<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
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 December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-17827
SECTOR ASSOCIATES, LTD.
-----------------------
(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
------------------------------------------
(Address of principal executive offices)
(Zip Code)
(610) 660-5906
--------------
(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the Registrant's class of
Common Stock, as of October 16, 1995:
Common Stock, par value $.10 - 2,034,129
<PAGE> 2
SECTOR ASSOCIATES, LTD.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information* Page
- ------ --------------------- ----
<S> <C> <C>
Item 1. Condensed Consolidated Balance
Sheets - December 31, 1994 and
June 30, 1994 3
Condensed Consolidated Statements
of (Loss) and Accumulated Deficit
for the six months ended
December 31, 1994 and 1993 4
Condensed Consolidated Statements
of (Loss) and Accumulated Deficit
for the three months ended
December 31, 1994 and 1993 5
Condensed Consolidated Statements of
Cash Flows - for the six months ended
December 31, 1994 and 1993 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a
Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
*The accompanying financial information is not covered by an
Independent Certified Public Accountant's Report.
2
<PAGE> 3
SECTOR ASSOCIATES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND JUNE 30, 1994
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 383,273 $ 2,357,600
Restricted cash 17,000 -
Certificate of deposit 130,000 -
Notes receivable 200,000 380,374
Marketable equity securities 119,493 540,000
-------------- -------------
Total current assets 849,766 3,277,974
DUE FROM AFFILIATES 63,000 -
-------------- -------------
TOTAL ASSETS $ 912,766 $ 3,277,974
============== =============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,603 $ 85,190
-------------- -------------
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.10 per share; 50,000,000
shares authorized; 2,034,129 shares at December 31,
1994 and 3,188,692 shares at June 30, 1994
issued and outstanding 203,413 318,869
ADDITIONAL PAID-IN CAPITAL 13,234,061 14,856,131
ACCUMULATED DEFICIT (12,529,311) (11,982,216)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 908,163 3,192,784
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 912,766 $ 3,277,974
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
SECTOR ASSOCIATES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
ACCUMULATED DEFICIT
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
RENTAL INCOME $ - $ 125,369
INTEREST INCOME 37,643 624
------------ ------------
TOTAL INCOME 37,643 125,993
OPERATING EXPENSES 278,383 149,162
------------ ------------
OPERATING LOSS (240,740) (23,169)
UNREALIZED LOSS ON MARKETABLE EQUITY SECURITIES (306,355) -
------------ ------------
NET LOSS (547,095) (23,169)
ACCUMULATED DEFICIT - BEGINNING OF PERIOD (11,982,216) (10,900,155)
------------ ------------
ACCUMULATED DEFICIT - END OF PERIOD $(12,529,311) $(10,923,324)
============ ============
NET LOSS PER COMMON SHARE $ (.220) $ (.030)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,485,567 781,714
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
SECTOR ASSOCIATES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
ACCUMULATED DEFICIT
THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
RENTAL INCOME $ - $ 53,919
INTEREST INCOME 23,629 624
--------- ----------
TOTAL INCOME 23,629 54,543
OPERATING EXPENSES 38,233 75,247
--------- ----------
OPERATING LOSS (14,604) (20,704)
UNREALIZED LOSS ON MARKETABLE EQUITY SECURITIES - -
--------- ----------
NET LOSS ($14,604) $(20,704)
========= ==========
NET LOSS PER COMMON SHARE $ (.006) $ (.026)
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,485,567 781,714
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
SECTOR ASSOCIATES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (547,095) $ (23,169)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization - 71,880
Unrealized loss on marketable equity securities 306,355 -
Changes in assets and liabilities
Increase in restricted cash (17,000) -
Decrease in receivables - net - (18,106)
Decrease in other assets 377 -
Decrease in stock subscription - (76,268)
Decrease in accounts payable and
accrued expenses (80,589) -
--------- ----------
Net cash used in operating activities (337,952) (45,663)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (payments) proceeds to/from affiliates (63,000) 13,088
Decrease in note receivable 180,000 (1,740,000)
Purchase of certificate of deposit (130,000) -
--------- ----------
Net cash used in investing activities (13,000) (1,726,912)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments on notes - (15,000)
Proceeds from issuance of common stock - 3,050,816
Repurchase of stock (1,623,375) -
--------- ----------
Net cash provided by (used in) financing (1,623,375) 3,035,816
--------- ----------
NET INCREASE (DECREASE) IN CASH (1,974,327) 1,263,241
CASH - BEGINNING OF PERIOD 2,357,600 119
--------- ----------
CASH - END OF PERIOD $ 383,273 $1,263,360
============ ==========
SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING ACTIVITY
Return of certain marketable equity securities
in exchange for the cancellation of 375,000
shares of the company's common stock $ 114,151 $ -
============ ==========
</TABLE>
See notes to condensed consolidated financial statements.
6
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SECTOR ASSOCIATES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - CONDENSED CONSOLIDATED 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, 1994. 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 - WRITE-OFF OF ADVANCE
In July 1994, the Company advanced $175,000 to TSS, Ltd. TSS owns and operates
proprietary electronic advertising and promotional network. TSS is a publicly
held company. In August 1994, the Company was informed that TSS no longer had
adequate capital resources to remain in operation as a going concern.
Accordingly, the Company wrote off the entire advance, which resulted in a
charge of $175,000.
NOTE 3 - NOTE RECEIVABLE
In August 1994, the Company received $380,000 from Fertech Environmental, Inc.
in full satisfaction of its promissory note.
NOTE 4 - MARKETABLE EQUITY SECURITIES
On July 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115 relating to investments in debt and equity
securities. The adoption of SFAS 115 has changed the Company's reporting for
investments. The Company has classified all marketable equity securities as
trading, as management of the Company plans to sell these securities in the
near future. At December 31, 1994 the Company recognized unrealized holding
losses of $306,355.
In November 1994, the Board of Directors approved the return of North American
Technologies Group, Inc. (NATK) and Florida West Airlines, Inc. (FWA) stock in
exchange for the Company's stock because certain business transactions that
were contemplated at the time of the original transfer were not pursued. The
Company returned 122,142 shares of NATK in exchange for cancellation of 350,000
shares of the Company's stock and 35,000 shares of FWA in exchange for
cancellation of 25,000 shares of the Company's stock. The aggregate value of
the securities on the date of exchange was $114,151.
NOTE 5 - COMMON STOCK
In November 1994, the Board of Directors approved the repurchase of 644,563
shares of the Company's stock for $1,623,375. The shares were repurchased
because the stock was originally sold in contemplation of certain transactions
taking place which did not occur. The repurchase represents approximately 57%
of the stock originally sold and 52% of the proceeds.
In October 1994, a significant stockholder agreed to return to the Company
225,000 shares of common stock for cancellation.
7
<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, upon effectiveness of a registration statement which has been filed by
Eastwind with the Securities and Exchange Commission. The Company expects this
distribution to occur during the second half of calendar 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
8
<PAGE> 9
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 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. VSL is a newly formed corporation which commenced operations
concurrent with the execution of its agreement with the SNBTS.
Closing is anticipated to occur prior to the end of calendar 1995.
Closing is contingent 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.
RESULTS OF OPERATIONS
For the quarter ended December 31, 1994, the Company incurred a net
loss of $14,604 on revenue consisting of interest income of $23,629. For the
six months ended December 31, 1994, the Company incurred a net loss of $547,095
on revenue consisting of interest income of $37,643. The Company's six month
period net loss was principally attributed to operating expenses of
$278,383 and an unrealized loss on marketable equity securities of $306,355. A
substantial portion of the operating expenses consisted of the write-off of an
advance to TSS, Ltd. of $175,000 in July, 1994. For the equivalent prior year
three month period, the Company had realized rental income of $53,919 and
interest income of $624 with a resulting net loss of $20,704.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets of $912,766 as of December 31, 1994, consisted of
cash of $383,273, investments in securities of $119,493, a note receivable of
$200,000 and other assets totalling $210,000. After giving effect to $4,603
of accounts payable, the
9
<PAGE> 10
Company's net worth as of December 31, 1994 was $908,163.
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.
During the quarter, the Company instituted the redemption and
repurchase of 644,563 shares from individuals who had purchased shares in the
Company's November 1993 private placement at prices of $2.50 and $3.50.
Additionally, the shares of a principal stockholder who had participated in the
private placement at a price of $1.50 were also redeemed. The aggregate
redemption price was $1,623,375.
From October through November 1994, three of the Company's principal
stockholders and one other stockholder agreed to surrender for cancellation
600,000 shares of the Company's common stock. In return, the Company returned
to these stockholders 122,142 of 250,000 shares of common stock of North
American Technologies Group, Inc. ("NATK") and all 35,000 shares of Florida
West Airlines, Inc. ("FWST"). At the time, these shares had been recorded as
assets on the financial statements of the Company with a book value of
$114,151.
Subsequent to the quarter ended December 31, 1994, the Company's
resources were applied in the following manner: (i) towards the surrender of
certain investment securities formerly acquired in conjunction with the
reorganization of the Company's finances in November 1993; and (ii) to acquire
certain outstanding securities of Eastwind.
The Company's liquidity and capital resources were effected by a
further reorganization of the Company's outstanding capitalization. During
February 1995, the Company transferred 74,358 shares of NATK to two existing
stockholders (one of whom is a principal stockholder of the Company) in
consideration for certain consulting services. Subsequently, the remaining
53,500 shares of NATK were sold during July 1995 for a promissory note of
$50,000 which was repaid during August 1995.
In March 1995, the Company completed the purchase of a minority
interest in the outstanding securities of Eastwind for an aggregate purchase
price of $500,000. The shares of common stock purchased in this transaction
are not intended to remain as long-term assets of the Company, but rather will
be distributed to the stockholders of record of the Company, as of November 3,
1995, upon effectiveness of a registration statement which has been filed
with the Securities and Exchange Commission by Eastwind. The distribution of
these securities is
10
<PAGE> 11
expected to occur during the second half of 1995.
In addition to interest income on short-term loans, the Company also
generated revenue from 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 was repaid 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.
11
<PAGE> 12
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, 1994,
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.
12
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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: November 5, 1995 /s/Andrew Panzo
------------------- -------------------------------
ANDREW PANZO
President
(Principal Executive Officer)
Dated: November 5, 1995 /s/Cecile T. Coady
------------------- -------------------------------
CECILE T. COADY
Secretary and Treasurer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 530,273
<SECURITIES> 119,493
<RECEIVABLES> 200,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 849,766
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 912,766
<CURRENT-LIABILITIES> 4,603
<BONDS> 0
<COMMON> 203,413
0
0
<OTHER-SE> 704,750
<TOTAL-LIABILITY-AND-EQUITY> 912,766
<SALES> 0
<TOTAL-REVENUES> 37,643
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 547,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (547,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (547,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (547,095)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
