6,887,000 in cash from operations while the    
remaining segments used approximately $7,009,000 of cash for operations.        
Pursuant to an IMI financing agreement with a creditor, restrictions exist on   
the distributions of IMI funds whereby IMI may not make payments out of the     
ordinary course of IMI operations and specifically, not to the parent company,  
(Consolidated), or any subsidiary or affiliate. The other segments are thereby  
required to operate on their own cash flows and as of December 31, 1996 the most
significant impact from these restrictions is on the Three Dimensional Products 
and Services segment and the Electro-Mechanical Electro-Optical Products        
Manufacturing segments which are currently unable to operate without cash       
infusions from the parent company, (Consolidated). It is imperative that these  
segments 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. The remaining segments are less affected
by the restrictions on IMI's cash since they operated substantially with their  
own cash flows during 1996. Sources of cash other than from operations includes 
proceeds from the issuance of long-term debt of $19,468,000, proceeds from the  
issuance of stock and the exercise of options and warrants of $10,047,000,      
collections on repayments of notes receivable of $3,449,000, cash of an acquired
company of $1,020,000, and proceeds from the sale of marketable securities of   
$1,244,000.                                                                     

Uses of Cash                                                                    

Uses of cash includes the repayment of long-term and subordinated debt of       
$19,954,000, capital expenditures of $4,920,000, payments on capital leases of  
$1,565,000, payments for loans made of $3,523,000, purchases of investments of  
$385,000 and expenditures of $279,000 for software development, $589,000 for    
deferred offering costs, and $1,369,000 for costs of issuing stock in the       
medical information services segment.. Other net uses of cash amounted to       
$292,000.                                                                       

Changes in Other Working Capital Assets and Liabilities                         

Significant changes in working capital, other than cash, includes an increase in
accounts receivable of $1,918,000 (primarily from an increase in volume         
primarily from the Contract Engineering Services segment) and an increase in    
accounts payable and accrued expenses and accrued payroll and related expenses  
of approximately $1,692,000 (primarily from an increase in payroll and payroll  
related obligations of the contract engineering services segment and a $400,000 
contingency reserve that was recorded by the same segment).                     

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Effect of Loan Defaults                                                         

The Company is in technical default on loans approximating $7,227,000 as of     
December 31, 1996 of which $6,300,000 relates to the Medical Diagnostics        
segment, $325,000 relates to the Audio Products Manufacturing segment, $467,000 
relates to the Electro-Mechanical Electro-Optical Products Manufacturing segment
and $135,000 relates to the Three Dimensional Products and Services segment.    
Such default has not had, and is not expected to have a significant impact on   
the operations of the related segment. The creditors have not called such loans 
and all amounts are classified as current liabilities in the Company's December 
31, 1996 balance sheet.                                                         

Results of Operations                                                           

Consolidated  operating  losses for 1996 were  $1,774,000  less than in 1995 and
were  $1,126,000  less than in 1994.  The operating loss for 1996 includes      
certain noncash expenses as follows:                                            
                                                                Year Ended
                                                                December 31,
                                                                1996
                                                                ----
Medical Information Services segment - stock                                    
options and stock purchase warrants                             $3,722,000  
Medical Information Services segment - issuance                                 
of stock in lieu of cash for services rendered                   1,747,000  
Contract Engineering Services segment- issuance                                 
of stock in lieu of cash for services rendered                      80,000  
Corporate and Other - consulting expense                                        
from exercise of stock options                                      45,000  
                                                                  ------
Total noncash Expenses                                            $5,594,000    
                                                               =========

For the year ended December 31, 1996, excluding the above noncash expenses, an  
improvement in operating results was achieved by an increase in overall gross   
margins of $1,241,000 while operating expenses, other than the $5,594,000 of    
nonrecurring expenses shown above, decreased by $6,127,000. Additionally, during
the same time period, revenues increased $4,827,000. On an overall basis, the   
consolidated net loss when comparing 1996 to 1995 decreased by $1,790,000 or 16%

The percentage of relative contribution to revenues, gross profit, and selling  
general and administrative expenses by industry segment is shown in the         
following tables. Changes within the individual industry segments themselves is 
discussed further within the respective industry segment discussions.           

                                                        [Enlarge/Download Table]

                                                                        Percentage of Total        
                                                                      Year Ended December 31,      
                                                                1996           1995            1994
                                                                ----           ----            ----
                                                                                                   
Revenues                                                                                           
Contract Engineering Services                                   54%             57%            60% 
Medical Diagnostics                                             27%             25%            16% 
Audio Manufacturing and Services                                 3%             2%              -- 
Electro-Mechanical and Electro- Optical Products Manufacturing   3%             4%              9% 
Medical Information Services                                     7%             7%              7% 
Telecommunications                                               5%             3%              6% 
Three Dimensional Products and Services                          1%             2%              2% 
Business Consulting Services                                     *               *              *  

Gross Profit (Loss)                                                                                
Contract Engineering Services                                   23%             20%            26% 
Medical Diagnostics                                             65%             59%            44% 
Audio Manufacturing and Services                                 2%             1%              -- 
Electro-Mechanical and Electro- Optical Products Manufacturing  (1%)            5%              3% 
Medical Information Services                                     6%             9%              9% 
Telecommunications                                               2%             3%             10% 
Three Dimensional Products and Services                          3%             3%              5% 
Business Consulting Services                                     *               *              3% 

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                                                        [Enlarge/Download Table]

                                                                        Percentage of Total        
                                                                      Year Ended December 31,      
                                                                1996           1995            1994
                                                                ----           ----            ----
                                                                                                   
Selling, General and Administrative Expense                                                        
Contract Engineering Services                                   15%             24%            11% 
Medical Diagnostics                                             32%             21%            10% 
Audio Manufacturing and Services                                 4%             2%              -- 
Electro-Mechanical and Electro- Optical Products Manufacturing   5%             6%              9% 
Medical Information Services                                    23%             13%            13% 
Telecommunications                                               5%             4%              5% 
Three Dimensional Products and Services                          7%             10%            11% 
Business Consulting Services                                     *               *              4% 
Corporate and Other                                              9%             20%            37% 

* - Less than one percent.                                    

Discussion of Operations by Segment                                             

Contract Engineering Services                                                   

The contract engineering services segment reflects the operations of Trans      
Global Services, Inc. ("TGS") and its two subsidiaries, Avionics Research       
Holdings, Inc. ("Avionics") and Resource Management International, Inc. ("RMI") 
from January 1995 through December 31, 1996. During 1995, Avionics and RMI were 
merged with TGS via a reverse acquisition and references to operations prior to 
January 1995, relate to the operations of Avionics and RMI as subsidiaries of   
SISC.                                                                           

Revenue from technical temporary staffing services is based on the hourly cost  
of payroll plus a percentage. The success of TGS's business is 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, primarily 
interest. Under its agreements with its clients, TGS is required to pay its     
employees and pay all applicable Federal and state withholding and payroll taxes
prior to receipt of payment from the clients. Furthermore, TGS'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,    
TGS'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 TGS         
satisfies its payroll tax obligations, it will have a lower gross margin than   
after such obligations are satisfied. Furthermore, to the extent that TGS       
experiences turnover in employees, its gross margin will be adversely affected. 
For example, in 1996, Social Security taxes are payable on the first $62,700 of 
compensation. Once that level of compensation is paid with respect to any       
employee, there is no further requirement for TGS to pay Social Security tax for
such employee. Since most of TGS's employees receive compensation in excess of  
that amount, TGS's costs 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 1996, TGS had revenues of $62.6 million, reflecting a 1% decrease from the  
revenue of $63.2 million during 1995. This decrease is attributed to the loss of
a contract on January 1, 1996, from one of TGS's larger customers in the        
aerospace industry. By December 31, 1996, TGS had increased its revenue base so 
that, at such date, the annual rate of revenue was greater than it was prior to 
the loss of the customer. During 1996, approximately 61% of TGS's revenue was   
derived from its three largest clients and 75% of such revenue was derived from 
its five largest clients. TGS's gross margin for 1996 was 8.2%, as compared to  
6.3% for 1995. The increase reflects a higher gross margin on the new contracts 
entered into by the Company as compared with the lower gross margin on the      
contract that was lost. For 1995, the Company had revenues of $63.2 million,    
reflecting a 150% increase in revenue from the revenue of $25.3 million during  
1994. During 1994, operations consisted of Avionics for the entire year and RMI 
from November 22, 1994, the date of acquisition. The increase in revenue in 1995
reflected the inclusion of the operations of RMI for the entire year, as well as
an increase in revenue from Avionics' clients resulting from its increased      
marketing effort. The increase in costs of sales from $23.7 million for 1994 to 
$59.2 million for 1995 also reflects the inclusion of the operations of RMI. The
gross margin was 6.3% for both 1995 and 1994.                                   

Selling, general and administrative expenses decreased by $2 million, or 31%,   
from 1995 to 1996 and increased by $5.4 million, or 538%, from 1994 to 1995. The
significant fluctuation in operating expenses reflects a number of factors,     
including the following:                                                        

     Consulting Fees - During 1995, TGS incurred $2.3 million of noncash
        expense from the issuance of securities for consulting services and no
such expenses were incurred in either 1996 or 1994.           

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 Payroll Tax Penalties - During 1996 and 1995 penalties for late
   withholding taxes were $635,000 and $1 million, respectively, and
   during 1994, TGS received a credit of $159,000 resulting from the
refund of a previously paid withholding tax penalty.          

       Acquisition Costs - During 1995, TGS incurred $529,000 of acquisition
     expenses relating the issuance of securities in connection with the
    reverse acquisition. The acquisition expenses reflect the value of
    Common Stock issued as a finder fee and issued in consideration of
   agreements by certain of TGS's stockholders to enter into lock-up
   agreements. No comparable expenses were incurred in 1996 or 1994.

      Operations of RMI - RMI was not acquired until November 1994, and as
     such, selling, general and administrative expenses for 1994 did not
         include a full year of such amounts which approximated $2.0 million for
1995.                                                         

Contingency Reserve - During 1996, the Company established a  
       contingency reserve of $300,000 in connection with a claim by the DOL
arising from the acquisition of RMI.                          

Interest expense was approximately $712,000, $963,000 and $696,000 for 1996,    
1995 and 1994, respectively. TGS finances its payroll obligations by borrowing  
from a non-affiliated asset-based lender at an interest rate of prime plus 2%.  
TGS 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, TGS 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 January 1997 amendment to TGS's agreement with its asset-based    
lender, on April 1, 1997 or earlier at the request of TGS, the borrowing        
availability will be reduced to $3.0 million and TGS will pay a fixed monthly   
fee of $10,500 to the asset-based lender. The fee will be subject to increases  
to the extent that receivables in any month exceed $10.0 million. The interest  
rate of 2% in excess of prime will not be affected by the amendment. The        
borrowings are secured by a security interest in all of the Company's assets. At
December 31, 1996, such borrowings from the asset-based lender were             
approximately $3.7 million. The ability of TGS to operate profitably is         
dependent in part upon its ability to reduce its financing costs. The interest  
rates (exclusive of the fee) payable by TGS at December 31, 1996 and 1995 was   
10.25%.                                                                         

As a result of the foregoing, TGS sustained a net loss of $681,000, for 1996, as
compared with a loss of $4.7 million, for 1995 and a loss of $434,000 for 1994. 
TGS believes that, with the reduced level of selling, general and administrative
expenses and improved gross margin, which are reflected in the results of its   
operations for 1996, it can improve its operations by reducing its interest     
expense through its amended agreement with its asset-based lender combined with 
a lower level of borrowing and eliminating future late withholding tax          
penalties, which affected TGS's operations since its organization. TGS may also 
seek to reduce its financing costs further by seeking to enter into agreements  
with other financing sources which would offer lower financing costs. However,  
no assurance can be given that TGS can or will operate profitably in the future.

Medical Diagnostics                                                             

This segment consists of the operations of International magnetic Imaging, Inc.,
("IMI"), a medical diagnostic imaging company, which primarily performs MRI and 
other diagnostic imaging modalities, that was purchased in September 1994. In   
the following analysis of the medical diagnostics segment, the years ended      
December 31, 1996 and 1995, reflect the operations of the Company. The year     
ended December 31, 1994 includes operations of the centers that were acquired   
from the predecessor companies for the nine months ended September 30, 1994 and 
operations of the Company for the three months ended December 31, 1994.         

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Net patient service revenue for performing MRI and other diagnostic modality    
procedures increased $3.16 million, or 11%, from 1995 to 1996 and $21.5 million,
or 328% from 1994 to 1995. As noted in Table I below, the mix of procedures by  
class of payer remained relatively level for all years. Additionally, the       
reimbursement rates remained relatively level from 1995 to 1996 and decreased   
modestly from 1994 to 1995. Accordingly, the increase in revenues is a result of
increases in overall procedure volume which increased 32% from 1995 to 1996 and 
9% from 1994 to 1995. A significant portion of the increase in volume for 1996  
relates to multi-modality procedures which have a lower reimbursement rate than 
MRI procedures, and as such, the net patient service revenues increased at a    
lower percentage than the increase in volume. For 1995, the increase in volume  
was partially offset by a decrease in reimbursement rates. The revenues earned  
by IMI in the fourth quarter of 1996 were approximately $600,000 less than the  
average revenues for the first three quarters of 1996. During the fourth quarter
of 1996, two Florida Centers significantly reduced the procedures performed for 
scan brokers and such decreases in volume are intended to be recaptured by      
marketing other payer revenue sources, although such recapture has not yet been 
realized. Additionally, during the fourth quarter of 1996, the Puerto Rican     
Center experienced a decrease in workers compensation procedures because IMI's  
equipment required an upgrade to become competitive in that market. During the  
first quarter of 1997, such upgrade has been made. Contractual adjustments,     
which represent the difference between IMI's standard billing rate and the      
amount contracted with the payer source, was 49%, 45% and 34%, respectively of  
gross patient service revenue for 1996, 1995 and 1994. Contractual adjustments  
increased significantly from 1994 through 1996 due to a general decrease in     
reimbursement rates from all payer classes and the increase in IMI's brokered   
scan business which had a substantially lower reimbursement rate than any of    
IMI's other revenue sources. The participation of IMI with third party insurers 
requires that IMI accept specified reimbursement rates which are not currently  
based on capitated contracts.                                                   

Table I - Mix of Procedures by Payer Class
                                         Percentage of Procedure Mix
Class of Payer                               1996          1995         1994    
--------------                               ----          ----         ----    
MRI Procedures (representing 89%, 91%                                           
and 92%, respectively of net patient                                            
service revenue for 1996, 1995 and 1994):                                       
Managed Care                                 37%           38%          41%     
Commercial                                   17%           17%          20%     
Medicare                                     13%           9%           14%     
Worker's Compensation                        11%           14%          16%     
Brokered                                     10%           9%           --      
Contract Worker's Compensation               6%            6%           --      
Liability                                    4%            4%           5%      
Other                                        2%            3%           4%      

Multi-modality procedures, other than                                           
MRI(1) (representing 11%, 9% and 8%,                                            
respectively of net patient service                                             
revenue for 1996, 1995 and 1994):                                               
Managed Care                                 84%           85%          85%     
Medicare                                     8%            6%           6%      
Commercial                                   6%            6%           6%      
Other                                        2%            3%           3%      
-------                                                                         
(1) Includes CAT scans, nuclear medicine, mammography, fluoroscopy and X-Rays.  

Other service revenues and management fee income represented only 3.5%, 2.4% and
0.3% of total revenues, respectively, for 1996, 1995 and 1994. Other service    
revenues and management fee income increased $433,000 from 1995 to 1996 due     
primarily to the operations of MRI Net and for 1994 to 1995, no significant     
fluctuation occurred.                                                           

IMI's operating expenses for 1996 increased by $4 million, or 18%, from $22.6   
million for 1995 to $26.7 million for 1996. The operating expenses for 1995     
increased by $371,000, or 2%, from $22.3 million for 1994 to $22.6 million for  
1995. The overall increase in operating expenses reflected a number of factors  
discussed below.                                                                

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Radiology fees increased $336,000 or 11% when comparing 1996 to 1995 and $2     
million or 194% when comparing 1995 to 1994. For 1996 and 1995, radiology fees  
were incurred based on cash collections related to services performed. Cash     
collections for services were $27.4 million and $25.4 million, respectively, for
1996 and 1995, representing an overall increase of approximately 8%. From       
January through November of 1994 a significant portion of the radiologists were 
employees of IMI and accordingly, compensation to radiologists of approximately 
$1.2 million is included in salaries and benefits for 1994. The remaining       
increase of $700,000, when comparing 1995 and 1994 is due to the fact that the  
radiology agreements entered into with radiologists and independent radiology   
companies required larger fees based on the achievement of certain bonus levels 
and such fees for 1995 were higher than the amounts paid to radiologists when   
they were employees of IMI in 1994. IMI entered into four radiology agreements  
which expire approximately four years from December 31, 1996 and which require  
that radiologists interpret and report the results of the MRI and multi-modality
procedures and which require IMI to pay the radiology company's fees based on   
the terms of the agreements. The following summarizes the four agreements and   
generally describes their terms.                                                

1)     The Florida Centers - The radiology agreement requires payment by IMI to 
the radiology company, of fees that range from 10%-20% of collections. Each of  
the Florida Centers has a separate fee schedule as a part of the agreement. The 
agreements require increased payment based on Center specific bonus criteria. At
the beginning of each year new bonus criteria are negotiated pursuant to the    
terms of the agreement. For the Florida Centers, over the past two years, the   
radiology fees have averaged 11% to 12% of cash collections for MRI procedures  
and 16% to 17% of cash collections for multi-modality procedures.               

2)     San Juan Center - The facilities use agreement requires payment by IMI,  
to the radiology company, of fees that are 10% of cash collections, plus 3% of  
the annual cash collections between $2 million and $3 million, plus 5% of annual
cash collections in excess $3 million. The terms of this agreement are          
negotiated at the end of each year and may be terminated upon 90 days notice by 
either party if such negotiations are not successful.                           

3)     Virginia Center - The radiology agreement, which is effective until March
31, 2000, requires payment by IMI, to the radiology company, of a fixed fee of  
$275,000 per year plus an incentive of 15% of collections in excess of $2.4     
million.                                                                        

4)     Kansas City Center - The radiology  agreement requires payment by IMI, to
the radiology company, of based on the following schedule:                      

Procedures                          Fee per 
Interpreted                        Procedure
-----------                        ---------
1-275                                  $ 75 
276-350                                $100 
351 and Greater                        $150 

Equipment maintenance costs relate primarily to fixed contract payment schedules
and generally do not fluctuate from period to period unless repairs and         
maintenance are required that are not covered by the equipment contracts or new 
equipment is placed into service or removed from service. Substantially all     
maintenance costs incurred for 1996, 1995 and 1994 were incurred pursuant to    
fixed maintenance contracts, and as a result such costs did not fluctuate       
significantly, increasing $39,000 from 1995 to 1996 and decreasing $57,000 from 
1994 to 1995.                                                                   

Patient service costs and expenses consist primarily of film, contrast agents   
and utility costs used in the MRI and multi-modality procedures. Such costs     
increased $289,000, or 15%, from 1995 to 1996. Approximately $104,000 of this   
increase related to an increase in medical supplies used by a multi-modality    
Center that performs CAT scans, nuclear medicine, mammography, fluoroscopy and  
X-ray's which had a significant increase in volume. The remaining increase is   
due to the additional procedure volume which inherently requires more patient   
service costs which was partially offset by negotiated decreases in overall per 
unit film and contrast agent costs. Such costs increased only $12,000, or 1%,   
from 1994 to 1995 which reflects increases in procedure volume that were offset 
by modest decreases in film and contrast agent costs.                           

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Salaries and benefits increased $733,000 or 12% from 1995 to 1996. Of this      
increase, approximately $105,000 relates to a bonus paid to IMI's chief         
financial officer, who is also the chief financial officer of Consolidated, for 
services relating to the DVI loans incurred in 1996. Additionally, during 1996, 
the Centers increased their hours of operations in order to increase volume.    
These increased hours of operation required additional personnel in certain     
Centers and required some overtime in all Centers. The per employee base salary 
and benefit costs did not significantly increase. Salaries and benefits         
decreased $1.8 million or 24% from 1994 to 1995. The salaries and benefits for  
1994 include approximately $1.2 million paid to radiologists based on fixed fee 
contracts and 1995 does not include any such amounts paid to radiologists as    
discussed above. Additionally, during 1995, management implemented a cost       
reduction plan which included the reduction of overall salary and wage levels   
which accounts for the remaining decrease in salaries and benefits.             

Professional services, consisting primarily of legal, accounting and consulting 
services, remained relatively level, increasing only $15,000 or 2% when         
comparing 1995 to 1996. Professional services decreased $643,000, or 45%, from  
1994 to 1995, which reflects the significant accounting and legal fees that were
incurred by the Company during 1994 in conjunction with the acquisition.        

Other management, general and administrative expenses, increased $765,000, or   
19%, from 1995 to 1996. During 1996, one of the Centers was in the process of   
relocating to a new facility and in connection therewith, it rented, on a       
short-term basis, MRI equipment at a rental cost of approximately $441,000 and  
was paying rent at two locations on a temporary basis resulting in additional   
rental expense of $27,000. Other significant increases include $95,000 for an   
administrative fee paid to DVI related to the revolver loan incurred subsequent 
to 1995 and $40,000 for compensation to temporary employees of MRI Net who      
replaced permanent employees whose compensation in 1995 is included under       
salaries and benefits. During 1995 and 1994, other management, general and      
administrative expense, remained relatively level, decreasing $80,000 or 2% from
1994 to 1995.                                                                   

Provision for bad debts increased $1.5 million, or 176%, from 1995 to 1996.     
Substantially all of this increase reflects an evaluation of the collectibility 
of receivables from third-party liability payers which were generated prior to  
the September 30, 1994 acquisition of the Centers. Additionally, during the     
fourth quarter of 1996, the provision for bad debts was $850,000 greater than   
the average of the first three quarters of which $350,000 was from the write-off
of amounts due from scan brokers who went out of business. The remaining        
$500,000 increase is due to liability accounts receivable whose aging had       
reached the point where IMI's receivable policy and evaluation required that    
such receivables be provided for with an allowance. Revenue from third-party    
liability payers represented only 4% of revenue for 1996 and 1995. Provision for
bad debts decreased $242,000, or 22%, from 1994 to 1995. During 1994 the        
composition of revenues and the related accounts receivable balances included   
more payer types with a higher estimate of provision rate than for 1995.        

Depreciation and amortization consists of the depreciation of purchased         
equipment, buildings, leasehold improvements and capital leases and the         
amortization of goodwill, customer lists, restrictive covenants and loan costs. 
Depreciation expense increased $224,000, or 8%, from 1995 to 1996, which        
reflects the addition of equipment in certain Centers, which was partially      
offset by a decrease in Centers where equipment is fully depreciated as of 1996.
Amortization increased $103,000, or 5%, from 1995 to 1996 due to an increase in 
capitalized loan costs which were incurred at the beginning of 1996 resulting   
from the subordinated debt refinancing with DVI. Depreciation and amortization  
expense in total increased $1.2 million, or 33%, from 1994 to 1995, due         
primarily to increased amortization from the addition of goodwill, restrictive  
covenants and customer lists as part of the September 30, 1994 acquisition.     

Interest and other income increased $368,000, or 191%, from 1995 to 1996. During
August of 1995, IMI entered into a joint venture agreement with respect to an   
MRI Center in the Orlando, Florida area. Income from the joint venture during   
1996 and 1995 was $281,000 and $120,000, respectively. Additionally, 1996       
includes a change in an estimate related to prior period over-accruals of       
tangible personal property taxes of approximately $140,000 for the San Juan     
Center. Other components of interest income and other income were not           
significant for the September 1996 and 1995 periods. Interest and other income  
decreased $385,000, or 67%, from 1994 to 1995, which reflects the inclusion in  
1994 of approximately $300,000 of debt forgiveness from certain shareholders of 
nonaffiliated companies, that were not acquired by IMI in the 1994 acquisition. 

Interest expense increased $440,000, or 17%, from 1995 to 1996. At the beginning
of 1996, IMI refinanced certain Subordinated Notes, which were short-term notes 
on which the Company paid interest at 7%, with long-term debt with rates varying
from 11% to 12%. The increase in interest expense from the higher rate was      
partially offset by reductions on the debt on which the interest was paid..     
Interest expense increased $1.3 million, or 95%, from 1994 to 1995, due to the  
fact that as a part of the September 30, 1994 acquisition, approximately $20    
million in subordinated debt was incurred with interest rates ranging from 4% to
7%. Other increases in interest expense from 1994 to 1995 are due to additions  
of equipment financing and interest from new capital lease obligations.         

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Loss on sale and disposal of assets, which was $28,000, $25,000 and $524,000,   
respectively for 1996, 1995 and 1994, consisted primarily of leasehold          
improvements and medical equipment which was sold or disposed of during the     
periods.                                                                        

Overall profitability decreased $720,000, or 41% from 1995 to 1996, reflecting  
increased overall costs in excess of gains in net revenues. During 1996, five of
the Centers operated at an aggregate net loss of $784,000 while the remaining   
Centers generated net income of $1.8 million. During 1995, five of the Centers  
operated at an aggregate net loss of $2 million while the remaining Centers     
generated net income of $3.8 million. Overall profitability remained relatively 
level for 1995 and 1994, reflecting increased overall costs in excess of        
increased revenue of $13,000. During 1994, two of the Centers operated at an    
aggregate net loss of $550,000 while the remaining Centers generated net income 
of $2.3 million.                                                                

Electro-Mechanical and Electro-Optical Products Manufacturing:                  

This segment consists of two companies which manufactures optical encoders,     
encoded motors and limit programmers, debit card vending machines and various   
avionics instrumentation devices, a company that markets telephone debit cards  
which commenced operations in 1995 and a company that designs, develops and     
integrates all of the critical building blocks of a Fingerprint ID System.      

Optical-encoders, encoded motors and limit programmers, debit card vending      
machines and avionics instrumentation device revenues, when comparing 1996 to   
1995, decreased 33% from $4,223,000 for 1995 to $2,837,000 for 1996.            
Additionally, gross profit was negative for 1996 due primarily to the write-off 
of obsolete inventory of $350,000 for 1996. Write-off of obsolete inventory for 
1995 amounted to $270,000. Excluding such write-offs, the gross profit          
percentages for 1996 and 1995 were 6% and 12%, respectively. The significant    
decrease in revenues and gross margins is attributed to lower levels of         
shipments to existing customers while new customers have not been obtained to   
replace the lost revenues and the gross margins on current period contracts have
lower margins than on revenues that were lost. Selling, general and             
administrative expenses remained relatively level approximating $1,341,000 and  
$1,380,000 for 1996 and 1995, respectively, reflecting increased spending of    
approximately $200,000 on developing new technologies, which was offset by      
planned cutbacks in expenses related to existing operations. Interest expense   
was approximately $150,000 for both 1996 and 1995. A significant portion of the 
interest expense is related party interest charged from the parent company, (SIS
Capital Corp.) charged on advances made to this segment to fund its operations. 
Net losses increased from $1,050,000 for 1995 to $1,709,000 for 1996, reflecting
the decrease in gross profit while other expenses remained relatively level. In 
prior periods, this segment focused primarily on sales to the governmental      
sector and currently management is attempting to place more emphasis on sales to
the private sector through the sale of encoders to private manufacturing        
companies while also trying to capitalize on the recent potential for increased 
governmental military spending and while there exists a possibility that there  
will be reversals in government spending cutbacks no assurance can be made that 
this segment will be able to qualify for the related government contracts.      
Management plans to continue placing more emphasis on sales to the private      
sector although no assurances can be given that the segment will ever be able to
operate profitably.                                                             

Prepaid telephone calling card revenues, gross profit and operating loss, from  
the date of acquisition through December 31, 1996, approximated $387,000,       
($152,000) and $313,000. This segment operates in a highly competitive market   
and is competing against companies that are larger, more well established and   
have significantly greater resources. The impact of this competition has        
required the segment to sell the calling cards at below cost in order to attempt
to establish a market presence which has resulted in a negative gross margin.   
Selling, general and administrative costs were $153,000 from the period of      
acquisition to December 31, 1996 which consists primarily of salaries and       
related expenses. Based on the competitive environment that this segment        
operates in, no assurances can be given that its operations will ever reach     
profitable levels.                                                              

Finger print identification products activity to date have been the costs of    
developing its products. Such amounts for 1996 approximated $144,000. Due to the
nature of a development stage company, no assurances can be given that it will  
ever be able to develop a marketable product and achieve revenues that will     
allow it to operate profitably.                                                 

Medical Information Services:                                                   

The medical information services segments consists of the activity of two       
companies, Netsmart Technologies, Inc., ("Netsmart") and Creative Socio Medics, 
Inc.' ("CSM"). CSM was acquired in June 1994 and accounted for all of the       
revenues and gross margin in this segment for 1994. Since CSM was not a part of 
the consolidated operations until July 1, 1994, the prior periods operating     
results are not comparable to those of the years ended December 31, 1996 and    
1995. For purposes herein, references to Netsmart relate to the operations of   
both Netsmart and CSM unless indicated otherwise.                               

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The segment'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 is due to revenue generated pursuant to an 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 CarteSmarte System, however, at December 31,
1996, the Company did not have any significant contracts for the CarteSmart     
system.                                                                         

Revenue from Netsmart's health information systems continued to represent the   
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%. 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 the Company 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 $1,332,000 in 1996 from $1,973,000 in 1995, a 32%     
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 $1.9 million in 1996, a       
decrease of 24% from the $2.5 million in 1995. The decline was substantially the
result of a one time charge in 1995 of a write off deferred public offering     
costs in the amount of $460,000 as well as a reduction in executive compensation
and a reduction in staff.                                                       

During 1996, Netsmart incurred non cash compensation charges of $3.5 million    
arising out of the issuance 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 noteholders 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.                                       

In 1996, Netsmart did not incur any research and development expenses, since the
personnel who had been engaged in such activities were reassigned to work on the
IBN contract and the development of SmartCard products. As s result, their      
salaries and related expenses were included in costs of revenue with respect to 
the work on the IBN contract and capitalized software development costs with    
respect to their work on the SmartCard product. As a result of such product     
development, Netsmart incurred $279,000 in capitalized software costs 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, a decrease of $81,000, or 15% 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 compared with a net loss of $2.9 million in 1995.                       

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The results of Netsmart's operations for the year ended December 31, 1995 are   
not comparable with the results of operations for 1994 since the acquisition of 
CSM was effective July 1, 1994, and the results of operations for 1994 include  
the CSM business only from such date.                                           

Revenue for 1995 was $7.4 million, representing an increase of 152% from revenue
for 1994 of $2.9 million. The increase reflected the inclusion of CSM's         
operation for only the last six months of the year. Revenue from health         
information systems and services accounted for $6.8 million, or 91.5% of total  
revenue for 1995 and more than 99% of pro forma combined revenue of Netsmart and
CSM for 1994. CarteSmart Systems revenue accounted for the balance of the       
revenue for the periods. In 1994, Netsmart generated CarteSmart Systems revenue 
of $90,000 from the pilot project in San Diego County. In 1995, revenue from    
CarteSmart technology was $631,000.                                             

The largest component of revenue for 1995 was $2.0 million from the sale of     
third party hardware and software, as compared with $519,000 for 1994. Such     
revenue represented 26.7% and 17.7% of revenue for 1995 and 1994, respectively. 
A significant portion of revenue in 1995 represented the sale of hardware       
($842,000) and software and related services ($524,000) pursuant to a purchase  
order from the State of Colorado for its Department of Human Services. Revenue  
from services related to turnkey systems and data center revenue accounted for  
$1.8 million and $1.7 million, or 24.1% and 23.6% of revenue, respectively, for 
1995, as compared with $664,000 and $884,000, or 22.7% and 30.2% of revenue,    
respectively, for 1994. Maintenance revenue was $1.1 million and $500,000 in    
1995 and 1994, respectively, representing 14.9% and 17% of revenue,             
respectively. Netsmart believes that the increase in installations at December  
31, 1995 from the prior year should enable Netsmart to increase the maintenance 
revenue in future periods. Revenue from CarteSmart Systems increased to $631,000
in 1995, representing 8.6% of revenue, from $90,000 in 1994, representing 3.1%  
of revenue. The CarteSmart System revenue reflected revenue from IBN ($481,000),
Virginia Commenwealth University ($118,000) and the San Diego pilot program     
($31,000) in 1995 and the San Diego Prom ($90,000) in 1994. The overall increase
in revenue reflects the inclusion of CarteSmart Systems revenue combined with   
the revenue from the Colorado agreement.                                        

Both the increase in revenue and the change in revenue mix reflected increased  
revenue resulting from an enhanced marketing effort following the June 1994     
acquisition of CSM. During the second half of 1994, Netsmart received           
significant purchase orders from the State of Colorado for its Department of    
Human Services and the State of Oklahoma. The Colorado order covered the        
purchase of Netsmart's health information system, including software, consulting
services and hardware, at a total purchase price of approximately $1.2 million. 
Of the purchase price, approximately $700,000 represented the purchase price of 
the software and consulting services, and the balance represents the cost of the
hardware. In July 1994, Netsmart received a purchase order from a state agency  
of the State of Oklahoma for a health information system which includes the     
graphical interface. The order called for the installation of the system in ten 
hospitals for a purchase price of approximately $430,000. Netsmart is continuing
to market its health information systems to entitlement programs. It believes   
that the inclusion of the graphical and smart card functions, which were        
implemented during the second half of 1994 and the first half of 1995, will     
assist it in marketing its products to entitlement programs. It also believes   
that the successful pilot project for the smart card interface in San Diego     
provides the Company with an important tool in marketing this function to both  
new and existing clients. Netsmart is commencing a marketing effort for its     
CarteSmart System directed at the financial services industry and educational   
institutions. However, in the industries to which Netsmart is marketing its     
products, there is typically a long selling cycle, as a result of which Netsmart
must continue to support its marketing effort for a significant period before   
any revenue is realized.                                                        

Gross profit increased to $2.0 million in 1995 from $601,000 in 1994, an        
increase of 352%, which reflected an increase in the gross margin to 23.9% in   
1995 from 13.3% in 1994. The increase in gross profit resulted from both the    
improved gross margin and the inclusion of twelve months of CSM operations in   
1995 and six months of such operations in 1994. The improved margin reflects the
significant increase in CarteSmart revenue, on which Netsmart realized a higher 
margin than on its health information systems and services. However, the        
amortization of capitalized software costs of $419,000 during 1995 is reflected 
as a cost of revenue, which offset the higher margin for the CarteSmart System. 
During 1995, Netsmart changed its CarteSmart System from a DOS-based system to a
Windows-based system. The capitalized costs related to the DOS-based system. As 
a result, at December 31, 1995, Netsmart wrote off the unamortized software     
development costs, which increased cost of sales. In addition, Netsmart expensed
the development of the Windows-based system, which was charged to research and  
development. The gross profit for 1995 benefited from the gross margin for      
maintenance services. During 1995, the gross profit from maintenance services   
increased to $356,000 from $52,000 in 1994, reflecting an increase in the gross 
margin from such services to 32.4% for 1995 from 10.4% for 1994. The increase in
margin resulted from increased services performed on a time and materials basis 
as well as a reduction in staff as Netsmart was able to perform the same        
services with a smaller staff.                                                  

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Selling, general and administrative expenses were $2.5 million and $1.5 million 
for 1995 and 1994, respectively, representing a 66.0% increase. In 1994,        
selling, general and administrative expenses included approximately $236,000 of 
compensation expense arising out of the issuance of Consolidated common stock to
former officers of CSM and the grant by SISC to such persons of options to      
purchase shares of the Netsmart's Common Stock which were owned by SISC.        
However, in 1995, selling, general and administrative expenses included a       
$200,000 increase in annualized expenses resulting from an increases in the     
marketing staff, a $100,000 increase in the level of compensation for Netsmart's
and CSM's officers following the June 1994 acquisition of CSM, $150,000 in legal
expenses, a portion of which related to the acquisition of CSM, and $313,000 of 
the amortization of customer lists resulting from the CSM acquisition.          
Commencing July 1, 1994, general and administrative expenses reflects the       
amortization of customer lists resulting from the CSM acquisition.              

Research and development was $699,000 and $367,000 for 1995 and 1994,           
respectively, representing a 90.5% increase. The increase reflects research and 
development for smart card and related products and the graphical interface for 
Netsmart's health information systems.                                          

During 1995, Netsmart incurred financing costs of $863,000, representing the    
write-off of deferred financing costs relating to a proposed initial public     
offering which had been scheduled for early 1995, but which had been canceled.  
No such expenses were incurred in 1994.                                         

Interest Expense - The most significant component of the interest on an ongoing 
basis is the interest payable to Netsmart 's asset-based lender, on which it    
pays interest equal to the greater of 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 sustained losses of $2.9 million 
for 1995, as compared with a loss of $1.8 million for 1994. If certain          
additional compensation expenses were incurred during the year, the pro forma   
loss would have been $3.5 million, or $.73 per share.                           

In addition, at December 31, 1995 and 1994, the estimated profit included in    
cost and estimated profit in excess of interim billings and interim billings in 
excess of cost and estimated profit decreased substantially from approximately  
$1.4 million to approximately $500,000. This decrease reflected a reduction in  
the number of contracts that have billing schedules which differ from revenue   
recognition. As a result of a reduced number of such contracts at December 31,  
1995, the estimated profits from such contracts declined.                       

Telecommunications:                                                             

Revenue for the year ended December 31, 1996 was $5.6 million, reflecting an    
increase of 52.6% from $3.3 million revenue in the year ended December 31, 1995.
ARC's business has two segments -- telephone services and data cable            
installation services. The increase in revenue in 1996 reflected a change in    
ARC's business resulting from the increase in local telephone service, and the  
introduction during 1996 of telephone debit card service and, to a lesser       
extent, long-distance telephone service. The following table sets forth the     
revenue and percentage of revenue during 1996 and 1995 from its services.       

                                                        [Enlarge/Download Table]

                                       Year ended December 31, 1996  Year ended December 31, 1995
                                    -------------------------------  ----------------------------
                                                                                                 
                                         Revenue            Percent       Revenue         Percent

Telephone services                     $4,415,000            79.1%       $1,275,000        39.2% 

Data cabling installation services     $1,167,000            20.9%       $1,978,000        60.8% 

Cost of revenue for 1996 was $5.1 million, reflecting an increase of $2.5       
million, or 97%, from the cost of revenue of $2.6 million in 1995. The increase 
in cost of revenue substantially exceeded the increase in revenue, resulting in 
a decrease in gross margin from 21.4% in 1995 to 9.1% in 1996. ARC's gross      
margin in 1996 reflects gross margin of 7.2% for telephone services and 16.3%   
for data cable installations services. The comparable gross margins in 1995 were
15.1% and 25.4%, respectively.                                                  

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The ability of ARC to generate an adequate gross margin from telephone services 
is dependent upon the volume of service provided by ARC, which is in turn       
dependent upon both the prices at which ARC can obtain telephone service from   
the underlying carriers and the price at which ARC can sell the service to its  
customers. The cost of revenue for ARC's telephone service include the          
operational expenses associated with the operation of ARC's debit card platform 
in New York City which it uses for processing calls for users of its prepaid    
telephone debit cards and, to a lesser extent, calling card charges. The low    
profit margin for telephone services in 1996 reflected high costs incurred in   
connection with the introduction of ARC's telephone debit cards, including an   
insufficient call volume to cover the costs of the debit card platform, errors  
in pricing certain international calls and problems with telephone line         
security. The problems in line security reflected charges approximately $105,000
paid by ARC for telephone service which was either unauthorized or unaccounted  
for, which generated cost of revenue which did not generate revenue. In order   
for ARC to improve its gross margin for telephone services, ARC must generate   
sufficient telephone debit card revenue on a continuing basis to cover not only 
the cost of the service but the cost of the debit card platform. ARC believes   
that unless its monthly revenue from telephone debit cards is at least $300,000,
it will not be able to generate a positive gross margin from telephone debit    
card operations.                                                                

ARC's profit margin on telephone services is subject to a variety of factors    
which affect both the cost of providing services and the prices at which such   
services can be sold. Reductions in local and domestic and international        
long-distance rates affect the rates that ARC can charge for calls through its  
service. Rate reductions by AT&T, MCI and Sprint and their announced plans to   
offer local telephone service, especially when directed at businesses and other 
major users of telephone service, would compel ARC to lower its rates in order  
to compete effectively, thereby reducing its margins. ARC's costs of service are
affected by the cost of transmission and switching facilities and the cost of   
obtaining access to local telephone users.                                      

The principal components of cost of revenue with respect to its data cable      
installation service is the cost of personnel. The decrease in data installation
margins is due to competitive pricing pressures, which have driven down the     
margins from 1995 to 1996. ARC's cabling installation business remains under    
significant pricing pressures.                                                  

Selling, general and administrative expenses for 1996 were $1.4 million, an     
increase of 23% from $1.2 million in 1995. The increase in selling, general and 
administrative expenses reflected start-up expenses which were incurred as ARC  
opened offices in Chicago and South Florida in November 1996. Additional        
overhead was incurred in the New York office to manage its telephone business.  
During 1996, ARC did not generate significant revenue from either of such       
offices.                                                                        

ARC incurred an operating loss of $929,000 for 1996, representing a 96.0%       
increase from the operating loss of $474,000 in 1995. The 1996 operating loss   
reflects an operating loss of $934,000 from telephone service and operating     
income of $5,000 from data cable installation services. The 1995 operating loss 
reflects operating losses of $266,000 and $208,000 from telephone services and  
data cable installation services, respectively. The 1996 operating loss from    
telephone service reflected the loss profit margin combined with high selling,  
general and administrative expenses relating to this segment of its business.   
During 1996, ARC devoted a significantly greater portion of its resources to the
telephone services segment and as a result, a greater proportion of costs were  
allocated to that segment in 1996 as compared to 1995.                          

Interest expense increased by $98,000, or 142%, from $69,000 in 1995 to $167,000
in 1996. This increase reflected increased borrowings principally to finance the
purchase of capital equipment and interest expense on funds advanced to ARC by  
SISC. In September 1996, ARC entered into a term-loan agreement with a          
non-affiliated asset-based lender, pursuant to which ARC may borrow up to       
$350,000 to purchase equipment. The loan is due in August 2000. ARC pays        
interest on such loan at prime plus 12%, which rate shall not be less than      
20.8%. ARC also has a revolving credit facility with another non-affiliated     
asset-based lender . Under such agreement, ARC finances payments to its         
telephone carriers through loans secured by selected accounts receivable. ARC   
pays such lender interest at an interest rate of 2% in excess of prime. ARC also
pays a fee of .30% of the face amount of the invoices financed, regardless of   
the amount borrowed against the invoice. The effective average interest rate    
during 1996 was 10.25%. In addition, accrued interest to Trans Global and SISC  
was $107,000 in 1996 and $69,000 in 1995. During 1995, ARC had no borrowings    
from non-affiliated parties and, accordingly, the interest expense for 1995 was 
solely the interest to Trans Global and SISC. ARC pays its international        
carriers on a bi-monthly basis and bills its customers monthly, with the result 
that ARC must finance more of its telephone costs than would be necessary if it 
was billed and billed its customers on a monthly basis.                         

As a result of the foregoing factors, ARC sustained a net loss of $1.1 million  
in 1996 as compared with a loss of $543,000 in 1995.                            

In connection with the issuance of interim notes in February 1997, ARC issued   
warrants to purchase an aggregate of 1,000,000 shares of Common Stock at $1.00  
per share and 500,000 shares of Common Stock at $5.00 per share. As a result of 
the issuance of the warrants with an exercise price below the market value of   
the Common Stock, ARC anticipates that, for the first quarter of 1997, it will  
incur a non-cash charge in the amount of approximately $3.2 million.            

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Revenue for the year ended December 31, 1995 was $3.3 million, reflecting an    
increase of 43.4% from $2.3 million revenue in the year ended December 31, 1994.
The increase in revenue reflected an increase in revenue from local telephone   
service of $1.3 million, offset by a decrease of $300,000 in revenue from data  
cable installation services. During 1994, ARC was principally engaged in data   
cable installation services.                                                    

Cost of revenue for 1995 was $2.6 million, reflecting an increase of $1.8       
million, or 41.2%, from the cost of revenue of $1.8 million in 1994. The        
increase in cost of revenue was slightly less than the increase in revenue,     
resulting in an increase in gross margin from 20.1% in 1994 to 21.4% in 1995.   
The increase in gross margin reflected the addition of revenue from local       
telephone service.                                                              

Selling, general and administrative expenses for 1995 were $1.2 million, an     
increase of 108% from $600,000 in 1994. The increase in selling, general and    
administrative expenses reflected an increase in personnel and other expenses   
resulting from the expansion of local telephone service in 1994.                

During 1994, ARC incurred nominal interest.  Interest expense was $69,000 in    
1995, reflecting borrowings from Trans Global and SISC.                         

As a result of the foregoing factors, ARC sustained a net loss of $543,000 as   
compared with a loss of $144,000 in 1994.                                       

Three Dimensional Products and Services:                                        

This segment is engaged in the business of developing and marketing products and
services in the three dimensional imaging and digitizing technology which the   
segment categorizes in three primary market groups: 1) Surfacer imaging         
products, 2) Computer Aided Design ("CAD")/Computer Aided Manufacturing ("CAM") 
software products and services and 3) laser scanning products. Comparing 1996 to
1995, revenues and gross margins decreased $850,000 or 48% and $146,000 or 22%, 
respectively. The primary reason for such decreases is due to the closure of one
of the companies operating in this segment which produced revenues and gross    
margins in 1995 of $453,000 and $69,000, respectively. Additionally, in July    
1996, this segment significantly reduced its operations in Europe and sold      
certain assets resulting in a one time gain of approximately $450,000, which is 
included in other income. The decision to close such operations was based on the
fact that such companies operations did not align with the planned future for   
this segment and was not producing margins at a level sufficient to cover its   
operating costs. Selling, general and administrative expenses from 1996 to 1995 
decreased $1,363,000 of which $746,000 relates to the 1995 expense of the closed
company. The remaining decrease is related to the reduction of the European     
operations. Included in 1996 expenses is a charge of $192,000 in noncash expense
for the write-off of goodwill that could not be supported by the segment's      
current cash flows. The operations of 1994 resulted in revenues of $849,000,    
gross margins of $295,000 and selling general and administrative expense of     
$1,850,000 which is comparable to 1996 results with the same operating entities.
On an overall basis, the net loss for 1996 was $1,472,000, a decrease of        
$813,000 from 1995 and a decrease of $319,000 from 1994. Management currently   
anticipates that revenues and operating profits will improve for this segment if
the proper financing can be obtained which would allow this segment to acquire a
European partner to market and expand its existing product lines. However, no   
assurances can be made that such financing will be obtained and the ultimate    
profitability of this segment is significantly dependent on the success of such 
acquisition.                                                                    

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Audio Products Manufacturing                                                    

This segment consists of WWR Technology, Inc., ("WWR"), which is engaged in the 
business of manufacturing and marketing a professional line of loudspeakers. WWR
was acquired effective March 31, 1995. As such, the operations reported herein  
reflect only the results from the date of acquisition through December 31, 1996 
and the prior periods are not comparable. During 1996, this segment's revenues, 
gross profit and loss from operations were $5,582,000, $470,000 and $752,000,   
respectively. During 1996, approximately, 79% of revenues were generated from   
domestic customers, approximately 15% of sales were from customers in the Far   
East and approximately 6% of sales were from other foreign market customers.    
From the date of acquisition through December 31, 1995 revenues, gross margins  
and losses from operations were $2,150,000, $202,000 and $492,000, respectively.
From the date of acquisition through December 31, 1995, approximately, 75% of   
revenues were generated from domestic customers, approximately 12% of sales were
from customers in the Far East and approximately 13% of sales were from other   
foreign market customers.                                                       

During the period from the acquisition through December 31, 1995, costs of sales
included $200,000 and excluding such write-off, the gross margin percentage was 
19% and during 1996 was 14%. Since the acquisition of this segment, the gross   
margins have been less than that required to operate profitably. A significant  
cause of the low margins relates to idle plant capacity, an outdated production 
machine and a lack of funds to purchase the parts required to build product.    
During the fourth quarter of 1996, WWR replaced its existing debt with financing
obtained from an asset based lender, that has allowed the segment to purchase   
product for production but not at a level that will allow the segment to        
significantly increase production. The fourth quarter financing was from an     
asset based lender which bears interest at 12%, plus a fee on advances of 1%. As
of December 31, 1996, WWR has received net advances of $216,000 from the lender.
Management is attempting to obtain financing to purchase a new production       
machine which would produce products significantly faster and additionally,     
reduce the need to purchase assembly parts from an outside source since the new 
production machine would be able to produce such parts on a timely basis. No    
assurance can be given that such financing will be obtained.                    

Selling, general and administrative expenses were $1,221,000 for 1996 and were  
$694,000 from the date of acquisition through December 31, 1995. This excess of 
expenses over gross profit is a reflection of the volume problem of this        
segment. In January management implemented a price increase of approximately 10%
and management believes that this will not have a significant impact on sales   
volume due to high product quality and the name recognition of "KLIPSCH         
PROFESSIONAL" in the market place. Interest expense for 1996 was $150,000 and   
for the period from acquisition to December 31, 1995 was $67,000. The increase  
in annual interest expanse id due to the aforementioned asset based financing   
that was obtained in 1996.                                                      

Management believes that if this segment is able to find an appropriate         
financing package, it will be able to significantly increase its revenues and   
overall profitability during 1997. However, due to the uncertainties surrounding
the ability of the segment to obtain adequate financing, management is unable to
determine at this time whether the segment will ever be profitable.             

Business Consulting Services:                                                   

During 1996, 1995 and 1994, revenues and gross margins of the business          
consulting operations were not significant which is consistent with management's
decision to concentrate time and resources managing internal operations of the  
preexisting and newly acquired companies. Selling, general and administrative   
expenses were also not significant for 1996 and 1995 but amounted to $623,000   
for 1994 which is a factor of the significant acquisition activity that occurred
during 1994. During 1997, management anticipates that consulting revenues and   
related expenses will not be a significant portion of THE Company's operations. 

Corporate and Other:                                                            

Selling, General and Administrative Expense                                     

Corporate selling, general and administrative expenses decreased by $3,336,000  
when comparing 1996 to 1995 and remain level when comparing 1995 to 1994. In    
1995 and 1994 selling, general and administrative expenses include noncash      
consulting fee expenses incurred upon the issuance of non employee directors and
consultants stock options of $3,869,000 and $4,140,000, respectively, for 1995  
and 1994. No such consulting fees were incurred at the holding company level    
during 1996. The remaining expenses, which consist primarily of executive and   
administrative salaries and benefits, accounting and legal and consulting fees, 
remained relatively level with the prior periods. During 1997, 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.                              

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Gain (Loss) from Security Sales:                                                

During 1996, the Company realized a gain of $823,000 from sales of securities.  
During 1995, losses on investment activity were nominal. For 1994, the loss on  
sales of securities consisted primarily of the recognition of investments that  
were determined to have a permanent decline in market value and as such, the    
decline was recognized in that period. Security sales vary from period to period
based on, among other things, market activity and cash needs, and management    
cannot estimate the amount of future security sales gains or losses, if any,    
that will be generated from such transactions.                                  

Income Taxes                                                                    

The Company's provision for income taxes were (4.6%), (1.5%) and (0.2%) of      
income before taxes for the years ended December 31, 1996, 1995 and 1994,       
respectively. The Company will have a net operating loss carryforward of        
approximately $53,891. The net operating loss carryforward expires beginning in 
1997 through 2011. Investment tax credit and job tax credit carryforwards of    
approximately $105 are available to reduce future income taxes. These credits   
expire beginning in various years through 1999. These credits have been reduced 
to reflect changes made by the "Tax Reform Act of 1986". See Note 12 To the     
Financial Statements.                                                           

Minority Interest in Loss of Subsidiaries                                       

For 1996, 1995 and 1994, the minority interest in loss of subsidiaries was      
$3,098,000 and $3,724,000, and $132,000, respectively. Changes to the minority  
interest in the gain and loss of subsidiaries, other than those changes related 
to the inherent differences in the net income and loss of subsidiaries from     
period to period, resulted from the minority issuance of stock options and stock
purchase warrants and the initial public offering in the medical information    
services segment, the issuance of minority owned stock in the contract          
engineering services segment and the sale of 10% of the equity position of the  
Company's investments in subsidiaries to the Company's CEO.                     

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 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                                                                        

Item 10.  Directors and Executive Officers of the Registrant                    
Set forth below is information concerning the executive officers of the         
registrant.                                                                     

Name                  Age      Position                                         
----                  ---      --------                                         
Lewis S. Schiller      67      Chairman of the Board, President,                
         and Chief Executive Officer
George W. Mahoney      37      Chief Financial Officer                          
Norman J. Hoskin       63      Director                                         
Grazyna B. Wnuk        34      Secretary                                        

Mr. Schiller is chairman of the board and chief executive officer and a director
of Consolidated and SISC and is chief executive officer and/or chairman of      
Consolidated's operating subsidiaries. Mr. Schiller has held such positions for 
more than the past five years.                                                  

Mr. Mahoney has been chief financial officer of Registrant since October 1994.  
From December 1991 until September 1994, Mr. Mahoney was chief financial officer
of IMI and IMI's affiliated entities. Consolidated acquired the assets of IMI   
and certain of its affiliated entities during 1994.                             

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Mr. Norman J. Hoskin has been a director of the Company since September 1992. He
is chairman of Atlantic Capital Group, a financial advisory services company, a 
position he has held for more than the past five years. He is also chairman of  
the board and a director of Tapistron International, Inc., a high tech          
manufacturer of carpeting, and is a director of Trans Global Services, Inc., a  
subsidiary of the Company. Mr. Hoskin is also a director of Aqua Care Systems,  
Inc., a water media filtration and remediation company, and Spintek Gaming,     
Inc., a manufacturer of gaming equipment.                                       

Ms. Wnuk has been the secretary of the registrant since 1991.                   

Officers are elected by, and serve at the pleasure of, the board of directors.  
Pursuant to an employment agreement dated October 1, 1994 and superseded by an  
agreement dated May 1996, the Company has agreed to employ Mr. Schiller as its  
chief executive during the term of the agreement, which continues until December
31, 2000. Pursuant to an employment agreement dated October 1, 1994, which was  
amended on March 21, 1995 and again on April 11, 1997, the Company has agreed to
employ Mr. Mahoney as its chief financial officer during the term of the        
agreement, which continues until December 31, 2007.                             

Item 11.  Executive Compensation                                                
Set forth below is information concerning the Registrant's chief executive      
officer and chief financial officer of the Registrant who are the only executive
officers of the Registrant who received or accrued compensation from the        
Registrant and its subsidiaries in excess of $100,000 (on an annualized basis)  
during the years ended December 31, 1996, 1995 and 1994.                        

                                                        [Enlarge/Download Table]

                                      Annual                                               
                                   Compensation                  Awards           Payouts  
                                   ------------                  ------           -------  
                                           Bonus and               Securities              
                                             Other    Restricted   Underlying              
                                            Compen-      Stock      Options/          LTIP 
Summary Compensation Table      Salary       sation     Awards      SARS (#)         Payout
                                ------       ------     ------      --------         ------
                                                                                           
Year Ended December 31, 1996:                                                              
   Lewis S. Schiller, CEO (1)  $286,000          --         --            --             --
                               ========                                                    
   George W. Mahoney, CFO (2)  $189,000    $200,000         --            --             --
                                =======     =======                                        

Year Ended December 31, 1995:                                                              
   Lewis S. Schiller, CEO (1)  $250,000          --         --            --             --
                                =======                                                    
   George W. Mahoney, CFO (2)  $177,000     $36,000         --            --             --
                                =======      ======                                        

Year Ended December 31, 1994:                                                              
   Lewis S. Schiller, CEO (1)  $199,000                     --            -- (3)         --
                                =======                                                    
   George W. Mahoney, CFO (2)   $50,000                     --            -- (4)         --
                                 ======                                                    

(1)   - The annual salary payable by the Company to Mr. Schiller pursuant to his
     employment agreement with Consolidated was $250,000, subject to a cost of
     living increase, prior to September 1, 1996. Effective September 1, 1996,
     Mr. Schiller's annual salary from Consolidated was increased to $500,000.
In addition, Mr. Schiller receives incentive compensation from      
    Consolidated based on the results of Consolidated's operations and has a
     right to purchase 10% of Consolidated's or SISC's equity interest in each
      of their operating subsidiaries and investments for 110% of Consolidated's
or SISC's cost.                                                     

(2)   - 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 $189,000 for the current contract year, which ends on December 31, 1997
  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.  

(3)   - Pursuant to a stock purchase plan dated December 15, 1994, Mr. Schiller 
    received the right to purchase 2,500,000 unregistered shares at the fair
     market value on that date ($.50 per share). Mr. Schiller did not exercise
   his right to purchase such shares and such rights expired in July 1995.

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(4)   - Pursuant to a stock purchase plan dated December 15, 1994, Mr. Mahoney  
  received the right to purchase 750,000 unregistered shares at the fair
    market value on that date ($.50 per share). Mr. Mahoney did not exercise
  his right to purchase such shares and such rights have expired in July
1995.                                                               

No other officers or directors have employment agreements with the Registrant.  

No officers or directors hold options to purchase any of the Registrant's common
stock.                                                                          

Item 12.  Security Ownership of Certain Beneficial Owners and Management        

No person or group known to the Registrant owns 5% or more of any of the        
Registrant's voting securities as of April 9, 1997. However, the chief executive
officer and a director own shares of the Company's Series A preferred stock     
which is convertible into common .stock. The following table sets forth, as of  
April 9, 1997, the number and percentage of outstanding Series A Preferred Stock
owned by directors and officers of the Registrant and all directors and officers
as a group:                                                                     

                                        Amount and Nature of        Percent of
Name and Address(1)                      Beneficial Ownership(2)    Common Stock
-------------------                      -----------------------    ------------
Lewis S. Schiller                                4,480                    20%   
Norman J. Hoskin                                 1,280                     5%   
All officers and directors as a group                                           
(two individuals owning stock)                 5,760                    25% 

The above preferred shares are convertible into a total of 750,000 shares of    
common stock which represents 2% of the total outstanding common stock of the   
Company.                                                                        

[1] - The address of each person is c/o Consolidated Technology Group Ltd., 160 
Broadway, New York, NY 10038.                                                   

[2] - Each person named has the sole voting and sole investment power and has   
direct beneficial ownership of the shares.                                      

Item 13.  Certain relationships and Related Transactions                        

Loan Receivable from an Officer of a Subsidiary:                                

During the year ended December 31, 1996, the Medical Diagnostics segment        
subsidiary loaned the chief executive officer of such subsidiary $300,000 with  
interest accruing at 5.5% and maturing December 31, 1998. Total principal and   
interest amounted to $308,000 as of December 31, 1996. During the year ended    
December 31, 1995, the Contract Engineering Services segment subsidiary loaned  
$45,000 to the chief executive officer of such subsidiary. The loan has no fixed
due dates or terms.                                                             

Loan Receivable from Sale of Common Stock Investments to an Officer:            

During 1996 and 1995, the chief executive officer of the Company exercised an   
option to purchase common stock investments held by the Company at 110% of the  
book value of such investments. The purchase of such investments was consummated
in a noncash transaction and such officer is to issue a note in favor of the    
Company with interest at prevailing rates and maturing five years from the date 
of the purchase. Total amounts outstanding under such receivable was $356,000   
and $72,000, respectively at December 31, 1996 and 1995. Gains realized by the  
Company on the sale of these investments to the CEO approximated $22,000 and    
$7,000, respectively, for the years ended December 31, 1996 and 1995.           

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Reverse Acquisition of Lafayette Industries, Inc.:                              

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. The amounts due SISC from SESH and its          
subsidiaries as of December 20, 1996, as well as any future advances made by    
SISC to SESH or its subsidiaries, are collateralized by a pledge of all of the  
stock of SESH's subsidiaries and the 1,060,000 shares of TGS stock that is held 
by SISC for the benefit of SESH. Pro forma information on this transaction is   
not presented as, at the date of this transaction, the Lafayette was considered 
a public shell and, accordingly, the transaction was not considered a business  
combination. Lafayette's prior principal business, which was principally the    
manufacture and sale of store fixtures, has been discontinued.                  

PART IV                                                                         

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

1. Financial Statements                                                         
F-1           Report of Moore Stephens, P.C. Independent Certified    
Accountants                             
    F-2 & F-3     Consolidated Balance Sheets as of December 31, 1996 and 1995
 F-4           Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994        
F-5 - F-7     Consolidated Statements of Shareholders' Equity for the 
    Years Ended December 31, 1996, 1995 and 1994
 F-8 - F-10    Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994        
F-11          Notes to Consolidated Financial Statements              

2. Financial Statement Schedules                                                
None                                                                  

3. Reports on Form 8-K                                                          
     On December 20, 1996, the Company filed an 8-K regarding the acquisition of
Lafayette Industries, Inc.                                                      

4. Exhibits                                                                     
3.1      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.                            
11.1     Calculation of earnings per share                            
21.1     List of Subsidiaries of Registrant.                          
27       Financial Data Schedule.(7)                                  
-------                                                                         

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(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.                       

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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, 1997     /S/_____________________
                         Lewis S. Schiller
                             Chairman of the Board

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

Signature                Title                              Date                
---------                -----                              ----                
/S/                      President and Director             April 14, 1997      
Lewis S. Schiller        (Principal Executive                                   
Officer)                      

/S/                      Chief Financial Officer            April 14, 1997      
George W. Mahoney        (Principal Financial and                               
Accounting Officer)           

/S/                      Director                           April 14, 1997      
Norman J. Hoskin                                                                

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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, 1996 
and 1995, and the related consolidated statements of operations, shareholders'  
equity, and cash flows for each of the three years in the period ended December 
31, 1996. 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, 1996 
and 1995, and the consolidated results of their operations and their cash flows 
for each of the three years in the period ended December 31, 1996, 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, 1996 of 
approximately $50,000,000. 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                                                            
April 10, 1997                                                                  

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 Consolidated Balance Sheets

                                                                [Download Table]

                                                     December 31,  December 31,
                                                         1996          1995    
                                                         ----          ----    
                                                                               
Assets:                                                                        
 Current assets:                                                               
  Cash and cash equivalents                          $ 3,866,000   $ 1,636,000 
  Receivables, net of allowances                      21,134,000    19,216,000 
  Inventories                                          3,138,000     3,701,000 
  Loans receivable                                       318,000       397,000 
  Prepaid expenses and other current assets              643,000       436,000 
  Excess of accumulated costs over related billings      937,000     1,002,000 
  Investments in common stock                                 --        20,000 
                                                      ----------    ---------- 
    Total current assets                              30,036,000    26,408,000 
                                                      ----------    ---------- 

 Property, plant and equipment, net                   14,421,000    11,034,000 
                                                      ----------    ---------- 

 Other assets:                                                                 
  Capitalized software development costs                 251,000       118,000 
  Goodwill, net                                       10,553,000    11,881,000 
  Covenants not to compete, net                          886,000     2,168,000 
  Customer lists, net                                 10,775,000    11,684,000 
  Deferred offering costs                                589,000            -- 
  Loans receivable, long-term                            448,000       219,000 
  Receivables, related parties                         1,381,000       544,000 
  Trademark, net                                         368,000       383,000 
  Investments in common stock                            241,000       404,000 
  Other assets                                         1,865,000     1,469,000 
                                                       ---------     --------- 
    Total Other Assets                                27,357,000    28,870,000 
                                                      ----------    ---------- 

      Total Assets                                   $71,814,000   $66,312,000 
                                                     ===========   =========== 

See notes to consolidated financial statements

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 Consolidated Balance Sheets

                                                        [Enlarge/Download Table]

                                                                December 31,   December 31,
                                                                    1996           1995    
                                                                    ----           ----    
                                                                                           
Liabilities and Shareholders' Equity:                                                      
 Current liabilities:                                                                      
  Accounts payable and accrued expenses                         $12,387,000    $11,095,000 
  Accrued payroll and related expenses                            2,731,000      2,332,000 
  Accrued interest                                                  170,000        284,000 
  Income taxes payable                                              738,000        269,000 
  Interim billings in excess of costs and estimated profits       1,444,000      1,701,000 
  Notes payable, related parties                                    985,000        290,000 
  Current portion of long-term debt                               9,641,000      9,080,000 
  Current portion of subordinated debt                            7,193,000     13,354,000 
  Convertible debentures                                            700,000             -- 
  Current portion of capitalized lease obligations                1,476,000      1,362,000 
                                                                  ---------      --------- 
    Total current liabilities                                    37,465,000     39,767,000 
                                                                 ----------     ---------- 

 Long-term liabilities:                                                                    
  Deferred interest                                                 568,000             -- 
  Long-term debt                                                 16,467,000      6,210,000 
  Capitalized lease obligations                                   2,981,000      2,198,000 
  Subordinated debt                                                 312,000      5,003,000 
                                                                    -------      --------- 
    Total long-term liabilities                                  20,328,000     13,411,000 
                                                                 ----------     ---------- 

Minority interest                                                12,617,000      2,087,000 
                                                                 ----------      --------- 

Shareholders' equity:                                                                      
 Preferred stock                                                    26,000         70,000  
 Additional paid-in-capital, preferred stock                        92,000        266,000  
 Common stock (50,000,000 shares authorized, 45,795,828 and                                
  26,655,071 shares issued and outstanding as of December 31,                              
  1996 and 1995, respectively)                                     458,000        267,000  
 Additional paid-in-capital, common stock                       50,944,000     51,020,000  
 Accumulated deficit                                           (50,218,000)   (40,648,000) 
 Unrealized gain (loss) on exchange translation                     86,000        (17,000) 
 Net unrealized gain on long-term investments in common stock       16,000         89,000  
                                                                    ------         ------  
   Total shareholders' equity                                    1,404,000     11,047,000  
                                                                 ---------     ----------  

     Total Liabilities and Shareholders' Equity                $71,814,000    $66,312,000  
                                                               ===========    ===========  

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               1994     
                                                    ----                 ----               ----     
                                                                                                     
Revenues                                        $114,924,000         $110,097,000        $41,578,000 

Direct Costs                                      92,760,000           89,174,000         35,427,000 
                                                  ----------           ----------         ---------- 
Gross Profit                                      22,164,000           20,923,000          6,151,000 

Selling, General and Administrative               31,502,000           32,035,000         16,615,000 
                                                  ----------           ----------         ---------- 
Loss from Operations                              (9,338,000)         (11,112,000)       (10,464,000)
                                                  -----------         ------------       ------------
Other Income (Expense):                                                                              
 Interest expense                                 (4,546,000)          (4,084,000)        (1,220,000)
 Other income, net                                   954,000              373,000            447,000 
 Gain (loss) from security sales                     823,000              (35,000)          (299,000)
                                                     -------              --------          ---------
  Total other expense, net                        (2,769,000)          (3,746,000)        (1,072,000)
                                                  -----------          -----------        -----------

Loss Before Income Taxes and Minority Interest   (12,107,000)         (14,858,000)       (11,536,000)

Income Taxes                                        (561,000)            (226,000)           (24,000)

Minority Interest in Loss of Subsidiaries          3,098,000            3,724,000            132,000 
                                                   ---------            ---------            ------- 

Net Loss                                         ($9,570,000)        ($11,360,000)      ($11,428,000)
                                                 ============        =============      =============

Net loss per common share                             ($0.23)              ($0.51)            ($0.80)
                                                      =======              =======            =======

Weighted average number of common shares          41,639,293           22,423,035         14,205,789 
                                                  ==========           ==========         ========== 

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    Equity    
                                      Balance                       Stock       in Lieu     Recapitali- 
                                        at          Conversion     Issued     of Cash for   zation from 
                                    December 31,    of Series A      for        Services      Reverse   
                                        1995         Preferred    Offerings     Rendered    Acquisition 
                                        ----         ---------    ---------     --------    ----------- 
                                                                                                        
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                       $51,020,000    $  161,000    $   780,000  $   43,000    ($1,060,000)
Accumulated deficit                ($40,648,000)           --             --          --             -- 
Unrealized exchange translation    ($    17,000)           --             --          --             -- 
Net unrealized gain on long-term                                                                        
 investments in common stock        $    89,000            --             --          --             -- 
                                    -----------    ----------    -----------  ----------    ------------
  Total shareholders' equity        $11,047,000   ($        0)   $   912,000  $   45,000    ($1,060,000)
                                    ===========   ============   ===========  ==========    ============

                                                                                            (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        Net             Balance   
                                                   Gain on      Unrealized           at      
                                        Net       Exchange      Investment      December 31, 
                                        Loss     Translation  Security Gains        1996     
                                        ----     -----------  --------------        ----     
                                                                                             
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                               --            --              --    $ 50,944,000 
Accumulated deficit                ($9,570,000)           --              --   ($ 50,218,000)
Unrealized exchange translation             --     $ 103,000              --    $     86,000 
Net unrealized gain on long-term                                                             
 investments in common stock                --            --       ($ 73,000)   $     16,000 
                                   -----------     ---------       ----------   ------------ 
  Total shareholders' equity       ($9,570,000)    $ 103,000       ($ 73,000)   $  1,404,000 
                                   ===========     =========       ==========   ============ 

                                                                                (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, 1995

                                                        [Enlarge/Download Table]

                                                                              Stock Issued               
                                      Balance                       Stock       in Lieu     Stock Issued 
                                        at          Conversion     Issued     of Cash for      for the   
                                    December 31,    of Series A      for        Services     Exercise of 
                                        1994         Preferred    Offerings     Rendered    Stock Options
                                        ----         ---------    ---------     --------    -------------
                                                                                                         
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      6,500,000  
   Amounts                          $   176,000    $   15,000    $    10,000  $    1,000         65,000  
Additional paid-in capital,                                                                              
 common stock                       $45,597,000    $   42,000    $   240,000  $  113,000    ($5,028,000) 
Accumulated deficit                ($29,288,000)           --             --          --             --  
Unrealized exchange translation    ($    33,000)           --             --          --             --  
Net unrealized gain on long-term                                                                         
 investments in common stock       ($   139,000)           --             --          --             --  
                                    -----------    ----------    -----------  ----------    ------------ 
  Total shareholders' equity        $16,704,000    $    2,000    $   250,000  $  114,000    ($5,093,000) 
                                    ===========    ==========    ===========  ==========    ============ 

                                                                                            (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]

                                                                   Net                    
                                                  Unrealized    Unrealized      Balance   
                                                    Gain on     Investment         at     
                                           Net     Exchange      Security     December 31,
                                           Loss   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                                    --          --             --     26,655,071 
   Amounts                                   --          --             --   $    267,000 
Additional paid-in capital,                                                               
 common stock                                --          --             --   $ 51,020,000 
Accumulated deficit                ($11,360,000)         --             --  ($ 40,648,000)
Unrealized exchange translation              --   $  16,000             --  ($     17,000)
Net unrealized gain on long-term                                                          
 investments in common stock                 --          --      $ 228,000   $     89,000 
                                   -------------   ---------      --------   ------------ 
  Total shareholders' equity       ($11,360,000)  $  16,000      $ 228,000   $ 11,047,000 
                                   =============   =========      ========   ============ 

                                                                             (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, 1994

                                                        [Enlarge/Download Table]

                                                                               Stock Issued               
                                      Balance        Stock          Stock         in Lieu    Stock Issued 
                                        at           Issued         Issued      of Cash for     for the   
                                    December 31,       for            for        Services     Exercise of 
                                        1993        Acquisitions   Offerings     Rendered    Stock Options
                                        ----        ------------   ---------     --------    -------------
                                                                                                          
Preferred stock $1.00 par value,                                                                          
 6% Series A, Authorized                                                                                  
 77,713 shares:                                                                                           
   Shares                                77,713            --              --          --             --  
   Amounts                          $    78,000            --              --          --             --  
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            --              --          --             --  
Additional paid-in capital                                                                                
 preferred stock                    $   310,000            --              --          --             --  
Common stock, $0.01 par value.                                                                            
 50,000,000 shares authorized                                                                             
   Shares                             5,074,260     5,803,000       3,500,000     200,000      3,000,000  
   Amounts                          $    51,000    $   58,000     $    35,000  $    2,000         30,000  
Additional paid-in capital,                                                                               
 common stock                       $23,384,000    $6,679,000     $ 8,330,000  $   94,000     $7,110,000  
Accumulated deficit                ($17,860,000)           --              --          --             --  
Unrealized exchange translation              --            --              --          --             --  
Net unrealized gain on long-term                                                                          
 investments in common stock       ($   269,000)           --              --          --             --  
                                    -----------    ----------     -----------  ----------     ----------  
  Total shareholders' equity        $ 5,697,000    $6,737,000     $ 8,365,000  $   96,000     $7,140,000  
                                    ===========    ==========     ===========  ==========     ==========  

                                                                                             (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, 1994

                                                        [Enlarge/Download Table]

                                                                    Net                    
                                                   Unrealized    Unrealized      Balance   
                                                     Gain on     Investment         at     
                                           Net      Exchange      Security     December 31,
                                           Loss    Translation  Gain (Loss)        1994    
                                           ----    -----------  -----------        ----    
                                                                                           
Preferred stock $1.00 par value,                                                           
 6% Series A, Authorized                                                                   
 77,713 shares:                                                                            
   Shares                                    --           --             --        77,713  
   Amounts                                   --           --             --   $    78,000  
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 
Additional paid-in capital                                                                 
 preferred stock                             --           --             --   $    310,000 
Common stock, $0.01 par value.                                                             
 50,000,000 shares authorized                                                              
   Shares                                    --           --             --     17,577,260 
   Amounts                                   --           --             --   $    176,000 
Additional paid-in capital,                                                                
 common stock                                --           --             --   $ 45,597,260 
Accumulated deficit                ($11,428,000)          --             --  ($ 29,288,000)
Unrealized exchange translation              --   ($  33,000)            --  ($     33,000)
Net unrealized gain on long-term                                                           
 investments in common stock                 --           --      $ 130,000  ($    139,000)
                                   -------------  -----------     ---------  --------------
  Total shareholders' equity       ($11,428,000)  ($  33,000)     $ 130,000   $ 16,704,000 
                                   =============  ===========     =========   ============ 

                                                                              (concluded)  

 See notes to consolidated financial statements.

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 Consolidated Statements of Cash Flows

                                                        [Enlarge/Download Table]

                                                                                Year Ended December 31,               
                                                                                -----------------------               
                                                                     1996                1995                1994     
                                                                     ----                ----                ----     
                                                                                                                      
Cash Flows from Operating Activities:                                                                                 
 Net loss                                                         ($9,570,000)       ($11,360,000)       ($11,428,000)
                                                                  ------------       -------------       -------------
 Adjustments to reconcile net loss to net cash                                                                        
  provided by (used in) operating activities:                                                                         
   Depreciation and amortization                                    6,967,000           7,602,000           2,187,000 
   Impaired asset write-offs                                          701,000                  --             338,000 
   Minority interest in net loss of consolidated subsidiaries      (3,098,000)         (3,724,000)           (132,000)
   Bad debt expense                                                 2,588,000           1,223,000              83,000 
   Loss from equity method investments                                264,000                  --                  -- 
   Noncash expenses paid with the issuance of stock                    45,000             114,000              97,000 
   Noncash expenses paid with the issuance of subsidiaries stock    1,827,000              11,000                  -- 
   Noncash expense from issuance of options                                --           3,869,000           4,140,000 
   Noncash expense from subsidiaries issuance of options            3,722,000           2,214,000                  -- 
   Write-down of fixed assets to fair value                                --                  --             225,000 
   Write-off of loans receivable                                           --                  --             279,000 
   (Gain) loss from security sales                                   (823,000)             35,000             299,000 
   Loss on disposal of fixed assets                                   167,000              60,000                  -- 
   Deferred interest                                                  568,000                  --                  -- 
  Change in assets and liabilities:                                                                                   
   (Increase) decrease in assets:                                                                                     
   Receivables                                                     (4,511,000)         (3,301,000)         (1,900,000)
   Inventories                                                        562,000             577,000             789,000 
   Prepaid expenses and other current assets                         (184,000)            (10,000)            559,000 
   Excess of accumulated costs over related billings                   65,000          (1,002,000)                 -- 
  Increase (decrease) in liabilities:                                                                                 
   Accounts payable and accrued  expenses                              90,000           3,667,000           2,263,000 
   Accrued payroll taxes and related expenses                         399,000             558,000            (968,000)
   Accrued interest                                                  (114,000)            171,000            (532,000)
   Income taxes payable                                               469,000             249,000              (7,000)
   Interim billings in excess of costs and estimated profits         (256,000)          1,046,000             (89,000)
                                                                    ----------          ---------             --------
     Total adjustments                                              9,448,000          13,359,000           7,631,000 
                                                                    ---------          ----------           --------- 
       Net cash provided by (used in) operating activities           (122,000)          1,999,000          (3,797,000)
                                                                     ---------          ---------          -----------

                                                                                                           (continued)

See notes to consolidated financial statements

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

                                                        [Enlarge/Download Table]

                                                                             Year Ended December 31,              
                                                                             -----------------------              
                                                                  1996                1995               1994     
                                                                  ----                ----               ----     
                                                                                                                  
Cash Flows from Investing Activities:                                                                             
 Increase in other assets                                         (292,000)           (463,000)          (532,000)
 Capital expenditures                                           (4,920,000)           (684,000)        (2,150,000)
 Proceeds from disposal of fixed assets                                 --             220,000                 -- 
 Capitalized software development costs                           (279,000)            (20,000)          (337,000)
 Investments in securities                                        (385,000)             (7,000)          (392,000)
 Proceeds from sale of securities                                1,244,000             530,000             45,000 
 Acquisition of a subsidiary                                            --            (983,000)        (8,358,000)
 Cash of company acquired                                        1,020,000             504,000          2,422,000 
 Cash of company sold                                                   --                  --             (6,000)
 Payments for loans made                                        (3,523,000)         (3,022,000)        (1,493,000)
 Collections for repayment of loans made                         3,449,000           3,223,000            106,000 
                                                                 ---------           ---------            ------- 
          Net cash used in investing activities                 (3,686,000)           (702,000)       (10,695,000)
                                                                -----------           ---------       ------------

Cash Flows from Financing Activities:                                                                             
 Deferred offering costs                                          (589,000)           (129,000)          (331,000)
 Net advances from asset based lender                              165,000             366,000            550,000 
 Proceeds from issuance of notes payable                        19,468,000           1,297,000          7,169,000 
 Repayment of notes payable                                     (9,267,000)         (6,909,000)        (2,452,000)
 Repayment of subordinated debt                                (10,852,000)                 --                 -- 
 Payments on capital lease obligations                          (1,565,000)         (1,194,000)          (165,000)
 Issuance of common stock                                          912,000             250,000          8,162,000 
 Subsidiaries issuance of common stock                           7,510,000           2,990,000                 -- 
 Costs of subsidiaries stock issuance                           (1,369,000)                 --                 -- 
 Issuance of stock options                                              --           1,225,000          3,000,000 
 Subsidiaries issuance of stock options                          1,625,000             716,000                 -- 
                                                                 ---------             -------          --------- 
          Net cash provided by (used in) financing activities    6,038,000          (1,388,000)        15,933,000 
                                                                 ---------          -----------        ---------- 

Net Increase (Decrease) in Cash and Cash Equivalents             2,230,000             (91,000)         1,441,000 

Cash and Cash Equivalents at Beginning of Period                 1,636,000           1,727,000            286,000 
                                                                 ---------           ---------            ------- 

Cash and Cash Equivalents at End of Period                      $3,866,000          $1,636,000         $1,727,000 
                                                                ==========          ==========         ========== 

Supplemental Disclosures of Cash Flow Information:                                                                
 Cash paid for:                                                                                                   

  Interest                                                      $4,092,000          $3,912,000         $1,062,000 
                                                                ==========          ==========         ========== 
  Income taxes                                                     $93,000             $23,000                 -- 
                                                                   =======             =======                    
                                                                                                       (concluded)

See notes to consolidated financial statements

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 Consolidated Statements of Cash Flows

Supplemental Disclosures of Noncash Investing and Financing Activities:         
During the year ended December 31, 1996:                                      
 (1) A subsidiary of the Company issued stock options and warrants to purchase
      stock and in connection therewith recorded a noncash expense of $3,492,000
    which is the amount that the fair market value of the stock exceeded the
exercise price.                                                     
(2) Two subsidiaries of the Company issued common stock with a value of     
      $1,827,000 in lieu of cash payment for services rendered and in connection
   therewith recorded a noncash expense for the value of the stock issued.
  (3) Pursuant to the terms of his employment agreement, an officer and director
     of the Company exercised his option to purchase ten percent of the equity
    holdings of the Company.  In connection therewith the Company recorded a
receivable of $300,000, the amount of the exercise price.           
(4) Purchased equipment under capital lease obligations with a net present  
value of $2,363,000.                                                
(5) Pursuant to an acquisition of another entity by one of the Company's    
 subsidiaries, in a transaction accounted for as a reverse merger, the
  subsidiary recorded an excess of liabilities over assets of $1,061,000
resulting in a decrease in additional paid-in capital.              

During the year ended December 31, 1995, the Company:                         
(1) Acquired equipment under capital lease obligations with a net present   
value of $817,000.                                                  
(2) Recived common stock in lieu of cash payments for notes and accrued     
interest receivable with a book value of $217,000.                  
(3) Pursuant to an acquisition of another entity by one of the Company's    
subsidiaries, in a transaction accounted for as a reverse merger:   
a) Reduced the Company's equity ownership in such subsidiary which  
resulted in an increase in minority interest of $5,811,000.   
b) Acquired net assets with a book value of $983,000.               
(4) Issued stock options and received exercise proceeds of $1,225,000 and   
incurred noncash expenses of $3,869,000.                            
(5) Issued common stock with a value of $114,000 in lieu of cash payment for
services rendered.                                                  

During the year ended December 31, 1994, the Company:                         
(1) Purchased equipment in the amount of  $186,000 and assumed capital lease
obligatons for $137,000 and notes payable for $49,000.              
(2) Acquired capitalized software costs in the amount of $150,000 and and   
assumed notes payable for the full amount.                          
(3) Acquired equipment in the amount of $35,000 and assumed notes payable   
for the full amount.                                                
(4) Acquired a covenant not-to-compete in the amount of $800,000 and assumed
notes payable for the full amount.                                  
(5) Acquired Creative Socio-Medics and in connection therewith assumed      
long-term debt approximating $530,000.                              
(6) Acquired International Magnetic Imaging and in connection therewith     
assumed subordianted notes approximating $19,800,000, long-term debt
 approximating $12,000,000 and capital lease obligations approximating
$3,700,000.                                                         
  (7) Acquired Job Shop Technical Services and Computer Engineering Services and
      in connection therewith assumed subordinated debt approximating $1,500,000
and long-term debt approximating $2,600,000 and issued stock with a 
discounted value of $900,000.                                       
(8) Incurred $4,140,000 in noncash expense from the issuance and exercise of
3,000,000 options.                                                  

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 eight primary business segments throughout the United States:      

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

(iii) Electro-Mechanical and Electro-Optical Products Manufacturing consists of 
Sequential Electronic Systems, Inc., ("SES"), S-Tech, Inc., ("S-Tech"),         
Televend, Inc., ("Televend"), and FMX, Corp., (FMX") which are all subsidiaries 
of SES Holdings Inc., ("SESH") which is a wholly owned subsidiary of Lafayette  
Industries, Inc., which are companies that 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                                                         

(iv) 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                                              

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

(vi) 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                                                             

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

(viii) 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 for the years ended December 31, 1996, 1995 and
1994 are as follows:                                                            

                                                                [Download Table]

                                                               1996  1995  1994
                                                               ----  ----  ----
                                                                               
Contract Engineering Services                                  54%   57%    60%
Medical Diagnostics                                            27%   25%    15%
Electro-Mechanical and Electro-Optical Products Manufacturing   3%    4%    9% 
Medical Information Services                                    7%    7%    7% 
Telecommunications                                              5%    3%    6% 
Three Dimensional Products and Services                         1%    1%    2% 
Audio Products Manufacturing                                    3%    2%    -- 
Business Consulting Services                                   --     1%    1% 

For a complete discussion of the Company's business segments, see Footnote 15,  
"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.        

Accounting Period - Effective December 31, 1994, the Company changed to a       
calendar year. Prior to 1994 the Company utilized a fiscal year ending July 31  
of each year. The accompanying financial statements include balance sheets for  
the year ended December 31, 1996 and 1995 and statements of operations, cash    
flows and changes in stockholder's equity for the years ended December 31, 1996,
1995 and 1994                                                                   

Cash and Cash Equivalents - The Company considers all highly liquid instruments 
purchased with a maturity of three months or less to be cash equivalents.       
International Magnetic Imaging, Inc. ("IMI"), a wholly owned subsidiary of the  
Company, has cash balances of $1,539,000 and $1,411,000 at December 31, 1996 and
1995, respectively, which represents 40% and 86% of total cash for the same     
respective periods. The use of IMI's cash is restricted pursuant to an IMI      
financing agreement with its principle lender, whereby IMI may not make payments
out of the ordinary course of IMI operations and specifically, not to the parent
company, (Consolidated), or any subsidiary or affiliate.                        

Inventories - Inventories are valued at the lower of cost or market. Cost is    
determined by the first-in, first out method with the exception of the Audio    
Products Manufacturing segment which values inventory at standard cost which    
approximates first-in, first out. Costs accumulated under government contracts  
are net of progress payments.                                                   

Property, Plant and Equipment - Property, plant and equipment are carried at    
cost less allowances for accumulated depreciation. The cost of furniture and    
equipment held under capital leases is equal to the lower of the net present    
value of the minimum lease payments or the fair value of the leased property at 
the 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 5-7 years for furnitures and 
fixtures, 6 years for medical equipment, 5-10 years for tooling and dies and    
machinery and equipment, 5 years for vehicles and 25 years for buildings.       
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 Electro-Mechanical and Electro-Optical Products 
Manufacturing, Medical Information Services, Audio Products Manufacturing and   
Three Dimensional Products and Services segments. The Company's research and    
development expenses for the years ended December 31, 1996, 1995 and 1994       
approximated $276,000, $893,000 and $4,842,000, respectively. All of the        
Company's research and development activities were performed by the subsidiaries
and 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, customer lists and       
trademarks. The Financial Accounting Standards Board ("FASB") issued Statement  
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the         
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in
March of 1995. SFAS 121 established accounting standards for the impairment of  
long-lived assets, certain identifiable intangibles, and goodwill related to    
those assets to be held and used, and for long-lived assets and certain         
identifiable intangibles to be disposed of. SFAS No. 121 became effective for   
financial statements issued for fiscal years beginning after December 15, 1995. 

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. 

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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. Management of  
the Company evaluates the period of goodwill amortization to determine whether  
latter events and circumstances warrant revised estimates of useful lives. This 
evaluation is done, on the subsidiary level, by comparing the carrying value of 
goodwill to the value of projected net cash flows from related operations.      
Impairment is recognized if the carrying value of goodwill is greater than the  
projected discounted cash flows from related operations. IMI accounts for $9.7  
million, or 92%, of the goodwill and is able to support this level of goodwill  
based on the cash flow of this subsidiary.                                      

Covenants Not to Compete - The capitalized value of covenants not to compete are
being amortized on the straight-line basis over their contractual lives which   
range from three to five years.                                                 

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

Trademark - The trademark, which was acquired as a part of a reverse merger in  
May 1995, relates to the Audio Products Manufacturing segment and has a cost    
basis which represents the net present value of the payments for such trademark 
at the time it was acquired. This trademark gives the Company a nonexclusive    
trademark license to use the "KlipschTM" name for the production and sale of    
various professional loudspeaker products. The Klipsch name and related speakers
were developed in the 1940's and is an established name as a leader in          
loudspeaker design and innovation. The Company believes that the acquisition of 
the KlipschTM trademark gives the Company one of the most long-established and  
recognizable brand names in the industry. The trademark is being amortized over 
25 years on a straight line basis.                                              

Impairment - Certain long-term assets of the Company including the above        
described intangible assets, are reviewed on a quarterly basis as to whether    
their carrying value has become impaired, pursuant to guidance established in   
Statement of Financial Accounting Standards No. 121, "Accounting for the        
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed."          
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)  is determined at the subsidiary     
level.  Based on this  evaluation,  as of December  31,  1996,  the  balances as
reported in the accompanying balance sheet are expected to be fully recoverable.
During the year ended December 31, 1996, the Company wrote-off impaired goodwill
of  $701,000 of which  $509,000  related to the  telecommunications  segment and
$192,000 related to the three dimensional products and services segment.        

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 1996, deferred offering costs amounted to      
$322,000, $151,000 and $116,000, respectively, in the medical diagnostics,      
contract engineering services and three dimensional products and services       
segments. Additionally, during 1996, the medical information services segment   
completed a public offering in which offering costs of $1,370,000 were incurred 
and offset against the total gross proceeds of the offering. During 1995 and    
1994 the medical information services segment incurred deferred offering costs  
of $129,000 and $331,000, respectively, and such amounts would have been        
recorded as a reduction of the net proceeds of the anticipated offering,        
however; the total accumulated amount of such costs of $460,000 was expensed    
during the year ended December 31, 1995 since the offering was not consummated. 

Investments in Common Stock -The Company adopted Statement of Financial         
Accounting Standards ("SFAS") 115 "Accounting for Certain Investments in Debt   
and Equity Securities", in 1994. SFAS 115 requires certain investments that have
readily determinable fair values to be categorized as either trading,           
available-for-sale, or held-to-maturity. All of the Company's equity investments
in common stock are categorized as available-for-sale and are recorded at fair  
value with unrealized gains and losses recorded as a separate component of      
stockholders' equity. Additionally, available-for-sale investments that are     
deemed to be permanently impaired are written down to fair market value and such
write down is charged to earnings as a realized loss. The adoption of this      
standard has not impacted the Company's financial statements since previous     
unrealized losses on such investments were already reflected as a separate      
component of stockholders' equity.                                              

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 $1,649,000 and       
$1,132,000, respectively, at December 31, 1996 and 1995.                        

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Revenue Recognition - Revenue for the service sector is recognized as services  
are provided. Revenue from the manufacturing sector is recognized primarily     
under fixed price type contracts and are accounted for under the unit of        
delivery method. Anticipated losses on contracts in progress are charged to     
operations as soon as losses can be determined. Revenues from fixed price       
software development contracts and revenue under license agreements which       
require significant modification of the software package to the customer's      
specification, are recognized on the estimated percentage-of-completion method. 
Revisions in cost estimates and recognition of losses on these contracts are    
reflected in the accounting period in which the facts become known. Revenue from
the software package license agreements without significant vendor obligations  
is recognized upon delivery of the software. Information processing revenues are
recognized in the period in which the service is provided. Net patient service  
revenues are reported at the estimated net realizable amounts from patients,    
third-party payers, and others for services rendered, including provisions for  
estimated contractual adjustments under reimbursement agreements with           
third-party payers. The Medical Diagnostic Segment has historically not provided
any significant amount of charity care. Maintenance contract revenue is         
recognized on a straight-line basis over the life of the respective contract.   
Software development revenues from time-and-materials contracts are recognized  
as services are performed.                                                      

Contract terms which provide for billing schedules that differ from revenue     
recognition give rise to costs and estimated profits in excess of billings and  
billings in excess of costs and estimated profits. Costs, estimated profits, and
billings on uncompleted contracts are summarized as follows:                    

                                              December 31,
                                              ------------
                                              1996                1995
                                              ----                ----
Costs Incurred on Uncompleted Contracts         $3,490,000          $2,697,000  
Estimated Profits                                  653,000             490,000  
Less Billings to Date                           (4,650,000)         (3,886,000) 
                                               ---------            --------
  Net                                        ($   507,000)       ($   699,000)
                                              ==========          ==========

Included in the accompanying balance sheet                                      
under the following captions:                                                   

Excess of accumulated costs over related                                        
billings                                      $   937,000          $1,002,000 
Interim billings in excess of costs and                                         
estimated profits                              (1,444,000)         (1,701,000)
                                               ---------           ---------
  Net                                        ($   507,000)       ($   699,000)
                                              ==========          ==========

Loss Per Share - Earnings (loss) per share are computed by dividing the net     
income (loss) for the year by the weighted average number of common shares      
outstanding. For purposes of computing weighted average number of common shares 
outstanding the Company has common stock equivalents consisting of stock options
and warrants and Series "A" Preferred Convertible Stock. The Series "A"         
Preferred Stock was deemed to be a common stock equivalent when issued. The     
common stock equivalents are assumed converted to common stock, when dilutive.  
During periods of operations in which losses were incurred, common stock        
equivalents were excluded from the weighted average number of common shares     
outstanding because their inclusion would be anti-dilutive.                     

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 are as follows:                         

                                                        [Enlarge/Download Table]

                                              Carrying Amount                  Fair Value         
                                               December 31,                   December 31,        
                                          1996              1995         1996              1995   
                                          ----              ----         ----              ----   
                                                                                                  
Current Portion of Subordinated Debt   $7,193,000       $13,354,000   $6,583,000       $13,354,000
Long-term Debt                         16,467,000         6,210,000   16,324,000         6,026,000
Convertible Debentures                    700,000                --      700,000                --
Subordinated Debt                         312,000         5,003,000      266,000         4,312,000
                                          -------         ---------      -------         ---------
  Total                               $24,672,000       $24,567,000  $23,873,000       $23,692,000
                                       ==========        ==========   ==========        ==========

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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 from its customers. 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, 1996 and 1995, the Company had cash balances 
in excess of federally insured limits of approximately $1,784,000 and $602,000, 
respectively. For the year ended December 31, 1996, significant customers are as
follows: (1) three customers represented $16,000,000, $13,000,000 and           
$9,000,000, respectively of sales in the contract engineering services segment, 
and; (2) the medical information services segment received 31%, or $2,647,000 of
its revenue from contracts with government agencies and $1,879,000 from one     
customer.                                                                       

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, however, the Company will continue to apply the intrinsic value based
method of accounting for options issued to employees prescribed by Accounting   
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to        
Employees" 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 year ended December 31, 1995 and 1994 items have   
been reclassified to conform to the December 31, 1996 presentation.             

(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 $9,570,000 for the year ended    
December 31, 1996, has an accumulated deficit to that date of $50,218,000 and as
of December 31, 1996 and $7,227,000 of debt that is in default. These conditions
raise substantial doubt about the Company's ability to continue as a going      
concern. The ability of the Company to continue as a going concern is dependent 
upon the success of the Company's subsidiary's marketing efforts and their      
efforts to obtain sufficient funding to enable them to continue operations.     
Management's plan is to continue efforts to raise capital through initial 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.                                                                      

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(3) Receivables, Net of Allowances                                              

                                      December 31,
                                      ------------
                                      1996                1995
                                      ----                ----
Receivables                                $23,146,000         $22,433,000      
Less: Allowance for bad debts               (2,012,000)         (3,217,000)     
                                       ---------           ---------
Receivable, net of allowances              $21,134,000         $19,216,000      
                                      ==========          ==========

The contract engineering services, the medical information services, the audio  
products manufacturing and the telecommunications segments all finance a        
significant portion of their receivables with asset based lenders under         
agreements which are renewable annually and have a maximum availability of funds
of $8,000,000. Funds can be advanced in an amount ranging from 75% to 85% of    
eligible receivables, with the lender having the right to reserve a portion of  
the outstanding and unpaid receivables financed. The effective interest rate on 
such financing agreements as of December 31, 1996 was 10.25% for the contract   
engineering services and telecommunications segments, 18% for the medical       
information services segment and 12% for the audio products manufacturing       
segment. Additionally, the agreements require fees that range from 0.3% to 1% of
the receivables financed. The lenders have security interests in all accounts   
receivables, contract rights, personal property, fixtures and inventory of the  
related segments. At December 31, 1996 and 1995 the total amount of outstanding 
advances from asset based lenders was $4,550,000 and $4,386,000, respectively.  

The medical diagnostics segment has a revolving loan that has a borrowing       
ceiling of $6,000,000 and bears interest at prime plus 2.75%. Net borrowings on 
the revolving loan as of December 31, 1996 was $4,715,000 and substantially all 
of the segment's accounts receivable are pledged as collateral.                 

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

                                              December 31,
                                              ------------
                                              1996                1995
                                              ----                ----
Balance at beginning period                     $3,217,000          $2,850,000  
Provision for the period                         2,588,000           1,223,000  
Recoveries                                         221,000             256,000  
Write-offs for the period                       (4,014,000)         (1,112,000) 
                                               ---------           ---------
Balance at end of period                        $2,012,000          $3,217,000  
                                               =========           =========

(4) - Inventories                                                               

                                              December 31,
                                              ------------
                                               1996               1995
                                               ----               ----
Finished Goods                                 $     69,000       $     98,000  
Work-in-Process                                   1,663,000          1,336,000  
Raw Materials and Parts                           2,187,000          2,617,000  
                                                ---------          ---------
                                                3,919,000          4,051,000
Less:  Allowance for Obsolescence                  (781,000)          (350,000) 
Inventories, Net of Allowance for Obsolescence  $3,138,000         $3,701,000 
                                                =========          =========

The work-in-process represents accumulated costs of raw materials, direct labor 
and factory overhead expenses on current work orders. Finished goods represent  
computer software inventory purchased for resale. During the years ended        
December 31, 1996,1995 and 1994 approximately $381,000, $470,000 and $307,000 of
inventory was written-off due to obsolescence.                                  

(5) Loans Receivable                                                            

                                              December 31,
                                              ------------
                                               1996               1995
                                               ----               ----
Assignment of Mortgage Loan                       $ 497,000                 --  
Fingermatrix                                        217,000          $ 621,000  
Other                                               222,000            170,000  
                                                  -------            -------
                                                  936,000            791,000
Less:  Allowance for doubtful accounts             (170,000)          (175,000) 
                                                  -------           --------
Loans Receivable, Net                               766,000            616,000  
Long-term portion                                   448,000            219,000  
                                                  -------            -------
Current portion                                   $ 318,000          $ 397,000  
                                                  =======            =======

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Assignment of Mortgage Loan - In December 1996, Lafayette Industries, Inc., a   
subsidiary of the Company, accepted assignment of a purchase mortgage loan. The 
loan bears interest at prime plus 2% and matures on May 1, 2002.                

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. The allowance for  
doubtful accounts relates to notes receivable other than the Fingermatrix loan. 

(6) Receivables from Related Parties                                            

                                                        [Enlarge/Download Table]

                                                                                December 31,         
                                                                                ------------         
                                                                          1996                1995   
                                                                          ----                ----   
                                                                                                     
Universal  International, an unconsolidated affiliate - Loan consists                                
  of cash advances and has no fixed due dates or terms.                $  587,000           $ 427,000

Loan to the president of IMI, including interest of $8,000,                                          
 calculated at 5.5% per annum, due in 1998.                               308,000              45,000

Loan to the president of TGS, loan has no interest or repayment terms.     45,000                  --

Receivable from the chief executive officer of Consolidated with                                     
 interest at 9%, payable quarterly and matures in the year 2000           356,000              72,000

Advances to Director of Lafayette Industries, Inc. which is to                                       
 be repaid in 1997                                                         85,000                  --
                                                                           ------              ------
       Receivables, Related Parties                                    $1,381,000           $ 544,000
                                                                        =========             =======

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(7) Investments in Common Stock                                                 

                                                    December 31,
                                                    ------------
                                                    1996          1995
                                                    ----          ----
Cost basis                                             $ 225,000     $ 335,000  
Net unrealized gain (loss) included as a separate                               
component of shareholders' equity                        16,000        89,000 
                                                        ------        ------
Market Value                                             241,000       424,000  
Current portion                                               --        20,000  
                                                       -------        ------
Long-term portion                                      $ 241,000     $ 404,000  
                                                       =======       =======

Change in the Net Unrealized gain on long-term                                  
investments in common stock:                                                  
Balance at Beginning of Period                         $  89,000    ($ 139,000) 
Adjust Investments to fair Market Value                  250,000       172,000  
Realization of Previously Unrealized (Gain) Loss        (323,000)       56,000  
                                                      ---------       ------
Balance at End of Period                               $   16,000    $  89,000  
                                                      =========     ========

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 (Loss) on security sales is calculated as follows:           

                                 Year Ended December 31,
                                 1996            1995             1994
                                 ----            ----             ----
Proceeds from Security Sales       $1,244,000       $ 530,000        $  45,000  
Cost of Securities Sold               421,000         565,000          344,000  
                                    -------         -------          -------
Gain (Loss) on Security Sales      $  823,000      ($  35,000)      ($ 299,000) 
                                  =========        ========         ========

(8) Property, Plant and Equipment                                               
                                            December 31,
                                            ------------
                                            1996                1995
                                            ----                ----
Land                                         $    664,000        $    664,000   
Buildings                                       3,467,000           3,242,000   
Medical Equipment                              17,489,000          14,590,000   
Machinery and Equipment                         2,536,000           2,019,000   
Tools and Dies                                    654,000             601,000   
Furniture and Equipment                         3,638,000           4,097,000   
Vehicles                                           25,000              25,000   
Leasehold Improvements                          2,034,000           1,504,000   
                                             ---------           ---------
                                            30,507,000          26,742,000
Less:  Accumulated Depreciation               (19,610,000)        (18,110,000)  
                                            ----------          ----------
                                            10,897,000           8,632,000
                                            ----------           ---------
Equipment Held Under Capital Lease              9,163,000           6,843,000   
Less:  Accumulated Depreciation                (5,639,000)         (4,441,000)  
                                             ---------           ---------
                                             3,524,000           2,402,000
                                             ---------           ---------
Property, Plant and Equipment, Net         $14,421,000         $11,034,000
                                            ==========          ==========

Depreciation  expense charged to operations was $3,729,000, $3,472,000 and      
$952,000 for the years ended December 31, 1996, 1995 and 1994, respectively.    

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(9) Intangible Assets                                                           

                                                  December 31,
                                                  ------------
                                                  1996            1995
                                                  ----            ----
Capitalized Software Development Costs              $1,242,000        $963,000  
Less:  Accumulated Amortization                    (   991,000)       (845,000) 
                                                  ----------         -------
 Capitalized Software Development Costs, Net     $   251,000        $118,000
                                                  ==========         =======

Goodwill                                           $12,199,000     $12,901,000  
Less:  Accumulated Amortization                   (  1,646,000)   (  1,020,000) 
                                                 -----------     -----------
  Goodwill, Net                                  $10,553,000     $11,881,000
                                                  ==========      ==========

Covenants Not to Compete                            $3,954,000      $3,954,000  
Less:  Accumulated Amortization                     (3,068,000)     (1,786,000) 
                                                   ---------       ---------
 Covenants Not to Compete, Net                   $   886,000      $2,168,000
                                                  ==========       =========

Customer Lists                                     $13,046,000     $13,046,000  
Less:  Accumulated Amortization                   (  2,271,000)   (  1,362,000) 
                                                 -----------     -----------
 Customer Lists, net                             $10,775,000     $11,684,000
                                                  ==========      ==========

Trademark                                             $429,000        $429,000  
Less:  Accumulated Amortization                      (  61,000)      (  46,000) 
                                                    --------        --------
 Trademark, Net                                     $368,000        $383,000
                                                     =======         =======

Amortization expense charged to operations was $3,238,000 $4,130,000 and        
$1,235,000 for the years ended December 31, 1996, 1995 and 1994. During the     
years ended December 31, 1996 and 1994 the Company wrote-off approximately      
$701,000 and $338,000, respectively, of goodwill cost for subsidiaries where it 
was deemed to be impaired.                                                      

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(10) Debt                                                                       

                                                        [Enlarge/Download Table]

                                                                                      December 31,         
                                                                                      ------------         
Long-term Debt:                                                                 1996                1995   
                                                                                ----                ----   
                                                                                                           
Bank and  installment  loans - with  interest  rates  ranging  from 6%                                     
  12.5%, and collateralized by certain assets and stock of subsidiaries                                    
  of the Company, $467,000 currently in default, $2,939,000 is due in                                      
  1997 and the remainder is due is due through 2001.  Included in bank                                     
  and installment loans is a note payable of $458,000 which is guaranteed                                  
  by a subsidiary of Lafayette. The note agreement includes covenants                                      
  which include among others, covenants restricting dividend payments                                      
  and requiring a stated net worth. At December 31, 1996, Lafayette was                                    
  in default with a negative covenant preventing mergers with outside                                      
  parties and a covenant requiring consolidated net worth in excess of                                     
  $1,000,000. Additionally, Lafayette failed to make a required payment                                    
  in the first quarter of 1997. Due to the above defaults, the interest                                    
  on such note is increased by 3% per annum (effective rate of 13.25%)      $ 9,058,000         $ 6,134,000

Revolving loan due in 1998 with interest at prime plus 2.75%                  4,715,000                  --

Former stockholders of an acquired subsidiary that bears interest at 7%                                    
  repayment is deferred until the settlement of a claim that was made                                      
  against the Company prior to the acquisition by Consolidated                  138,000             138,000

Equipment loans - payable in various monthly installments at interest                                      
  rates ranging from 7.75% to 11.5%, collateralized by the related                                         
  equipment, due through 2000, $135,000 is currently in default               5,743,000           1,629,000

Building mortgages - payable in various monthly installments at interest                                   
  rates ranging from 9.25% to 9.75% due through September 2000,                                            
  collateralized by the related buildings                                     1,237,000           1,711,000

Investor loans bear interest at 13.5% as of December 31, 1996. During                                      
  1995 and 1996 certain payments were not made timely and the                                              
  loan is in technical default.  The note agreement includes covenants                                     
  which include, among other covenants, restrictions on dividend payments                                  
  and borrowings of additional debt                                             325,000             825,000

Loans payable to asset based lenders collateralized by accounts                                            
  receivables, personal property, fixtures and inventory.  Advances                                        
  are made based on a percentage of eligible receivables. Fees on                                          
  advances range from 0.3% to 1% and interest rates range from prime                                       
  plus 2.75% to 18%                                                           4,692,000           4,386,000

Note payable - covenants not-to-compete, payable in monthly installments                                   
  of $22,000.  The notes are noninterest bearing and mature September 1997      200,000             467,000
                                                                                -------             -------

Total Long-term Debt                                                         26,108,000          15,290,000

Current Portion                                                               9,641,000           9,080,000
                                                                              ---------           ---------

Long-term Portion                                                           $16,467,000         $ 6,210,000
                                                                             ==========          ========= 


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                                                        [Enlarge/Download Table]

                                                                                 December 31,         
                                                                                 ------------         
Notes Payable, Related Parties:                                            1996                1995   
                                                                           ----                ----   
                                                                                                      
Notes payable to  stockholders of 3D Technology f or cash received and                                
  office  equipment  contributed  by these  stockholders  in 1992. The                                
  loans are noninterest bearing and have no fixed due date              $  183,000         $   183,000

Note payable to an employee of 3D Technology for cash advances with        112,000             107,000
  interest at 9%.                                                                                     

Advances to Lafayette made by two directors of Lafayette.  The                                        
  advances are noninterest bearing and have no fixed due dates             690,000                  --
                                                                           -------             -------

Total notes payable, related parties                                    $  985,000         $   290,000
                                                                           =======             =======

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                                                        [Enlarge/Download Table]

                                                                                      December 31,        
                                                                                      ------------        
Subordinated Debt:                                                              1996                1995  
                                                                                ----                ----  
                                                                                                          
Subordinated notes payable issued in connection with acquisitions, payable                                
  in various quarterly installments at interest rates ranging from 4% to                                  
  7%.  The notes are unsecured and required balloon payments of $2,808,000                                
  in 2001, $3,504,000 in 1997 and $1,193,000 in 1996.  Certain timely                                     
  payments of principle and interest have interest have not been made                                     
  on these loans and the holders have a right to a right to declare a                                     
  default as such $6,300,000 is included in current debt                    $ 7,505,000        $17,657,000

Internal Revenue Service for payment of taxes that were due at the                                        
  time the Company purchased a subsidiary, paid in full in 1996                      --            700,000
                                                                             ----------            -------

Total Subordinated Debt                                                       7,505,000         18,357,000

Current Portion                                                               7,193,000         13,354,000
                                                                              ---------         ----------

Long-term Portion                                                           $   312,000        $ 5,003,000
                                                                                =======          =========

Subsidiary's Convertible Debentures are due in 1998 and bear interest                                     
  at 8.5% and are currently in default and classified as current.              $700,000                 --
                                                                                =======                   

Total Notes Payable Related Parties, Long-term Debt, Subordinated Debt                                    
  and Convertible Debentures                                                $35,298,000        $33,937,000
                                                                             ==========         ==========

Five Year Maturities are as follows as of December 31, 1996:                    
     1997                                                        $18,519,000
     1998                                                          8,757,000
     1999                                                          3,754,000
     2000                                                          2,297,000
     2001                                                          1,359,000
     Thereafter                                                      612,000
                                                                     -------
      Total                                                      $35,298,000
                                                                  ==========

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(11) Lease Obligations                                                          

Capitalized Lease Obligations - The Company leases equipment under noncancelable
capital leases. For some of the leases, a balloon payment representing the      
buyout of the leased equipment is due at the end of the lease term. Capitalized 
lease obligations are collateralized by leased equipment which has a net book   
value of $3,524,000 at December 31, 1996.                                       

Future minimum payments under capital lease obligations are as follows at       
December 31, 1996:                                                              

  1997                                                      $1,861,000
  1998                                                       1,541,000
  1999                                                         851,000
  2000                                                         474,000
  2001                                                         309,000
  Thereafter                                                   392,000
                                                               -------

  Total Minimum Lease Payments                               5,428,000
   Portion Representing Interest                            (   971,000)
                                                            ----------
  Present Value of Net minimum payments                      4,457,000
  Current Portion                                            1,476,000
                                                             ---------
  Long-term Portion                                         $2,981,000
                                                             =========

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, New York 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 occupy various         
facilities pursuant to leases expiring through 2001 The current base rent for   
such premises approximates $128,000 month.                                      

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

  1997                                                      $1,275,000
  1998                                                       1,234,000
  1999                                                         915,000
  2000                                                         463,000
  2001                                                         256,000
  Thereafter                                                   482,000
                                                               -------

   Total                                                    $4,625,000
                                                             =========

Rent expense for the years ended December 31, 1996, 1995 and 1994 approximated  
$1,629,000, $1,560,000 and $569,000, respectively.                              

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(12) 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, 1996 and 1995 are as follows:                      

                                              December 31,
                                              1996              1995
                                              ----              ----
Deferred Tax Liabilities:                                                       
Book Basis of Assets in Excess of Tax Basis            --           $50,000 
Marketable Securities                            $199,000                -- 
                                                 -------            ------
                                                 199,000            50,000
                                                 -------            ------

Deferred Tax Assets:                                                            
Reserves and Allowances                         1,114,000         1,527,000 
Tax Basis of Assets in Excess of Book Basis     1,311,000                -- 
Stock Based Compensation                        1,668,000                -- 
Federal Net Operating Loss Carryforward        18,323,000        13,758,000 
State Net Operating Loss Carryforward           5,120,000         4,418,000 
                                               ---------         ---------
                                              27,536,000        19,703,000
                                              ----------        ----------
Valuation Allowance                             $27,337,000       $19,653,000   
                                              ----------        ----------

Net Deferred Tax Asset                                   --                --   
                                              ==========        ==========

The Company's deferred tax asset valuation allowance was $27,337,000 and        
19,653,000 as of December 31, 1996 and 1995, respectively. The increase in the  
valuation allowance of $7,684,000 for the year ended December 31, 1996 is       
comprised of the following:                                                     

Marketable Securities                                        ($  199,000)       
Tax Basis of Assets in Excess of Book Basis                    1,361,000        
Reserves and Allowances                                         (413,000)       
Stock Based Compensation                                       1,668,000        
Federal Net Operating Loss Carryforward                        4,565,000        
State Net Operating Loss Carryforward                            702,000        
                                                         -------
Total Increase                                             $7,684,000     
                                                       =========

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

                                  December 31,
                                   1996             1995              1994
                                   ----             ----              ----
Current:                                                                        
Federal                               --               --                -- 
State                           $561,000         $143,000           $19,000 
Puerto Rico                           --           83,000             5,000 
                                -------           ------             -----
                                561,000          226,000            24,000

Deferred                                --               --                --   
                                -------          -------            ------

Total                             $561,000         $226,000           $24,000   
                                =======          =======            ======

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

                                                        [Enlarge/Download Table]

                                                     Years Ended December 31,        
                                              1996            1995             1994  
                                              ----            ----             ----  
                                                                                     
Provision Based in Statutory Rate             35.0           35.0%             35.0% 
Benefit of Graduated Rates                   ( 1.0)          (1.0%)            (1.0%)
Other Income Taxes (Net of Federal Benefit)     --           (0.6%)              --  
State Taxes (Net of Federal Benefit)          (4.6)          (0.9%)            (0.2%)
Valuation Allowance                          (34.0)         (34.0%)           (34.0%)
Net Operating Loss                            n/a             n/a               n/a  
                                              ---             ---               ---  
                                             (4.6%)          (1.5%)            (0.2%)
                                              ===             ===               ===  

The Company's provision for income taxes is comprised of state income taxes for 
the year ended December 31, 1996 and state and Puerto Rico income taxes for the 
years ended 1995 and 1994. The Company will have a federal net operating loss   
carryforward of approximately $53,891,000 and a state net operating loss        
carryforward of approximately $53,890,000.  The federal net operating loss      
carryforwards expire in years 1997 through 2011 and the state net operating loss
carryforwards expire in years 1997 through 2011 (the expiration dates vary based
on individual state income tax laws).                                           

(13) Capital Stock                                                              

Common Stock                                                                    

Reverse Split - Effective September 1, 1993, the capitalization of the Company  
changed from 300,000,000 shares of common stock, $.01 par value, into 50,000,000
shares of common stock, $.01 par value. Effective the same time, the presently  
issued and outstanding shares of common stock were reverse split on the basis of
one (1) new share for each sixty (60) issued and outstanding shares. All share  
data has been adjusted retroactively.                                           

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 the     
years ended December 31, 1995 and 1994, 6,500,000 and 3,000,000 shares,         
respectively, were granted and exercised. The expense for these years was       
calculated in accordance with APB #25.                                          

Acquisitions - Common stock was issued to acquire subsidiaries as follows:      

(i)      In December, 1993 issued 850,000 shares in connection with the         
        acquisitions of Arc Acquisition Group, Inc. and ARC Networks, Inc.
(ii)     In August 1993, issued 120,000 shares in connection with the           
acquisition of the remaining 20% of S-Tech.               
(iii)    In June 1994, issued 840,000 in connection with the acquisition of     
Creative Socio-Medics Corp.                               
(iv)     In September 1994 issued 3,343,000 shares in connection with the       
 acquisition of the International Magnetic Imaging, Inc. and
affiliated entities.                                      
(v)      In November 1994 issued 1,500,000 shares in connection with the        
   acquisition of Job Shop Technical Services, Inc. and Computer
Engineering Services, Inc.                                

Stock Issued for Services Rendered - For the years ended December 31, 1996, 1995
and 1994 the Company issued 200,000, 130,004 shares and 200,000 shares,         
respectively, in connection with consulting and financing services valued at    
$45,000, $114,000 and $97,000, respectively. The expense calculated for 1996 was
determined in accordance with SFAS #123 and the expense for prior years was     
calculated in accordance with APB #25                                           

Regulation S Offerings - Pursuant to offerings in September 1996, October 1995  
and March 1994 made under Regulation S of the Securities Act of 1933, the       
Company received net proceeds of $912,000 $250,000 and $8,162,000, respectively,
in conjunction with the respective issuance of 13,250,000, 1,000,000 shares and 
3,500,000 shares of common stock.                                               

Conversion of Series A Preferred Stock - During the years ended December 31,    
1996 and 1995, respectively, the Company issued 5,690,757 and 1,447,807 shares  
of common stock upon the conversion of 43,705 and 11,117 shares of series A     
preferred stock.                                                                

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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 if and when sufficient shares of 
common stock are available for issuance. No dividends were declared for the     
years ended December 31, 1996, 1995 and 1994. As of December 31, 1996 54,822    
shares of series A preferred stock was converted into 7,138,564 shares of common
stock.                                                                          

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 the years    
ended December 31, 1996, 1995 and 1994                                          

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 the years ended December 31, 1996, 1995 and 1994.

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 noncumulative 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 the years ended December 31, 1996, 
1995 and 1994.                                                                  

(14) 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. The Company has calculated the expense of  
issuing such options using the intrinsic value method per APB #25 as follows.   

Pursuant to the plan, in 1994, the Company registered and granted 3,000,000     
shares, which were exercised at $1.00 per share, resulting in $4,140,000 of     
expenses computed as follows:                                                   

Shares                                        3,000,000       
Value of stock at date of grant                  $2.975*      
                                       -----------
                                       8,925,000
20% discount                                ( 1,785,000)      
                                      ----------
                                       7,140,000
Exercise proceeds                            (3,000,000)      
                                       ---------
Expense                                      $4,140,000       
                                       =========
* - Represents weighted average.                              

In accordance with the agreements relating to the various parties involved, for 
the years ended December 31, 1994 $4,140,000 was charged as consulting services 
in the determination of income from operations. A 20% discount was utilized     
because the shares issued represents a large block of stock.                    

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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:                                     

Shares                                        6,500,000       
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       
                                       =========
* - Represents weighted average.                              

In accordance with the agreements relating to the various parties involved, for 
the years ended December 31, 1994 $4,140,000 was charged as consulting services 
in the determination of income from operations. A 20% discount was utilized     
because the shares issued represents a large block of stock.                    

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SFAS 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 FASB 123 although the amounts actually
reported in the Company's accompanying financial statements are based on APB    
#25. As of December 31, 1996, 1995 and 1994, the Company had no outstanding,    
unexercised stock options. The activity in the Companies stock option plan is as
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                           Weighted  
                                                            Weighted        Average  
                                           Number       Average Exercise   Remaining 
                                             of              Price        Contractual
                                          Options            -----            Life   
                                          -------                             ----   
                                                                                     
Options Outstanding at December 31, 1993            --                               
   Granted                                   3,200,000       $0.94                   
   Exercised                                 3,200,000       $0.94                   
   Expired                                          --                               
                                             ---------                               
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 Exercisable at December 31, 1996            --                               


The Company's expense for the year ended December 31, 1996 for the issuance of  
options under SFAS 123 was approximately $45,000.  If the Company had accounted 
for the issuance of all options pursuant to the fair value based method of SFAS 
123, the Company would have recorded additional compensation expense of         
approximately $1,400,000 for the year ended December 31, 1995 and the Company's 
net loss and loss per share would have been as follows:                         

                                                    Year Ended
                                                    December 31,
                                                    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)        
                                                          ====

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:                                                                    

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

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

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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 $0.50 for each of the years ended December 31, 1996, 1995 and 1994  
and the weighted average remaining contractual life of such warrants as of      
December 31, 1996, 1995 and 1994 was 3 years, 4 years and 5 years, respectively.

(15) Industry Segments                                                          

The Company currently classifies its operations into eight business segments:   
(i) Contract Engineering Services consists of subsidiaries that provide         
engineers, designers and technical personnel on a temporary basis pursuant to   
contracts with major corporations; (ii) Medical Diagnostics consists of a       
subsidiary that performs magnetic resonance imaging and other medical diagnostic
services; (iii) Electro-Mechanical and Electro- Optical Products Manufacturing  
consists of subsidiaries that manufacture and sell products such as devices that
measure distance and velocity, instrumentation devices, debit card vending      
machines, prepaid telephone calling cards and finger print identification       
products; (iv) Medical Information Services consists of subsidiaries that       
provide medical information database services, health care industry related     
software packages and the SmartCard medical identification cards and related    
software program; (v) Telecommunications consists of a subsidiary that, among   
other things, installs telephonic network systems and buys and resells local    
telephone service; (vi) Three Dimensional Products and Services consists of     
subsidiaries that provide three dimensional imaging services that are used in a 
variety of applications, such as prototype building and reverse engineering;    
(vii) Audio Products Manufacturing consists of a subsidiary that manufactures   
and sells a professional line of loudspeakers, and (viii) Business Consulting   
Services consists of subsidiaries that provide a variety of financial and       
business related services. Corporate and Other consists of the operating        
activities of the holding company entities. Certain reclassifications have been 
made from the prior year presentation whereby the holding company of Trans      
Global Services, Inc. is presented as a part of the contract engineering        
services segment and in the prior year it was included with corporate and other.
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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(15) Industry Segments:                                                         

                                                        [Enlarge/Download Table]

                                                                                Year Ended December 31,               
                                                                                -----------------------               
                                                                     1996                1995                1994     
                                                                     ----                ----                ----     
                                                                                                                      
Revenues:                                                                                                             
 Contract Engineering Services                                   $ 62,595,000        $ 63,156,000         $25,292,000 
 Medical Diagnostics                                               31,110,000          28,044,000           6,558,000 
 Audio Products Manufacturing (I)                                   3,309,000           2,150,000                  -- 
 Electro-Mechanical and Electro-Optical Products Manufacturing      2,837,000           4,223,000           3,606,000 
 Medical Information Services                                       8,540,000           7,380,000           2,924,000 
 Telecommunications                                                 5,582,000           3,253,000           2,268,000 
 Three Dimensional Products and Services                              925,000           1,775,000             849,000 
 Business Consulting Services                                          26,000             116,000              81,000 
                                                                       ------             -------              ------ 
  Total Revenues                                                 $114,924,000        $110,097,000         $41,578,000 
                                                                 ============        ============         =========== 

Gross Profit (Loss):                                                                                                  
 Contract Engineering Services                                   $  5,157,000        $  3,997,000         $ 1,580,000 
 Medical Diagnostics                                               14,469,000          12,237,000           2,662,000 
 Audio Products Manufacturing (I)                                     470,000             202,000                  -- 
 Electro-Mechanical and Electro-Optical Products Manufacturing       (307,000)          1,049,000             180,000 
 Medical Information Services                                       1,332,000           1,973,000             601,000 
 Telecommunications                                                   509,000             695,000             640,000 
 Three Dimensional Products and Services                              508,000             654,000             295,000 
 Business Consulting Services                                          26,000             116,000             193,000 
                                                                       ------             -------             ------- 
   Total Gross Profits                                           $ 22,164,000        $ 20,923,000         $ 6,151,000 
                                                                 ============        ============         =========== 

Income (Loss) from Operations:                                                                                        
 Contract Engineering Services                                   $    306,000       ($  3,817,000)       ($   291,000)
 Medical Diagnostics                                                4,425,000           5,367,000           1,035,000 
 Audio Products Manufacturing (I)                                    (752,000)           (493,000)                 -- 
 Electro-Mechanical and Electro-Optical Products Manufacturing     (1,866,000)           (842,000)         (1,361,000)
 Medical Information Services                                      (5,783,000)         (2,274,000)         (1,529,000)
 Telecommunications                                                  (959,000)           (503,000)           (143,000)
 Three Dimensional Products and Services                           (1,532,000)         (2,241,000)         (1,555,000)
 Business Consulting Services                                        (224,000)            (20,000)           (429,000)
 Corporate and Other                                               (2,953,000)         (6,289,000)         (6,191,000)
                                                                   -----------         -----------         -----------
   Total Loss from Operatio                                     ($  9,338,000)      ($ 11,112,000)       ($10,464,000)
                                                                ==============      ==============       =============

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(15) Industry Segments:                                                         

                                                        [Enlarge/Download Table]

                                                                                      Year Ended December 31,            
                                                                                      -----------------------            
                                                                               1996            1995                 1994 
                                                                               ----            ----                 ---- 
                                                                                                                         
Net Income (Loss):                                                                                                       
 Contract Engineering Services                                          ($  485,000)   ($ 4,770,000)        ($   435,000)
 Medical Diagnostics                                                      1,446,000       2,682,000              449,000 
 Audio Products Manufacturing (I)                                          (893,000)       (553,000)                  -- 
 Electro-Mechanical and Electro-Optical Products Manufacturing           (2,017,000)     (1,002,000)          (1,349,000)
 Medical Information Services                                            (3,809,000)     (2,803,000)          (1,601,000)
 Telecommunications                                                      (1,126,000)       (573,000)            (149,000)
 Three Dimensional Products and Services                                 (1,472,000)     (2,285,000)          (1,791,000)
 Business Consulting Services                                               (25,000)          9,000             (442,000)
 Corporate and Other                                                     (1,189,000)     (2,065,000)          (6,110,000)
                                                                         -----------     -----------          -----------
   Total Net Loss                                                       ($9,570,000)   ($11,360,000)        ($11,428,000)
                                                                        ============   =============        =============

Depreciation and Amortization:                                                                                           
 Contract Engineering Services                                           $  478,000     $   707,000          $   324,000 
 Medical Diagnostics                                                      5,315,000       4,988,000            1,295,000 
 Audio Products Manufacturing (I)                                           201,000          74,000                   -- 
 Electro-Mechanical and Electro-Optical Products Manufacturing               67,000          37,000               24,000 
 Medical Information Services                                               486,000       1,333,000              373,000 
 Telecommunications                                                          47,000          30,000               29,000 
 Three Dimensional Products and Services                                    356,000         417,000              133,000 
 Business Consulting Services                                                 2,000           2,000                1,000 
 Corporate and Other                                                         15,000          14,000                8,000 
                                                                             ------          ------                ----- 
   Total Depreciation and Amortization                                   $6,967,000     $ 7,602,000          $ 2,187,000 
                                                                         ==========     ===========          =========== 

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

(15) Industry Segments:                                                                                                  
                                                                                      Year Ended December 31,            
                                                                                      -----------------------            
                                                                               1996            1995                 1994 
                                                                               ----            ----                 ---- 
                                                                                                                         
Capital Expenditures:                                                                                                    
 Contract Engineering Services                                           $   56,000      $  111,000          $     3,000 
 Medical Diagnostics                                                      3,962,000         227,000           12,418,000 
 Audio Products Manufacturing (I)                                           104,000         439,000                   -- 
 Electro-Mechanical and Electro-Optical Products Manufacturing                6,000          70,000                2,000 
 Medical Information Services                                               181,000         138,000            1,104,000 
 Telecommunications                                                         416,000           2,000                   -- 
 Three Dimensional Products and Services                                    188,000          49,000              494,000 
 Business Consulting Services                                                    --              --                1,000 
 Corporate and Other                                                          7,000          21,000               61,000 
                                                                              -----          ------               ------ 
 Total Capital Expenditures (II, III)                                    $4,920,000      $1,057,000          $14,083,000 
                                                                         ==========      ==========          =========== 


(I)   - The Audio Products Manufaturing segment only includes operations from   
March 31, 1995 (date of acquisition) through December 31, 1996. 
(II)  - For 1995, capital expenditures includes $373,000 for amounts allocated  
      to property, plant and equipment from the acquisition of a subsidiary.
(III) - For 1994, capital expenditures includes $11,933,000 for amounts         
    allocated to property, plant and equipment from the acquisition of a
subsidiary.                                                     

                                                   At December 31,
                                                   ---------------
                                                  1996              1995
                                                  ----              ----
Identifiable Assets:                                                            
Contract Engineering Services                  $ 9,691,000       $ 9,597,000  
Medical Diagnostics                             42,988,000        39,873,000  
Audio Products Manufacturing                     1,478,000         1,781,000  
Electro-Mechanical and Electro-Optical                                        
Products Manufacturing                          3,387,000         3,714,000 
Medical Information Services                     8,258,000         6,937,000  
Telecommunications                               1,654,000         1,362,000  
Three Dimensional Products and Services          1,068,000         1,558,000  
Business Consulting Services                       277,000           250,000  
Corporate and Other                              3,013,000         1,240,000  
                                               ---------         ---------
Total Identifiable Assets                    $71,814,000       $66,312,000
                                             ===========       ===========

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(16) Related Party Transactions                                                 

Loans Payable to Officers and Former Shareholders:                              

A subsidiary of the Company operating in the Three Dimensional Products and     
Services segment is indebted to stockholders for cash received and office       
equipment contributed by these stockholders in 1992. The loans are noninterest  
bearing and have no fixed due date. The amount due at December 31, 1996 and 1995
was $183,000. The same subsidiary of the Company is indebted to an employee for 
cash received from such employee during 1996 and 1995. The loan bears interest  
at 9% and the due date was extended verbally to 1997. The amount due at December
31, 1996 and 1995 was $112,000 and $107,000.                                    

A subsidiary of the Company operating in the Electro-Optical Electro-Mechanical 
Products Manufacturing segment is indebted for short-term advances made to the  
subsidiary by two directors of the subsidiary. The advances are non-interest    
bearing and were made through several entities in which the directors hold a    
controlling interest.                                                           

Approximately $924,000 and $969,000 at December 31, 1996 and 1995, respectively,
of the subordinated debt issued in connection with the acquisition of IMI is    
payable to an officer of IMI. The officer was a shareholder in IMI prior the    
acquisition.                                                                    

Purchase of a Portion of a Subsidiary from Employees:                           

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. 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.
All of the Trans Global stock and warrants owned by SISC are held subject to the
right of Mr. Lewis S. Schiller, chairman of the board and chief executive       
officer of the Company, to purchase 10% of SISC's equity position for 110% of   
SISC's cost. In connection with the organization of Trans Global, Trans Global  
also issued a 3.4% interest to Mr. Joseph G. Sicinski, president of Trans       
Global, in exchange for certain rights Mr. Sicinski has with respect to the     
stock of 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 in exchange for DLB's 10% interest in another subsidiary of Consolidated.   

At the time of the organization of Trans Global, Trans Global issued to SISC, in
consideration for the equity consideration issued by Consolidated in connection 
with the acquisitions of Avionics and RMI, 500 shares of Series A 5% Redeemable 
Cumulative Preferred Stock.                                                     

During 1995, SISC, DLB, Inc. and Mr. Joseph G. Sicinski, the stockholders of    
Trans Global, entered into an agreement (the "Trans Global Agreement") with     
Concept Technologies Group, Inc. ("Concept") pursuant to which they would       
transfer to Concept all of the issued and outstanding capital stock of Trans    
Global in exchange for a controlling equity interest in Concept.                

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.                               

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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 Mr. Sicinski with certain registration rights with respect to the  
100,000 shares of Common Stock issued to him pursuant to the Trans Global       
Agreement. Mr. Sicinski's shares are subject to a one-year lockup agreement,    
subject to earlier release under certain conditions.                            

All of the Trans Global stock and warrants owned by SISC are held subject to the
right of Mr. Lewis S. Schiller, chairman of the board and chief executive       
officer of the Company, to purchase 10% of SISC's equity position for 110% of   
SISC's cost. In connection with the transaction contemplated by the Trans Global
Agreement, Mr. Schiller's option will be converted to an option to purchase 10% 
of SISC's interest in the Concept equity securities at a price equal to 110% of 
SISC's cost.                                                                    

Advances to an Unconsolidated Subsidiary:                                       

The Company has made advances to Universal International, a 39% owned           
subsidiary, 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 from this subsidiary was $587,000 and  
$427,000 at December 31, 1996 and 1995 and the greatest amount outstanding to   
such subsidiary during the years ended December 31, 1996, 1995 and 1994 was     
$600,000. The Company's secretary, owns a 31% interest in the subsidiary        
receiving such advances.                                                        

Loan Receivable from an Officer of a Subsidiary:                                

On February 7, 1996, IMI, a subsidiary operating in the medical diagnostics     
segment loaned the president of such subsidiary $300,000 on which $8,000 of     
interest has accrued as of December 31, 1996. The loan is due in 1998 and bears 
interest at 5.5%. During the year ended December 31, 1995, the Contract         
Engineering Services segment subsidiary loaned $45,000 to the president of such 
subsidiary. The loan has no fixed due dates or terms.                           

Loan Receivable from Sale of Common Stock Investments to an Officer:            

During 1996 and 1995, the chief executive officer of the Company exercised an   
option to purchase common stock investments held by the Company at 110% of the  
book value of such investments. The purchase of such investments was consummated
in a noncash transaction and such officer is to issue a note in favor of the    
Company with interest at prevailing rates and maturing five years from the date 
of the purchase. Total amounts outstanding under such receivables was $356,000  
and $72,000, respectively at December 31, 1996 and 1995. Gains realized by the  
Company on the sale of these investments to the Company's CEO approximated      
$22,000 and $7,000, respectively, for the years ended December 31, 1996 and     
1995.                                                                           

(17) Litigation                                                               

Although the Company is a party to certain legal proceedings which have occurred
in the ordinary course of business, the Company does not believe such           
proceedings to be of a material nature with the exception of the following:     

Holding Company:                                                                

The Company has been named as a defendant in a lawsuit filed by a company it was
contemplating acquiring in January 1995 for alleged unauthorized use of         
proprietary information specific to that line of business. Outside counsel      
handling this case has advised the Company that it has meritorious defenses to  
obtain a dismissal of the lawsuit.                                              

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Contract Engineering Services:                                                  

The DOL has filed a complaint against Job Shop and its principal stockholder for
civil violations of ERISA resulting from the failure of Job Shop to deposit     
employee contributions to Job Shop's 401(k) retirement plan. A similar complaint
was filed by former employees of Job Shop against Job Shop, its principal       
stockholder and others. At November 22, 1994, the amount due to the Job Shop    
401(k) plan was approximately $3.0 million, which amount may have increased     
since such date as a result of interest and penalties. Neither TGS nor RMI, the 
subsidiary which acquired assets and assumed certain obligations of Job Shop in 
November 1994, has been named as a defendant in either of such actions. The DOL 
has raised with TGS the possibility that RMI may by liable with respect to Job  
Shop's ERISA liability as a successor corporation or purchaser of plan assets,  
even though RMI did not assume such obligations and paid value for the Job Shop 
assets which it did purchase. Although TGS believes that RMI is not a successor 
corporation to Job Shop and is not responsible for Job Shop's ERISA violations, 
the DOL may take a contrary position. If the DOL takes such a position and      
prevails, it would have a material adverse effect upon the operations of RMI and
possibly TGS as a whole. Although TGS is engaged in discussions with the DOL, no
assurance can be given that such discussions will result in any settlement      
acceptable to TGS. During 1996, TGS established a $300,000 reserve with respect 
to the DOL's claim, however, no assurance can be given that such reserve will be
adequate.                                                                       

In May 1991, prior to the acquisition of Avionics by TGS, the Government        
Printing Office wrote Avionics asking for reimbursement of approximately        
$300,000 for allegedly unauthorized work on two programs. Avionics believes that
these claims are without merit and intends to contest these claims vigorously if
reasserted. Avionics believes that the ultimate disposition of this matter will 
not have a material adverse affect on consolidated TGS financial position.      

Medical Diagnostics:                                                            

In May 1996, IMI commenced an arbitration proceeding before the American        
Arbitration Association in Los Angeles, California against Radman, Inc.         
("Radman"), a manufacturer of teleradiology systems and equipment, entitled     
International Magnetic Imaging, Inc. v. Radman, Inc., alleging fraud and breach 
of contract and seeking rescission of a purchase agreement between IMI and      
Radman for a teleradiology system as well as an award of money damages in an    
amount not less than $485,000, together with interest, attorneys' fees and      
costs. Radman has asserted certain counterclaims against IMI in such proceeding 
seeking an award of money damages in the sum of at least $236,000, together with
interest, 'exemplary and punitive damages, reasonable attorneys' fees and other 
costs of the action. This matter is presently pending. IMI believes that it has 
meritorious defenses to Radman's counterclaims.                                 

In December 1994, IMI placed a purchase order with Advanced NMR Systems, Inc.   
("ANMR"), for Instascan MRI equipment upgrade systems for an aggregate of $1.5  
million. Three of the systems have been installed at the Centers and the        
remaining two have not yet been installed at IMI's facilities. By letter dated  
February 25, 1996, IMI notified ANMR that it was terminating and rescinding the 
purchase agreements for such equipment as well as certain other related         
agreements between the parties and seeking the return of the approximate        
$723,000 previously paid to ANMR as well as money damages as a result of certain
material deficiencies in such equipment. By letter dated March 22, 1996, ANMR's 
counsel denied such claimed deficiencies, disputed IMI's right to terminate such
agreements and claimed that IMI is in breach thereof for, among other things,   
failing to pay the approximate $752,000 balance of the purchase price for such  
equipment. ANMR also threatened to commence an action against IMI to assert its 
rights under such agreements. In October 1996, IMI commenced a state court      
action against ANMR in Florida.                                                 

In January 1996, Drs. Ashley Kaye and James Sternberg, two of the former        
stockholder-directors of IMI-Florida, and Dr. Sternberg's wife, threatened to   
commence an action against two subsidiaries of IMI, Consolidated and Mr. Lewis  
S. Schiller, chairman of the board of Consolidated and IMI, for alleged         
violations of securities and common law in connection with the execution in 1994
of an asset purchase agreement between MD Corp. and a subsidiary of IMI and     
non-payment of the $3,375,000 Subordinated Notes of two subsidiaries of the     
Company issued to MD Corp. in connection therewith. Although IMI reflects the   
principal and interest on such subordinated notes as current liabilities on its 
consolidated balance sheet and no notice of default has been given, no assurance
can be given that an adverse decision in any action based on such claims will   
not have a material adverse effect upon IMI.                                    

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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 and the Company to IMI-Florida and assistance in the negotiation of
the acquisition of the Centers, has asserted a claim against the Company and/or 
SISC that it has the right, among other things, to a 10% interest in the Common 
Stock of the Company, on a fully-diluted basis, prior to the anticipated initial
public offering by IMI and prior to the issuance of certain warrants to DVI, 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. If Vanguard   
commences an action against the Company and prevails, it would have a material  
adverse effect upon the Company, and, furthermore, if it prevails with respect  
to its claim for Common Stock, the issuance of such Common Stock could result in
a non-cash charge to earnings for the value of such Common Stock, dilution to   
the stockholders, including the stockholders who purchased stock in the         
anticipated public offering of IMI, and a reduction in the net tangible book    
value per share. In addition, the Company may not be able to use Consolidated's 
net loss or tax loss carryforward to reduce its tax liability if a sufficient   
number of shares of Common Stock were issued to Vanguard.                       

Electro-Mechanical and Electro-Optical Products Manufacturing:                  

Lafayette Industries, Inc., a subsidiary acquired during 1996 via a reverse     
acquisition, whose business prior to the reverse acquisition was the            
manufacturer and sale of store fixtures, was discontinued in 1996. The          
manufacturing facilities for these operations were located in Mexico and were   
sieved by the landlord. Although Lafayette is contesting the seizure, no        
assurances can be given that Lafayette will be able to realize any future       
benefit from these assets and has placed a reserve on the full amount of such   
assets. Lafayette and its subsidiaries, including SES Holdings and its          
subsidiaries, are contingently liable individually and jointly with others as   
guarantors of long-term debt and obligations principally relating to various    
debt agreements, leased equipment and facilities. In connection with those      
transactions, Lafayette has been notified that it is party to various litigation
with individual claims ranging to approximately $1,600,000.  Although management
has made what it feels is its best estimate of the liability, the nature of the 
liability is subject to substantial uncertainty. The amount of potential        
additional liability above that accrued can not be reasonably estimated.  Due to
the uncertainty of the pending litigation, substantial doubt about Lafayette's  
ability to continue as a going concer and, certain scope limitations, Lafayette 
and its subsidiaries received a disclaimer of opinion from its independent      
auditors who are the same as Consolidated's independent auditors. Lafayette and 
its subsidiaries represents 5.2% of Consolidated's consolidated revenue and 6.8%
of Consolidated's consolidated assets.                                          

Medical Informations Services                                                   

On or about September 29, 1995, an action was commenced against Netsmart by the 
filing of a summons with notice in the Supreme Court of the State of New York,  
County of New York. The action was commenced by Jacque W. Pate, Jr., Melvin     
Pierce, Herbert A. Meisler, John Gavin, Elaine Zanfini, individually and        
derivatively as shareholders of Onecard Health Systems Corporation and Onecard  
Corporation, which corporations are collectively referred to as "Onecard". The  
named defendants include, in addition to the subsidiary, officers and directors 
of the subsidiary and the Company. A complaint was filed on November 15, 1995.  
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 the subsidiary in September 1992. The complaint seeks       
injunctive relief and damages, including punitive damages of $130,000,000.      
Management believes that the action is without merit, and it will vigorously    
defend the action. Nevertheless, due to uncertainties in the legal process, it  
is at least reasonably possible that management's view of the outcome will      
change in the near term and there exists the possibility that there could be a  
material adverse impact on the operations of Netsmart.                          

(18) 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. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is effective  
for transfers and servicing of financial assets and Extinguishment of           
liabilities occurring after December 31, 1996. The provisions of SFAS No. 125   
must be applied prospectively, retroactive application is prohibited, and early 
application is not allowed. SFAS No. 125 supersedes SFAS No. 77, "Reporting by  
Transferors for Transfers of Receivables with Recourse". While both SFAS 125 and
SFAS No. 776 required a surrender of "control" of financial assets to recognized
a sale, the SFAS No. 125 requirements of sale are generally more stringent. SFAS
No. 125 is not expected to have a material impact on the Company because they   
have not been recognizing sales under SFAS No. 77 and will also not be under    
SFAS No. 125. Some provisions of SFAS No. 125, which are unlikely to apply to   
the Company, have been deferred by the FASB.                                    

The FASB has issued SFAS N0. 128 "Earnings Per Share" and SFAS 129 "Disclosure  
of Information About Capital Structure." Both are effective for financial       
statements issued for periods ending after December 15, 1997. SFAS No. 128      
simplifies the computation of earnings per share by replacing the presentation  
of primary earnings per share with a presentation of basic earnings per share.  
The statement requires dual presentation of basic and diluted earnings per share
by entities with complex capital structures. Basic earnings per share includes  
no dilution and is computed by dividing income available to common stockholders 
by the weighted average number of shares outstanding for the period. Diluted    
earnings per share reflects the potential dilution of securities that could     
share in the earnings of an entity similar to fully diluted earnings per share. 
While the Company has not analyzed SFAS 128 sufficiently to determine its       
long-term impact on per share reported amounts, SFAS No. 128 should not have a  
significant effect on historically reported per share loss amounts. SFAS No. 129
does not change any previous disclosure requirements, but rather consolidates   
existing disclosure requirements for ease of retrieval.                         

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(19) Acquisitions                                                               

(i) - On June 16, 1994, a subsidiary of the Company, Carte Medical Holdings     
("CMH"), through a wholly-owned subsidiary, CSM Acquisition Corp. ("Acquisition 
Corporation"), acquired the assets and assumed liabilities of Creative          
Socio-Medics Inc. ("CSM") pursuant to a plan and agreement of reorganization    
dated as of April 13, 1994, as amended (the "Purchase Agreement"), among the    
Company, Carte Medical Corp. ("Carte"), Acquisition Corporation, CSM and        
Advanced Computer Techniques, Inc. ("ACT"), the parent of CSM. The Company is   
the parent of SISC, which is the parent of CMH. In connection with the purchase,
(i) Acquisition Corporation purchased the assets and assumed liabilities of CSM 
in exchange for 800,000 shares of the Company's common stock and $500,000 which 
was advanced by Carte to Acquisition Corporation from the proceeds of a loan    
made by SISC, (ii) CMH transferred the stock of Acquisition Corporation to      
Carte, (iii) in consideration for the transfer of the Acquisition Corporation   
stock, Carte is to issue to CMH an aggregate of 1,000,000 shares of common      
stock, of which 450,000 shares are issuable on or about the date Carte receives 
the proceeds from an initial public offering, and (iv) Acquisition Corporation  
changed its corporate name to Creative Socio-Medics Corp. At the time of the    
execution of the Purchase Agreement, SISC granted to former officers of ACT and 
CSM, options to purchase an aggregate of 202,560 shares of Carte's common stock 
owned by SISC. The shares of common stock owned by SISC were transferred to CMH 
subject to the options. The options are exercisable at an exercise price of     
$.174 per share during the five-year period commencing on June 16, 1994, the    
date the acquisition of CSM was consummated. At the closing of the acquisition, 
the Company issued to such individuals an aggregate of 40,000 shares of its     
common stock. The purchase price of this acquisition included $3,851,000 for    
customer lists of CSM which will be amortized over 15 years under the straight  
line method. For accounting purposes, the results of operations of CSM are      
included with the results of the Company from July 1, 1994 onward.              

(ii) - As of September 30, 1994, the Company acquired International Magnetic    
Imaging, Inc. and its affiliated entities ("IMI, Inc.") in a business           
combination accounted for as a purchase. The principal operations of IMI, Inc.  
are in the establishment and operation of outpatient diagnostic centers         
providing MRI services and other diagnostic modalities. The results of          
operations of IMI, Inc. are included in the accompanying combined financial     
statements since the date of acquisition. The total cost of the acquisition was 
$31,872,000 which exceeded the fair value of net assets of IMI, Inc. By         
$11,069,000. The excess purchase price, or goodwill, will be amortized by the   
straight-line method over 20 years.                                             

The other intangibles, specifically restrictive covenants and customer lists,   
will be amortized by the straight-line method over 3 years and 15 years,        
respectively.                                                                   

The following summarizes the purchase price allocated to acquired assets at fair
value.                                                                          

Cash                                               $ 6,960,000              
Subordinated Debt                                   19,863,000              
Stock (3,343,000 shares at.$0.87 per share)          2,920,000              
Notes [Covenants]                                      800,000              
Acquisition Costs                                    1,329,000              
                                       ---------
Purchase Cost                                      $31,872,000              
                                      ==========

Allocated to:                                                                   
Cash                                               $ 2,350,000              
Other Assets                                           421,000              
Covenants-Not-to-Compete                             3,303,000              
Property, Plant and Equipment                       10,903,000              
Accounts Receivable                                  7,379,000              
Managed Care Contracts - Customer Lists              5,656,000              
Liabilities Assumed                                ( 9,209,000)             
Goodwill                                            11,069,000              
                                      ----------
Total                                              $31,872,000              
                                      ==========

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The cash portion of the purchase price was subsequently refinanced through DVI. 
The notes issued in connection with the acquisition of the centers balloon      
primarily in September 1996, with notes in the principal amount of $860,000     
maturing in September 1997. The notes issued to acquire the management and      
radiology company, balloon and mature in September 1997 and 1999, respectively. 
In connection with this acquisition, the Company, through its subsidiaries,     
borrowed an aggregate of approximately $7.1 million on a secured, term-loan     
basis over 60 months pursuant to loan and security agreements among the         
Company's subsidiaries and DVI Financial Services, Inc. d.b.a. DVI Capital. For 
accounting purposes, the results of operations of IMI are included with the     
results of the Company from October 1, 1994 onward.                             

(iii) - In November 1994, the Company acquired the assets of two businesses, Job
Shop Technical Services, Inc. ("Job Shop") and Computer Engineering Services,   
Inc. ("CES"). Job Shop provides engineers, designers and technical personnel on 
a temporary basis, which is similar to the business performed by Avionics       
Research Corporation, a subsidiary of the Company. CES is engaged in the        
business of performing CAD (computer aided design) and CAM (computer aided      
manufacturing) related services and the marketing and sale CAD/CAM software.    

(a) - Pursuant to an asset purchase agreement dated as of August 19, 1994 among 
ITS Management Corp., a Delaware Corporation and wholly-owned subsidiary of the 
Company ("ITS"), Job Shop and the sole stockholder of Job Shop, ITS acquired    
substantially all of the assets of Job Shop in exchange for 750,000 shares of   
the Company's common stock valued at $450,000, and the assumption of certain    
scheduled liabilities. The principal liability assumed was a $2 million         
obligation due to the Internal Revenue Service pursuant to a settlement         
arrangement which Job Shop had negotiated. The initial $500,000 payment was made
in November, 1994. The balance is due in 15 monthly installments of $100,000,   
commencing May, 1995. Such amounts were paid off in 1996.                       

(b) - Pursuant to a plan and agreement of reorganization among CDS Acquisition  
Corp. ("CDS"), a Delaware corporation and wholly-owned subsidiary of the        
Company, CES and the sole stockholder of CES, CDS acquired substantially all of 
the assets of CES in exchange for 750,000 shares of the Company's common stock  
valued at $450,000, and the assumption of certain scheduled liabilities.        

Prior to the acquisition, the businesses of Job Shop and CES were operated as   
divisions of the same company, along with one other division which was not      
acquired by the Company. For accounting purposes the results of operations of   
ITS and CDS are included with the results of the Company from November 22, 1994 
onward.                                                                         

(iv) - 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. Concepts 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.                               

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(v) - 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. The amounts due SISC from SESH and its          
subsidiaries as of December 20, 1996, as well as any future advances made by    
SISC to SESH or its subsidiaries, are collateralized by a pledge of 1,060,000   
shares of TGS stock that is held by SISC for the benefit of SESH. Pro forma     
information on this transaction is not presented as, at the date of this        
transaction, the Lafayette was considered a public shell and, accordingly, the  
transaction was not considered a business combination. Lafayette's prior        
principal business, which was principally the manufacture and sale of store     
fixtures, has been discontinued.                                                

The following pro forma unaudited results assume the above four acquisitions had
occurred at the beginning of the indicated periods:                             

                           Year Ended December 31,
                           1996               1995                1994
                           ----               ----                ----
Net Revenues                $114,924,000       $110,761,000        $ 98,687,000 
                            ===========           ========          ==========
Net Loss                   ($  8,972,000)    ($  11,421,000)       ($11,948,000)
                            ===========       ============          ==========
Net Loss per Share                ($0.22)            ($0.51)             ($0.76)
                                   ====               ====                ====

The pro forma information is not necessarily indicative of either the results of
operations that would have occurred had the acquisition been effective at the   
beginning of the indicated periods or of the future results of operations.      

(20) Commitments                                                                

Restated Employment Agreements                                                  

Chief Executive Officer:                                                        

During May 1996, the Company agreed to an amendment and restatement of the chief
executive officer's ("CEO") employment contract, effective as of January 1996,  
which supersedes the prior contract. Per the terms of the restated contract the 
CEO receives a salary of $500,000 per year through the year 2000, the expiration
date of the contract. Commencing January 1, 1996 and on each January 1          
thereafter during the term of the contract, the CEO shall receive an increase in
annual compensation equal to the greater of (A) 5% of his salary in effect prior
to the increase or (B) a cost of living increase. In addition, the CEO is       
entitled to a bonus equal to 10% of the amount by which the greater of (A) the  
Company's consolidated income before taxes, determined in accordance with       
generally accepted accounting principles or, (B) the Company's consolidated net 
cash flow exceeds $600,000. Net cash flow is calculated as consolidated net     
income, plus depreciation, amortization and other noncash items of expense,     
minus payments of principal amounts of indebtedness, all determined in          
accordance with generally accepted accounting principles. Additional benefits to
be received by the CEO include: (a) four weeks paid vacation; (b) disability    
insurance providing for the payment to the CEO of a minimum of 60% of his       
salary; (c) life insurance with a face value of $2,000,000, payable to the CEO's
designated beneficiary; (d) health, vision and dental insurance; and (e) an     
automobile to be provided to the CEO by the Company. Furthermore, the restated  
employment agreement confirms the right of the CEO to purchase 10% of the       
Company's equity interest in its subsidiaries and other investments. The        
purchase price for such interests is 110% of the Company's cost of such         
securities as defined in the agreement, which is payable by the CEO's six year  
non-interest bearing promissory notes. At December 31, 1996, the amount due from
the CEO with respect to such purchases was approximately $356,000.              

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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 $189,000 for the    
current contract year, which ends on December 31, 1997 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.              

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December 31, 1996                                                               

EX-10.7 Employment Agreement Dated March 31, 1997, Between the Registrant and   
George W. Mahoney                                               

Reference is made to the Employment Agreement dated March 21, 1995, as amended  
October 31, 1995, November 9, 1995, December 22, 1995, April 1, 1996 and June   
16, 1996, by and between GEORGE W. MAHONEY and CONSOLIDATED TECHNOLOGY GROUP    
LTD. (the "Agreement"). All capitalized terms used herein shall have the        
meanings ascribed to them in the Agreement unless a separate definition for such
term is contained herein. The Company and the Executive hereby agree to amend   
the Agreement as set forth below.                                               

1.     Paragraph 3.1 of the Agreement is hereby amended to read as follows;     

3.1. The term of this Agreement shall commence on October 1, 1993 and expire on 
December 31, 2007 (or any such later date as Executive may be required to be    
employed by the company or any of its subsidiaries pursuant to any Loan and     
Security Agreement with DVI Financial Services, Inc. or its affiliates), subject
to earlier termination as hereinafter provided in Paragraph 3.2 hereof (the     
"Term") ."                                                                      

2.     Paragraph 4(a) of the Agreement is hereby amended to provide that the    
Base Salary during calendar 2003 shall be $270,000, during calendar 2004 shall  
be $269,000, during calendar 2005 shall be $309,000, during calendar 2006 shall 
be $331,000 and during calendar 2007 which is the last year during the Term     
hereof, the Base Salary shall be $353,000.                                      

3.     The references in Paragraph 4(b) of the Agreement to it with respect to  
Pre-Tax Profits and Net Cash Flow are hereby amended to change such percentage, 
in all such instances, to two and one-half percent (2-1/2%).                    

4.     Paragraph 4(b)(aa) through (dd) is hereby amended and a new subparagraph 
(ee) is hereby amended to such Paragraph, all of which shall read as follows:   

(aa) any compensation or similar expense incurred or recognized by the Company  
in connection with the issuance of securities of the Company for purchase prices
which are less than, or warrants, options or other convertible securities which 
are exercisable at prices below, fair market value; and                         

(bb) the greater of (i) $200,000, or (ii) an aggregate of the amount of any     
increase in the base salary of Dr. Stephen A. Schulman which exceeds $250,000   
per year, plus any increase in Dr. Schulman's bonus which exceeds $700,000, plus
any minimum bonus payments or other advances (including expense allowances or   
reimbursements) or payments (including dividends) to Dr. Schulman which may be  
granted or paid by the Company after February 1, 1995, plus any additional      
incentive compensation that may be granted to Dr. Schulman on and after February
1, 1995 (other than stock options) and plus any expenses incurred by the Company
(including legal fees) in connection with the amendment or modification of any  
agreement or other documentation to which Dr. Schulman and the Company are      
parties;                                                                        

(cc) $185,000 representing operating expenses attributable to compensation      
payable to IMI's management;                                                    

(dd) the amount of any sums due to IMI from any seller (or any principal        
thereof) under any purchase agreement between IMI and any such seller which were
previously or are hereafter waived by IMI;                                      

(ee) the amount of all payments made to all officers and directors of the       
company or IMI, as the case may be, whether pursuant to existing employment     
agreements between such individuals and the Company or IMI, as the case may be, 
or otherwise."                                                                  

Except as set forth above, none of the other terms or provisions of the         
Agreement shall be amended or modified by this Amendment, all of which shall    
remain in full force and effect. In the event of any inconsistency between the  
terms of the Agreement and the terms of this Amendment, the terms of this       
Amendment shall control.                                                        

IN WITNESS WHEREOF the parties hereto have executed this Agreement on the - 31st
day of March, 1997.                                                             

                                      CONSOLIDATED TECHNOLOGY GROUP LTD.

                        /s/Lewis S. Schiller
                           Chief Executive officer

                        /S/George W. Mahoney

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December 31, 1996                                                               

EX-11.1 Calculation of Earnings per Share                                       

Net Loss:                                                      ($9,570,000)     

Loss per Share:                                                                 

Loss per share - Note 1                                          ($0.23)  
                                                               =======

Loss per Share - assuming full dilution -  Note 2                         
                                                               ($0.22)
                                                               =======
Note 1:                                                                         
Computed by dividing the net loss for the period by the weighted average number 
of common shares outstanding (41,639,293) for the year ended December 31, 1996).
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:                                                                         
(i) Assumes that 200,000 common shares issued pursuant to the exercise of stock 
options were outstanding as of the beginning of the indicated periods.          

(ii) Assumes that a warrant to purchase 1,000,000 common shares at $0.75 per    
share was exercised at the beginning of the 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 year   
ended December 31, 1996 as quoted on the NASD.                                  

(iii) Assumes that the current year conversions of preferred stock into 453,255 
and 5,690,757 of common shares for the year ended December 31, 1996 occurred at 
the beginning of the indicated periods.                                         

(iv) Assumes that at the beginning of the indicated periods, the 22,891         
remaining shares of preferred convertible shares were converted to common shares
at the conversion rate of 130.2083 shares of common for each share of           
convertible preferred stock.                                                    

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.                                             

EX 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                  
Vero Technologies, International                      Delaware                  
Lafayette Industries, 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		65		113			10KSB,  10KSB/A,  5,  NT 10-K
		5/1/02		89
		12/31/00		65					10-K,  NT 10-K
		3/31/00		55					10-Q
		10/1/99		101
		9/30/99		101					10-Q
		3/31/99		45					10-Q,  10-Q/A
		2/28/99		45		95
		12/31/98		66					10-K,  5,  DEF 14A,  NT 10-K,  PRES14A
		12/31/97		65		112			10-K,  10-K/A,  NT 10-K
		12/15/97		108
Filed on:		4/15/97
		4/14/97		69
		4/11/97		65		67
		4/10/97		70
		4/9/97		1		66
		4/1/97		53
		3/31/97		113					10-Q,  NT 10-K,  NT 10-Q
		3/15/97		34		35
		2/28/97		33
		2/1/97		8
		1/17/97		29
		1/15/97		29
For Period End:		12/31/96		1		114			DEFS14A,  NT 10-K,  PRES14A
		12/20/96		14		111			8-K
		10/1/96		8		12
		9/30/96		48					10-Q,  NT 10-Q
		9/1/96		65
		8/21/96		11
		6/30/96		48					10-Q,  NT 10-Q
		6/16/96		113
		4/1/96		113
		3/31/96		48					10-Q,  10-Q/A
		3/22/96		46		107
		2/25/96		46		107
		2/7/96		106
		1/1/96		52		111
		12/31/95		2		106			10-K,  NT 10-K
		12/22/95		113
		12/15/95		84
		11/15/95		47		108
		11/9/95		113
		10/31/95		113
		9/30/95		48					10-Q,  10-Q/A,  NT 10-Q
		9/29/95		47		108
		6/30/95		48		49			10-Q,  10-Q/A
		4/19/95		68
		3/31/95		48		104			10-Q/A
		3/21/95		65		113
		2/1/95		113
		1/1/95		10
		12/31/94		2		106			10-K/A
		12/15/94		65		66
		11/22/94		46		110
		10/1/94		65		112
		9/30/94		5		109
		8/19/94		110
		8/1/94		68
		7/31/94		49		68			10-K/A
		7/19/94		68
		7/1/94		57		109
		6/16/94		68		109
		4/13/94		67		109
		3/8/94		5
		12/31/93		100
		10/1/93		113
		9/11/93		89
		9/1/93		97		98
		8/20/93		97		98
		7/31/93		48
		3/18/93		34
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