SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarter Ended August 31, 1997
Commission File Number 0-22382
SECTOR COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
Nevada 56-1051491
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
7601 Lewinsville Road, Suite 250, McLean, VA 22102
Address of principal executive offices
(703) 761-1500
Issuer's Telephone Number
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 |_|
As of August 31, 1997 there were 45,898,066 shares of the Registrant's Common
Stock outstanding.
<PAGE>
SECTOR COMMUNICATIONS, INC.
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheet -
August 31, 1997 (unaudited) and February 28, 1997................3
Consolidated statement of operations -
three and six month periods (unaudited) ended
August 31, 1997 and 1996.........................................4
Consolidated statement of cash flows -
six month periods (unaudited) ended
August 31, 1997 and 1996.........................................5
Notes to consolidated financial statements (unaudited)..............6
Item 2. Management's Discussion and Analysis..........................10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................14
Page 2
<PAGE>
SECTOR COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
August 31, February 28,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 82,395 $ 80,096
Accounts Receivable, net of provision for
doubtful accounts of $75,526 and $50,678 351,782 618,845
Marketable Securities -- 21,762
Related Party Receivables -- 32,198
Receivable on Sale of Securities 39,000 1,000,000
Notes Receivables 86,312 143,110
Prepaid Expenses 94,138 117,426
------------ ------------
Total Current Assets 653,627 2,013,437
------------ ------------
PROPERTY AND EQUIPMENT 2,205,735 2,170,846
Accumulated Depreciation (1,270,849) (1,060,696)
------------ ------------
Net Book Value 934,886 1,110,150
------------ ------------
OTHER ASSETS
Intangible Assets, net 5,149,853 5,350,447
Capitalized Mining Claim Costs 1,036,523 1,036,523
Deposits 41,953 41,953
------------ ------------
Total Other Assets 6,228,329 6,428,923
------------ ------------
TOTAL OTHER ASSETS $ 7,816,842 $ 9,552,510
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 1,231,828 $ 1,218,867
Short-Term Borrowing -- 12,028
Deferred Revenue 275,199 449,254
Due to Related Parties 110,444 474,021
------------ ------------
Total Current Liabilities 1,617,471 2,154,170
Rent Deposit 12,248 12,248
------------ ------------
TOTAL LIABILITIES 1,629,719 2,166,418
------------ ------------
Commitments and Contingencies -- --
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value; 5,000,000 shares
authorized, no shares issued and outstanding --
Common Stock, $.001 par value; 50,000,000 shares
authorized, 45,898,066 and 44,898,066 shares
issued and outstanding 45,898 44,898
Additional Paid-in Capital 13,474,729 13,116,354
Retained Deficit (7,200,639) (5,658,196)
Cumulative Foreign Currency Translation Adjustment (132,865) (116,964)
------------ ------------
Total Stockholders' Equity 6,187,123 7,386,092
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,816,842 $ 9,552,510
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Page 3
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SECTOR COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Telecommunication Revenue $ 195,542 $ 104,642 $ 446,226 $ 582,321
Software Sales & Maintenance 288,432 -- 661,143 --
------------ ------------ ------------ ------------
483,974 104,642 1,107,369 582,321
COST OF SALES 250,966 143,525 622,354 529,805
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 233,008 (38,883) 485,015 52,516
------------ ------------ ------------ ------------
OPERATING EXPENSES
Gold Exploration Costs 27,219 239,336 57,083 239,336
Software Development Costs 177,748 -- 415,667 --
Sales, General & Administrative 803,198 797,467 1,569,984 882,255
------------ ------------ ------------ ------------
Total Operating Expenses 1,008,165 1,036,803 2,042,734 1,121,591
------------ ------------ ------------ ------------
(Loss) Income From Operations (775,157) (1,075,686) (1,557,719) (1,069,075)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Expense (612) (84,017) (1,224) (167,357)
Other Income (Expense) (5,113) 12,343 20,122 13,837
Foreign Exchange Gain (Loss) (13,896) 26,606 (3,622) 64,914
------------ ------------ ------------ ------------
Total Other Income (Expense) (19,621) (45,068) 15,276 (88,606)
------------ ------------ ------------ ------------
Loss Before Provision
for Income Taxes (794,778) (1,120,754) (1,542,443) (1,157,681)
Provision for Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (794,778) $ (1,120,754) $ (1,542,443) $ (1,157,681)
============ ============ ============ ============
Loss per share $ (0.02) $ (0.05) $ (0.03) $ (0.07)
============ ============ ============ ============
Weighted Average of Number
of Shares Outstanding 45,354,588 25,159,314 45,126,327 17,134,549
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Page 4
<PAGE>
SECTOR COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
FOR THE SIX MONTHS ENDED
August 31, August 31,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,542,443) $(1,157,681)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 408,437 191,837
Compensation Portion of Restricted
Stock Grants (Note 9) -- 407,916
Change in Assets and Liabilities, Net
of Effect of Acquisition:
(Increase) Decrease in Assets
Accounts Receivable 267,063 (139,413)
Repayment of Related Party Receivable 32,198
Prepaid Expenses and Deposits 23,288 (52,170)
Receivable on Sale of Securities 971,000
(Decrease) Increase in Liabilities
Accounts Payable 12,961 4,730
Related Party Payable (4,202) --
Deferred Revenue (174,055) --
Accrued Interest on Loan Payable -- 166,680
Rent Deposit -- 12,248
----------- -----------
Net Cash (Used) by Operating Activities (5,753) (565,853)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (34,889) (8,736)
Proceeds from Sale of Marketable Securities -- 1,930,000
Decrease in Marketable Securities 21,762 --
Payment for the Acquisition of Histech -- (400,000)
Payment for the Acquisition of Sector AG -- (12,000)
Cash Balances of Histech and Mountain -- 36,587
Cash Balance of Sector Received in the
Reverse Acquisition -- 62,022
Payment for the Investment in DBE Software -- (450,000)
Loans Receivable 56,798 (252,192)
----------- -----------
Net Cash Provided by Investing Activities 43,671 905,681
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the Sale of Common Stock -- 250,000
----------- -----------
Net Cash Provided By Financing Activities -- 250,000
----------- -----------
Effect of Exchange Rate Changes on Cash (35,619) 138,138
----------- -----------
Net Increase in Cash 2,299 727,966
Cash - March 1, 80,096 22,429
----------- -----------
Cash - August 31, $ 82,395 $ 750,395
=========== ===========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid For:
Interest $ -- $ --
=========== ===========
Taxes $ -- $ --
=========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Page 5
<PAGE>
SECTOR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
August 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Certain reclassifications have been made to the prior period to
conform to the current period's presentation.
For further information refer to the financial statements and
footnotes included in the Registrant's Annual Report on form 10-KSB
for the period ended February 28, 1997.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year
ending February 28, 1998.
On June 18, 1996, Sector Communications, Inc. ("Sector"), formerly
Aurtex, Inc., acquired all the outstanding capital stock of Global
Communications Group, Inc. ("Global"). For accounting purposes, this
acquisition has been treated as a recapitalization of Sector with
Global as the acquirer in a reverse acquisition.
The unaudited condensed consolidated balance sheet as of August 31,
1997 and the condensed consolidated statements of operations and
cash flows for the three and six month periods ended August 31, 1997
and 1996 are those of Sector and its subsidiaries (collectively the
"Company"). All significant intercompany accounts and transactions
have been eliminated.
The financial statements presented for periods prior to the
acquisition of Global present the financial position and results of
operations solely of Global, and do not include the financial
position or results of operations of Sector or any of its
subsidiaries. As such, the unaudited statements of operations and
cash flows for the three months ended May 31, 1996 reflect the
results of operations of only Global.
The accompanying consolidated financial statements as of August 31,
1997 and for the three and six months then ended include the
accounts of Sector and its subsidiaries (see note 8). Such
subsidiaries are as follows:
Global Communications, Inc., 100% owned
HIS Technologies AG 60% owned
Mountain Software AG 100% owned
Page 6
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SECTOR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
August 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) Loss Per Share
Loss per share is based on the weighted average number of shares of
common stock outstanding during the period.
c) Foreign Currency Translation
In accordance with the provisions of Statement of Accounting
Standard No. 52, "Foreign Currency Translations" ("SFAS No. 52") the
assets and liabilities of the Company's subsidiaries located outside
the United States are generally translated at the rates of exchange
in effect at the balance sheet date. Gains and losses resulting from
foreign currency transactions are recognized currently in income and
those resulting from translation of financial statements, with the
exception of entities operating in highly inflationary economies, as
Global does in Bulgaria, are accumulated in a separate component of
stockholders' equity. In highly inflationary economies, SFAS No. 52
requires that the use of historical exchange rates to translate
nonmonetary items and current exchange rates to translate monetary
items. The effect of exchange rate changes is reflected in net loss.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
August 31, February 28,
1997 1997
----------- ------------
Fiber Network $ 157,837 $ 157,837
Equipment 1,910,607 1,875,718
Furniture and Fixtures 47,223 47,223
Vehicles and Other 90,068 90,068
----------- -----------
2,205,735 2,170,846
Less: Accumulated
Depreciation (1,270,849) (1,060,696)
----------- -----------
$ 934,886 $ 1,110,150
=========== ===========
Depreciation expense for the three month periods ended August 31,
1997 and 1996 was $103,829 and $86,113, respectively, and for the
six month periods ended August 31, 1997 and 1996 was $210,116 and
$172,226, respectively.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the three month period ended November 30, 1996, the Company
accrued $80,000 for consulting fees incurred for services provided
by MCG Management Consulting Group, S.A. ("MCG"). This agreement was
canceled on November 26, 1996. One of the principles of MCG is a
former director of Sector AG and the former Chairman of the Board of
Directors of Histech. This liability remains unpaid as of August 31,
1997.
NOTE 4 - NOTES RECEIVABLE
Notes receivable at August 31, 1997 are as follows: Both of these
notes are currently due and in default.
Promissory note receivable from
Atcall, Inc., bearing interest at 8%
per annum. This note is personally
guaranteed by the president of Atcall.
Repayment of this note was demanded
Page 7
<PAGE>
on the note's due date, October 23,
1996. On January 20, 1997, the Company
agreed to restructure payment of this
amount to be payable $25,000 per month
with a final balloon payment of
$25,000, plus all accrued interest. $ 205,312
Reserve for potential uncollectability (119,000)
Unsecured promissory note receivable
from Combined Metals Reduction
Company, bearing interest at 10%. The
Company has previously established a
reserve for the full amount of this
note. 136,575
Reserve for potential uncollectability (136,575)
----------
Total $ 86,312
==========
Atcall, Inc. has made only three of its scheduled payments under the
restructured payment plan. The Company has established a reserve for
the potential uncollectibility of the note.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets at August 31, 1997 are as follows:
Intangible assets related to the acquisition
of Histech $ 4,286,922
Intangible assets related to the acquisition
of Mountain 595,959
Intellectual property and distribution rights
acquired by Histech prior to its acquisition
by the Company, net of foreign currency
exchange fluctuations. 751,897
------------
5,634,778
Amortization of intangible assets and
intellectual property and distribution
rights (484,925)
------------
Total $ 5,149,853
============
The intangible asset recorded for intellectual property and
distribution rights was acquired by Histech based on an agreement,
as amended, dated May 1, 1996, between Histech and HIS Software AG.
The excess purchase price over the fair value of the net assets
acquired of Histech and Mountain will be amortized on a
straight-line basis over twenty years. Costs related to the
acquisition of the intellectual property and distribution rights
purchase by Histech are amortized over the estimated useful life of
five years.
NOTE 6 - WARRANTS
At August 31, 1997, the Company has reserved 3,895,680 shares of
common stock for issuance upon the exercise of the currently
outstanding warrants. The exercise prices and expiration dates of
the warrants are as follows:
Page 8
<PAGE>
Number Exercise Date Date of
of Shares Price Exercisable Expiration
--------- -------- ----------- ----------
2,083,746 $0.79 2/28/97 12/31/97
11,934 0.79 2/28/97 8/31/97
100,000 2.25 2/28/97 6/30/00
100,000 3.00 7/20/97 6/30/00
100,000 4.00 7/20/98 6/30/00
250,000 0.79 2/28/97 7/18/99
1,250,000 0.79 2/28/97 7/18/99
---------
3,895,680
=========
NOTE 7 - STOCK OPTION PLANS
At August 31, 1997, the Company has options outstanding for the
purchase of 1,210,000 shares under the 1994 Stock Plan, at exercise
prices ranging from $.375 to $1.0625 per share. 510,000 options are
exercisable as of August 31, 1997. There were no option transactions
during the period March 1 through August 31, 1997.
NOTE 8 - SECTOR COMMUNICATIONS AG
Sector Communications AG was dissolved in July of 1997. At the time
of its dissolution it had no operating budget, revenues nor
employees. The Company acquired 100% of the outstanding capital
stock of Sector Communications AG ("Sector AG") on July 31, 1996,
from Murray Services, Ltd. ("Murray") for the purpose of holding the
equity interests acquired by the Company in Switzerland, namely HIS
Technologies AG and Mountain Software AG. At the time that Sector AG
was acquired it had neither assets nor liabilities. Equity interests
in HIS Technologies AG and Mountain Software AG are now held
directly by Sector Communications, Inc.
NOTE 9 - REVERSE SPLIT OF COMMON STOCK AUTHORIZED
At the Annual Meeting, held on October 21, 1997, shareholders voted
to amend the Sector Communications, Inc. Certificate of
Incorporation to authorize a reverse split of the Company's common
stock. The Board of Directors had adopted a resolution authorizing
an amendment to the Company's Amended and Restated Articles of
Incorporation to effect a reverse split of the Company's Common
Stock, $0.001 par value, whereby every 40 shares of Company Common
Stock will be converted into one share. No fractional shares of
stock would be issued in connection with a reverse split, but in
lieu thereof, each holder of Common Stock who would otherwise be
entitled to receive a fraction of a share of Common Stock shall have
the number of shares rounded up or down to the closest number of
whole shares of Common Stock. The Board of Directors has no
immediate plans to effect the authorized reverse split.
Page 9
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the three and six month periods ended August 31, 1997 compared to
the three and six month periods ended August 31, 1996.
Telecommunication Revenue
The Company earns all of its telecommunications revenue from (i) providing
direct-dial services for international long distance calls to hotels in the
cities of Sofia and Plovdiv in Bulgaria; (ii) from the integration, installation
and maintenance of customer-owned digital phone systems; and (iii) from
usage-based percentages of Company-owned digital phone systems through shared
revenue agreements with some of its customers.
The Company's telecommunications revenue increased by $90,900 from $104,642 for
the three months ended August 31, 1996 to $195,542 for the three months ended
August 31, 1997, and decreased by $136,095 from $582,321 for the six months
ended August 31, 1996 to $446,226 for the six months ended August 31, 1997. The
decrease in revenue for the six months is due primarily to the Bulgarian
Telephone Company ("BTC"), without prior notice or cause, unilaterally
terminating the Company's Joint Activity Agreement on July 8, 1996. On that date
the BTC disconnected Global's digital link to international carrier services,
thus suspending the majority of the services provided by the Company to its
customers. The digital link was reestablished through a new Joint Activity
Agreement with the BTC dated February 14, 1997. The increase in revenues from
carrier services for the three months is due to the reconnection of the
Company's services.
Software Sales and Maintenance
Effective August 31, 1996, the Company began recording the software sales and
maintenance revenue of its 60% owned subsidiary, Histech. No revenue related to
Histech's operations was recorded prior to that time, since the acquisition of
Histech was accounted for as a purchase, effective August 31, 1996.
During the three months ended August 31, 1997 and six months ended August 31,
1997, the Company recorded $288,432 and $661,143 in software sales and
maintenance, net of payments to third party distributors, generated exclusively
by its 60% owned subsidiary, Histech as follows:
Three Months Six Months
Ended Ended
August 31, 1997
---------------------------
Software Sales $ 30,318 285,338
Software Maintenance and Consulting 40,582 102,805
-------- --------
Subtotal 70,900 388,143
Deferred Software Maintenance Recognized in
Current Period 217,532 273,000
-------- --------
Total Recognized Revenue $288,432 $661,143
======== ========
Histech utilizes the service of software distributors for the sales of its
products in geographic regions in which it has no sales force. During the three
months and six months ended August 31, 1997, approximately 40% of sales were
generated through distributors.
Histech plans to release several new software products in the third and fourth
quarters of 1997 for use on Digital Open VMS, Microsoft Windows NT and various
versions of Unix-based corporate networks. These products will facilitate the
administration of user accounts and security across all three networks
concurrently from a single Windows NT workstation.
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Cost of Sales
The majority of the Company's costs of sales for the three months and six months
ended August 31 relate to costs associated with telecommunication revenues as
shown below.
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
---------- ---------- ---------- --------
Global Communications $ 192,938 $ 143,525 418,307 529,805
Histech 58,028 -- 204,047 --
---------- ---------- ---------- ---------
Total $ 250,966 $ 143,525 $ 622,354 $ 529,805
========== ========== ========== =========
Global's costs of sales increased by $49,413 from $143,525 for the three months
ended August 31, 1996 to $192,938 for the three months ended August 31, 1997 and
decreased by $111,498 from $529,805 for the six months ended August 31, 1996 to
$418,307 for the six months ended August 31, 1997. These changes are due
primarily to the Company reestablishing its carrier services in the current six
months which had been terminated in July of 1996 and reconnected in February of
1997.
Three Months Ended Six Months Ended
August 31, August 31,
1997 1996 1997 1996
---- ---- ---- ----
Cost of Sales, as a Percent of Revenue 99% 137% 94% 91%
The variances are due in part to increased costs incurred in reestablishing
Global's digital link at the BTC and fixed costs forming a larger percentage of
revenue earned.
Costs of sales related to software products and maintenance are comprised
primarily of commissions and distribution payments. These costs were 20% of
software sales and maintenance revenue for the three month period August 31,
1997 and 31% for the six month period ended August 31, 1997.
Software Development Costs
Software development costs consist primarily of salaries, employee-related
benefits, consulting fees and other costs directly attributable to the
development of Histech's new distributed systems management products. The
Company believes that a significant level of development is required to remain
competitive and expects that such costs will continue to increase in the future,
although such costs may decline as a percentage of total revenue to the extent
that revenue increases.
Sales, General and Administrative Expense
Consists primarily of personnel costs, including salaries, benefits and bonuses
and related costs for management, finance and accounting, legal and other
professional services. General and administrative expenses are detailed in the
following table by individual company below.
Three Months Ended Six Months Ended
August 31, August 31,
1997 1996 1997 1996
---------- --------- ---------- ---------
General and Administrative
Global Communications $ 95,173 $ 78,116 $ 216,680 $ 162,904
Histech 361,685 -- 657,276 --
Sector Communications 346,340 719,351 696,028 719,351
---------- --------- ----------- ---------
Total $ 803,198 $ 797,467 $ 1,569,984 $ 882,255
========== ========= =========== =========
Higher expenses for salaries, related costs and professional services were
primarily responsible for the increase in the sales, general and administrative
costs for Global for the three and six month periods ended August 31, 1997
compared to the same periods in 1996.
The decrease in Sector's general and administrative costs in the three month
period ended August 31, 1997, as compared to the same period in 1996, is due to
a stock compensation expense of $407,916 in 1996 and none in 1997.
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Sales, general and administrative costs of Histech consist primarily of salaries
and related costs, fees, marketing expenses, depreciation and the amortization
of intangible assets. Management of Histech believes that as new products are
introduced into the market in the future, significant marketing costs will be
incurred to successfully promote these products.
Interest Expense
Interest expense declined dramatically for the three month and six month periods
ended August 31, 1997 as compared to the three and six month periods ended
August 31, 1996. This decrease results from the extinguishing of the Company's
long-term debt on February 28, 1997.
Gold Exploration Costs and Activities
In order to accurately determine the best course to take for the ultimate
divestiture of its gold assets, the Company incurred exploration costs, as more
fully described below of $27,219 during the three month period ended August 31,
1997 and $57,083 during the six month period ended August 31, 1997 as compared
to $239,336 incurred during the three month period ended August 31, 1996. Prior
to June 1, 1996, the Company did conduct gold exploration activities, but due to
the nature of the acquisition of Global as a reverse acquisition, the historic
financial statements are those only of Global and not of Sector, formerly
Aurtex. The reader is referred to the Company's February 29, 1996 and February
28, 1997 10-KSB for details concerning exploration costs incurred during its
years ended February 29, 1996 and February 28, 1997. The Company incurred
approximately $18,000 in exploration costs in the three months ended August 31,
1996 which were incurred prior to the reverse acquisition of Global, and as such
are not shown in the statement of operations as expense.
In connection with the change in the Company's strategic direction the Company
has decided to curtail any significant future gold exploration activities. The
Company is currently evaluating options to determine the possibilities of
divestiture and or discontinuance of its mineral properties described below.
Management believes it has sufficient information from the exploration efforts
conducted recently to properly evaluate various possibilities of divestiture of
the mineral properties, the Company does not expect to incur significant costs
in the future related to its gold exploration properties or other gold
exploration related activities.
Vienna Project
On April 15, 1997, the Vienna Property Exploration License and Option to
Purchase Agreement expired. The Company has written off previously capitalized
costs of $100,000 related to this property.
Ketchum Project
A minor drilling program, consisting of one exploration drill hole of 403 feet
was conducted under the direction of Agricola Metals Company, a principal of
which is a shareholder of the Company, to explore that part of the Wood River
formation immediately under the challis volcanics in the Rooks Creek East area
of the Company's unpatented claim block. According to Agricola Metals Company,
the drill core showed mineralization of the Wood River in this sector. However,
faulting prevented the drilling from reaching the critical zone. Further surface
investigation, and a modest drilling program, will be needed to determine
whether a deposit exists in this location.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended August 31, 1997, the Company financed its
operations primarily through funds it received pursuant to a debt retirement
agreement entered into on February 28, 1997.
The Company is currently experiencing negative cash flow from operations but
management believes that with the reinstatement of Global's services and
increased sales of Histech, that operating cash flow will improve significantly.
Even with these projected
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improvements in operations and cash flows from Global and Histech, and the
curtailment of gold exploration activities, the funding of future operations
will require further infusion of capital. Negotiations are currently under way
with potential investors wishing to provide additional operating capital. Based
on its current and projected operating levels, the Company believes that it
could attain a breakeven or positive level of cash flow with the next twelve
months.
If additional funds are raised by the Company through the issuance of equity
securities, securities convertible into or exercisable for equity securities, or
an equity securities exchange, the percentage ownership of the then current
stockholders of the Company will be reduced. The Company may issue preferred
stock with rights, preferences or privileges senior to those of the Company's
common stock.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risk and
uncertainties. Such forward-looking statements reflect the Company's current
views with respect to future events and reflect the Company's current views with
respect to future events and financial performance, including statements in the
following section concerning the timing and amount of revenues, the level of
expenses incurred and the sufficiency of cash and other resources to fund
operations. Actual results could differ materially from those projected in the
forward-looking statements as a result of the Company's ability to obtain
adequate additional financing as needed, the uncertainties of new product
development and introduction, sales, growth, competitive pressures,
uncertainties connected to the Bulgarian economy, and other risks listed from
time to time in the Company's SEC reports including, but not limited to, Report
on Form 10-KSB for the year ended 2/28/97 (Forward Looking Statements section).
Page 13
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PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 21, 1997 /s/ Theodore Georgelas
--------------------------
Theodore Georgelas
President and Chief
Executive Officer
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SECTOR
COMMUNICATIONS, INC. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1997
<CASH> 82,395
<SECURITIES> 0
<RECEIVABLES> 427,308
<ALLOWANCES> (75,526)
<INVENTORY> 0
<CURRENT-ASSETS> 653,627
<PP&E> 2,205,735
<DEPRECIATION> (1,270,849)
<TOTAL-ASSETS> 7,816,842
<CURRENT-LIABILITIES> 1,617,471
<BONDS> 0
0
0
<COMMON> 45,898
<OTHER-SE> 6,141,225
<TOTAL-LIABILITY-AND-EQUITY> 7,816,842
<SALES> 1,107,369
<TOTAL-REVENUES> 1,107,369
<CGS> 622,354
<TOTAL-COSTS> 472,750
<OTHER-EXPENSES> 1,553,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,224
<INCOME-PRETAX> (1,542,443)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,542,443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,542,443)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
