<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-17827
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SECTOR ASSOCIATES, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 11-2788282
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004
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(Address of principal executive offices)
(Zip Code)
(610) 660-5906
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(Registrant's telephone number, including area code)
N/A
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(Former address of principal executive offices)
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.
(1) Yes No X
----- -----
(2) Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the Registrant's class of
Common Stock, as of December 7, 1995:
Common Stock, par value $.10 - 3,247,127
<PAGE> 2
SECTOR ASSOCIATES, LTD.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information* Page
- ------ --------------------- ----
<S> <C> <C>
Item 1. Condensed Balance Sheets -
September 30, 1995 and
June 30, 1995 F-1
Condensed Statements of (Loss)
and Accumulated Deficit for
the three months ended
September 30, 1995 and 1994 F-2
Condensed Statements of Cash
Flows - for the three months ended
September 30, 1995 and 1994 F-3
Notes to Condensed
Financial Statements F-4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 3
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 6
Item 2. Changes in Securities 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters to a
Vote of Security Holders 6
Item 5. Other Information 6
Item 6. Exhibits and Reports on Form 8-K 6
</TABLE>
*The accompanying financial information is not covered by an
Independent Certified Public Accountant's Report.
2
<PAGE> 3
ITEM 1. FINANCIAL INFORMATION
SECTOR ASSOCIATES, LTD.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 149,251 $ 141,071
Escrow deposit 100,000 -
Certificate of deposit - 130,000
Note receivable and other receivable - 20,000
Marketable equity securities - 50,000
Investment 400,000 400,000
--------------- ----------------
TOTAL ASSETS $ 649,251 $ 741,071
=============== ================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 47,341 $ 90,818
--------------- ----------------
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.10 per share; 50,000,000
shares authorized; 2,034,129 shares at September
1995 and 2,034,129 shares at June 30, 1995
issued and outstanding 203,413 203,413
ADDITIONAL PAID-IN CAPITAL 13,234,061 13,234,061
ACCUMULATED DEFICIT (12,835,564) (12,787,221)
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 601,910 650,253
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 649,251 $ 741,071
=============== ================
</TABLE>
See notes to condensed financial statements.
F-1
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SECTOR ASSOCIATES, LTD.
CONDENSED STATEMENTS OF LOSS AND
ACCUMULATED DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME $ 6,369 $ 14,014
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TOTAL INCOME 6,369 14,014
OPERATING EXPENSES 54,712 240,150
------------ ------------
OPERATING LOSS (48,343) (226,136)
UNREALIZED LOSS ON MARKETABLE EQUITY SECURITIES - (306,355)
------------ ------------
NET LOSS (48,343) (532,491)
ACCUMULATED DEFICIT - BEGINNING OF PERIOD (12,787,221) (11,982,216)
------------ ------------
ACCUMULATED DEFICIT - END OF PERIOD $(12,835,564) $(12,514,707)
============ ============
NET LOSS PER COMMON SHARE $ (.024) $ (.162)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,034,129 3,278,692
============ ============
</TABLE>
See notes to condensed financial statements.
F-2
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SECTOR ASSOCIATES, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (48,343) $ (532,491)
Adjustments to reconcile net loss to net
cash used in operating activities
Unrealized loss on marketable equity securities - 306,355
Changes in assets and liabilities
Decrease in other receivables 20,000 -
Decrease in other assets - 376
Increase in escrow deposit (100,000) -
Decrease in accounts payable and
accrued expenses (43,477) (48,002)
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Net cash used in operating activities (171,820) (273,762)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in note receivable - 380,000
Sale of securities 50,000
Maturity of certificate of deposit 130,000 -
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Net cash provided by investing activities 180,000 380,000
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NET INCREASE IN CASH 8,180 106,238
CASH - BEGINNING OF PERIOD 141,071 2,357,600
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CASH - END OF PERIOD $ 149,251 $ 2,463,838
========== ============
</TABLE>
See notes to condensed financial statements.
F-3
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SECTOR ASSOCIATES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 1 - CONDENSED FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The unaudited interim financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended June 30, 1995. The
accompanying interim financial statements have not been audited by independent
certified public accountants, but in the opinion of management, such financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the results of operations, and are
not necessarily indicative of the results to be expected for the full year.
NOTE 2 - PENDING ACQUISITION AND MANAGEMENT'S PLANS
On September 20, 1995, the Company entered into an Agreement and Plan of
Reorganization pursuant to which the Company has agreed to acquire 100% of the
issued and outstanding stock of Viragen (Scotland) Limited ("VSL") in exchange
for the distribution to Viragen, Inc., the sole stockholder of VSL, of newly
issued shares of convertible preferred stock that upon conversion will
represent 78,400,000 shares of Common Stock or approximately ninety-four
percent (94%) of the issued and outstanding shares of the Company.
Through a license granted by Viragen, Inc., VSL has secured certain rights to
engage in the research, development and manufacture of certain proprietary
products and technologies that relate to the therapeutic application of human
leukocyte interferon to various diseases that affect the human immune system.
Pursuant to these rights, on July 20, 1995 VSL entered into a License and
Manufacturing Agreement with the Common Services Agency ("Agency"), an agency
acting on behalf of the Scottish National Blood Transfusion Service ("SNBTS")
pursuant to which SNBTS, on behalf of VSL, will manufacture and supply VSL's
natural human interferon product to VSL for distribution in the United Kingdom
in return for certain fees. SNBTS' services will be subject to all the rules,
regulations and procedures that control the manufacture and distribution of the
interferon product and will also be subject to the terms of the License and
Manufacturing Agreement. It was critical to VSL's operations and to conduct
clinical trials to secure a facility which has available a sufficient qualified
source of blood. VSL is a newly formed corporation which commenced operations
concurrent with the execution of its agreement with the SNBTS.
The Company's historical and current liquidity and capital resources have been
based on its activities as a shell corporation with little or no operations,
however, the Company's operations will materially change upon the closing of
the Plan of Reorganization with VSL. In order to complete the closing of the
Plan of Reorganization, the Company will need to secure additional capital so
that upon the date of closing, it has a net worth of $800,000. Toward this
end, the Company has initiated a private placement transaction whereby it seeks
to raise the sum of approximately $750,000 through the sale to a limited number
of consolidated investors of up to 336,000 Units for a purchase price of $2.23
per Unit. Each Unit consists of ten (10) shares of Common Stock and
thirty-five (35) Common Stock Purchase Warrants that have an exercise price of
$.43 per share. On November 3, 1995, the Company realized gross proceeds of
approximately $350,000 through the sale of 156,951 Units to FAC Enterprises,
Inc. In the event the Agreement and Plan of Reorganization does not
successfully close, the Company will continue its prior operations of seeking
potential business combinations.
F-4
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SECTOR ASSOCIATES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE 3 - ESCROW DEPOSIT
In August 1995, $100,000 was deposited into an escrow account maintained by the
counsel of a potential acquisition candidate. The transaction was never
consummated and the $100,000 was returned to the Company in October 1995.
NOTE 4 - MARKETABLE EQUITY SECURITIES
In July 1995, the Company sold the remaining 53,500 shares of NATK for $50,000.
NOTE 5 - INVESTMENT
In January 1995, the Company entered into an agreement to purchase 200,000
shares of common stock, 250,000 Class A Warrants (1 share of common stock for
$4.00), 187,500 Class B Warrants (1 share of common stock for $5.50), 250,000
Class C Warrants (1 share of common stock for $8.80) of Eastwind Group, Inc.
(Eastwind) for $500,000. The 200,000 shares represent approximately 21% of the
966,000 shares outstanding of Eastwind. Because the ownership is temporary,
the investment of $400,000 at September 30, 1995 is being carried at cost,
which approximates market.
In June 1995, the Company entered into an agreement to sell to an investor
group of six, of which two were affiliated, the Class A, Class B and Class C
Warrants for $100,000 of which $80,000 was received in June 1995 and the
remaining $20,000 in July 1995.
On October 23, 1995, the Board of Directors authorized the distribution of the
200,000 shares of common stock of Eastwind to its stockholders of record as of
November 3, 1995. The shares of Eastwind will be held in escrow by a Trustee
and will be distributed upon the effectiveness of the registration statement
which has been filed by Eastwind with the Securities and Exchange Commission.
F-5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
In view of the discontinuation of the Company's former active business
operations, management's goals since the Summer of 1993 have been to seek to
enter into strategic business combinations involving either acquisitions of
assets or stock, mergers, reorganizations, consolidations or other transactions
that are likely to capitalize on the Company's status as a public company.
To facilitate its goals, during November 1993, the Company reorganized
certain of its outstanding finances, capitalization and management and
thereafter began to conduct feasibility studies and due diligence examinations
in connection with the identification of potential acquisition candidates.
The Company's first completed equity investment occurred on March 10,
1995, when pursuant to the terms of a Securities Purchase Agreement dated
January 25, 1995 ("Securities Purchase Agreement"), the Company invested
$500,000 for the purchase of securities from The Eastwind Group, Inc.
("Eastwind"), a Delaware corporation, consisting of the following: 200,000
shares of Common Stock (the "Eastwind Shares"); and 250,000 Class A Common
Stock Purchase Warrants; 187,500 Class B Common Stock Purchase Warrants and
250,000 Class C Common Stock Purchase Warrants (in the aggregate, the "Eastwind
Warrants"). This purchase represented an interest in approximately twenty
(20%) percent of the issued and outstanding common stock of Eastwind at the
time of the acquisition.
The Eastwind Warrants were sold by the Company in a private
transaction during July 1995 for the price of $100,000. The Company intends to
distribute the Eastwind Shares to its stockholders of record as of November 3,
1995 in December 1995.
On September 20, 1995, the Company entered into an Agreement and Plan
of Reorganization (the "Plan of Reorganization") pursuant to which the Company
has agreed to acquire 100% of the issued and outstanding stock of Viragen
(Scotland) Limited ("VSL") in exchange for the distribution to Viragen, Inc.,
the sole stockholder of VSL, of newly issued shares of convertible preferred
stock that upon conversion will represent 78,400,000 shares of Common Stock or
approximately ninety four percent (94%) of the issued and outstanding shares of
the Company.
Through a license granted by Viragen, Inc., VSL has secured certain
rights to engage in the research, development and manufacture of certain
proprietary products and technologies that
3
<PAGE> 9
relate to the therapeutic application of human leukocyte interferon to various
diseases that affect the human immune system. Pursuant to these rights, on
July 20, 1995 VSL entered into a License and Manufacturing Agreement with an
agency acting on behalf of the Scottish National Blood Transfusion Service
("SNBTS") which allows the continued manufacturing of VSL's new natural human
alpha interferon product, Omniferon in Scotland and certain European countries.
VSL is a newly formed corporation which commenced operations concurrent with
the execution of its agreement with the SNBTS.
Closing is anticipated to occur upon the successful completion of due
diligence examinations and upon the Company securing certain additional funding
so as to achieve a net worth of approximately $800,000. In this regard, the
Company is currently undertaking a private placement of 336,000 units, with
each unit consisting of ten (10) shares of Common Stock and thirty-five (35)
Common Stock Purchase Warrants offered at $2.23 per unit ("Unit"). As of the
date of this Report, the Company has sold 156,951 Units, raising approximately
$350,000 of the $750,000 anticipated to be raised under the private placement.
The proceeds of this offering are anticipated to be used to satisfy the
conditions precedent of the Agreement and Plan of Reorganization.
Upon closing of the Agreement and Plan of Reorganization, the
Company's operations, activities and management will significantly change. In
the event the Agreement and Plan of Reorganization does not successfully close,
the Company will continue its prior operations of seeking potential business
combinations.
RESULTS OF OPERATIONS
For the quarter ended September 30, 1995, the Company incurred a net
loss of $48,343 on revenue consisting of interest income of $6,369. The
Company's net loss was attributed to operating expenses of $54,712. A
substantial portion of the operating expenses consisted of legal and accounting
expenses of $38,345. For the equivalent prior year three month period, the
Company had realized interest income of $14,014 with a resulting net loss of
$532,491.
The net loss incurred during the quarter is not likely to provide any
meaningful information relative to future periods since the loss was incurred
at a time when the Company's operations were limited to seeking strategic
business combinations. By virtue of the Plan of Reorganization with VSL, it is
anticipated that the future activities of the Company will materially change to
that of undertaking the operations of VSL.
4
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets of $649,251 as of September 30, 1995, consisted
of cash of $149,251, investments in securities of $400,000 and an escrow
deposit of $100,000. After giving effect to $47,341 of accounts payable, the
Company's net worth as of September 30, 1995 was $601,910.
During the quarter, the Company's resources were applied toward the
expenses associated with identifying and performing due diligence examinations
in connection with potential acquisition candidates, as well as costs
associated with the anticipated closing of the Agreement and Plan of
Reorganization.
During the quarter, the Company's liquidity and capital resources were
effected by the sale of certain of its securities held for investment. During
July 1995, the Company entered into a Stock Purchase Agreement which
effectuated the sale of the balance of the 53,500 shares of NATK to an
associate of one of the Company's principal stockholders for a promissory note
of $50,000 which has been paid during August 1995. In addition, the Company
entered into a Warrant Purchase Agreement which effectuated the sale of the
Eastwind Class A, B and C Warrants for $100,000. Certain of these sales were
to associates of one of the Company's principal stockholders.
The Company's historical and current liquidity and capital resources
have been based on its activities as a shell corporation with little or no
operations, however, the Company's operations will materially change upon the
closing of the Plan of Reorganization with VSL. In order to complete the
closing of the Plan of Reorganization, the Company will need to secure
additional capital so that upon the date of closing, it has a net worth of
$800,000. Toward this end, the Company has initiated a private placement
transaction whereby it seeks to raise the sum of approximately $750,000 through
the sale to a limited number of accredited investors of up to 336,000 Units for
a purchase price of $2.23 per Unit. Each Unit is to consist of ten (10) shares
of Common Stock and thirty-five (35) Common Stock Purchase Warrants that bear
an exercise price of $.43 per share.
On November 3, 1995, the Company realized gross proceeds of $350,000
through the sale of 156,951 Units.
Effects of Inflation
The Company does not expect inflation to materially effect its results
of operations.
5
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as reported in Part I, Item 3 - "Legal Proceedings"
of the Registrant's Annual Report on Form 10-KSB for the year ended June 30,
1995, there have been no material developments to any of the matters that
require reporting under this Item.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
6
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SECTOR ASSOCIATES, LTD.
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.
SECTOR ASSOCIATES, LTD.
Dated: December 7, 1995 /s/Andrew Panzo
------------------- -------------------------------
ANDREW PANZO
President
(Principal Executive Officer)
Dated: December 7, 1995 /s/Cecile T. Coady
------------------- -------------------------------
CECILE T. COADY
Secretary and Treasurer
(Principal Accounting Officer)
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR 10-QSB FOR PERIOD ENDED 9/30/95
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 249,251
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 649,251
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 649,251
<CURRENT-LIABILITIES> 47,341
<BONDS> 0
<COMMON> 203,413
0
0
<OTHER-SE> 398,497
<TOTAL-LIABILITY-AND-EQUITY> 649,251
<SALES> 0
<TOTAL-REVENUES> 6,369
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 54,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (48,343)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48,343)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,343)
<EPS-PRIMARY> (.024)
<EPS-DILUTED> (.024)
</TABLE>
