<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from _____________ to _________
Commission file number 33-90344
Sigma Alpha Group, Ltd.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
23-2498715
(IRS Employer Identification No.)
1341 North Delaware Avenue, Philadelphia, PA 19125
(Address of principal executive offices)
(X) (215) 425-8682
(Issuer's telephone number)
______________________________________________________________
(Former name, former address and former fiscal year,if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 ( )
Outstanding shares issued or to be issued of each of the registrant's
class of common stock $.001 par value per share as of June 4, 1996 were
14,125,604.
<PAGE>
SIGMA ALPHA GROUP, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Balance Sheets at
April 30, 1996 (unaudited) and
July 31, 1995 (audited) 3-4
Consolidated Statements of Operations
for the nine months and three months
ended April 30, 1996 and 1995
(unaudited) 5
Consolidated Statement of Stockholders'
Equity for the nine months ended April
30, 1996 (unaudited) 6-7
Consolidated Statements of Cash Flows
for the nine months ended April
30, 1996 and 1995 (unaudited) 8-9
Notes to Consolidated Financial
Statements (unaudited) 10-12
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 13-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Events 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Rounded to Nearest Thousand)
<CAPTION>
April 30, July 31,
1996 1995
___________ _________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 10,000 $1,423,000
Accounts receivable 2,000 -
Receivable from underwriting - 198,000
Prepaid expenses and other current assets 19,000 7,000
_________ _________
31,000 1,628,000
PROPERTY AND EQUIPMENT 56,000 26,000
OTHER ASSETS
Goodwill 62,000 74,000
Patent 10,000 -
_________ _________
72,000 74,000
_________ _________
TOTAL ASSETS $ 159,000 $1,728,000
========= =========
<FN>
See accompanying notes
3
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Rounded to Nearest Thousand)
<CAPTION>
April 30, July 31,
1996 1995
___________ _________
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Note payable, bank $ - $ 50,000
Loan payable 91,000 -
Accounts payable - trade 134,000 173,000
Taxes, other than income taxes 7,000 76,000
Accrued wages - officers 29,000 -
Accrued interest - 31,000
Accrued expenses and other current
liabilities 71,000 94,000
_________ _________
TOTAL LIABILITIES 332,000 424,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK
SERIES A, $5.00 CONVERTIBLE, $.001 par value;
authorized, 750,000 shares; issued and
outstanding, 178,000 shares at April 30,
1996 and July 31, 1995. - -
SERIES B, $5.00 CONVERTIBLE, $.001 par value;
authorized, 800,000 shares; issued and
outstanding, 664,000 shares at April 30,
1996 and 726,000 shares at July 31, 1995. 1,000 1,000
SERIES C, $5.00 CONVERTIBLE, $.001 par value;
authorized, 100,000 shares; issued and
outstanding, 97,000 shares at April 30,
1996 and 109,000 shares at July 31, 1995. - -
ADDITIONAL PAID-IN CAPITAL 4,698,000 5,054,000
COMMON STOCK, $.001 par value; authorized
50,000,000 shares; issued and outstanding,
14,106,000 shares at April 30, 1996 and
12,837,000 at July 31, 1995. 14,000 13,000
COMMON STOCK SUBSCRIBED - 1,499,000
ADDITIONAL PAID-IN CAPITAL 14,856,000 12,664,000
ACCUMULATED DEFICIT (19,742,000) (17,919,000)
__________ __________
(173,000) 1,312,000
LESS: UNEARNED FUTURE COMPENSATION 0 8,000
__________ __________
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (173,000) 1,304,000
__________ __________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 159,000 $ 1,728,000
========== ==========
<FN>
See accompanying notes
4
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Rounded to Nearest Thousand)
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
APRIL 30, APRIL 30,
_____________________ ______________________
1996 1995 1996 1995
_________ _________ __________ _________
<S> <C> <C> <C> <C>
SALES $ - $ - $ - $ -
COST OF SALES - - - -
_________ _________ __________ _________
GROSS PROFIT - - - -
_________ _________ __________ _________
OPERATING EXPENSES:
Officers' compensation 392,000 585,000 130,000 321,000
Other salaries and
payroll costs 50,000 - 23,000 -
Consulting fees 230,000 346,000 67,000 180,000
Professional fees 129,000 363,000 20,000 312,000
Research and
development 390,000 - 33,000 -
Travel 277,000 104,000 96,000 56,000
Other 406,000 302,000 71,000 186,000
_________ _________ _________ _________
TOTAL OPERATING EXPENSES 1,874,000 1,700,000 440,000 1,054,000
_________ _________ _________ _________
LOSS FROM CONTINUING
OPERATIONS BEFORE OTHER
INCOME AND EXTRAORDINARY
GAIN (1,874,000) (1,700,000) (440,000) (1,054,000)
_________ _________ _________ _________
OTHER INCOME (EXPENSE)
Royalties 2,000 5,000 1,000 1,000
Interest expense (20,000) (42,000) - 95,000
Interest income 17,000 - - -
_________ _________ _________ __________
(1,000) (37,000) 1,000 96,000
_________ _________ _________ __________
LOSS BEFORE
EXTRAORDINARY GAIN (1,875,000) (1,737,000) (439,000) (958,000)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT 52,000 433,000 17,000 225,000
_________ _________ _________ _________
NET LOSS $(1,823,000)$(1,304,000) $ (422,000) $ (733,000)
========== ========= ========= ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,798,000 9,318,000 14,063,000 10,489,000
NET LOSS PER COMMON SHARE
Net loss before
extraordinary gain $ (0.13) $ (0.19) $ (0.03) $ (0.09)
Extraordinary gain on
extinguishment of debt 0.00 0.05 0.00 0.02
__________ _________ _________ _________
NET LOSS PER SHARE $ (0.13) $ (0.14) $ (0.03) $ (0.07)
========== ========= ========= =========
<FN>
See accompanying notes
5
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED APRIL 30, 1996
(Rounded to Nearest Thousand)
COMMON STOCK
______________________________________________________________
<CAPTION>
COMMON ADDITIONAL
NUMBER OF STOCK PAID -IN ACCUMULATED
SHARES AMOUNT SUBSCRIBED CAPITAL DEFICIT
__________ _______ __________ ___________ ____________
<S> <C> <C> <C> <C> <C>
BALANCES,
JULY 31, 1995 12,837,000 $13,000 $1,499,000 $12,664,000 $(17,919,000)
Nine months ended
April 30,
1996
(Unaudited):
Issuances of
common stock
Under
subscription
agreement 884,000 1,000 (1,499,000) 1,600,000 -
For interest 8,000 - - 1,000 -
Directors fees 200,000 - - 150,000 -
Warrant
exercise 177,000 - - 441,000 -
Net loss - - - - (1,823,000)
__________ ______ _________ __________ ___________
BALANCES, APRIL
30, 1996 14,106,000 $14,000 $ - $14,856,000 $(19,742,000)
========== ====== ========= ========== ==========
<FN>
See accompanying notes
6
</TABLE>
<PAGE>
<TABLE>
PREFERRED STOCK "SERIES A"
___________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
________ _______ ________
<S> <C> <C> <C>
BALANCES, JULY 31, 1995
AND APRIL 30, 1996 178,000 $ - $ 882,000
======== ======= ========
</TABLE>
<TABLE>
PREFERRED STOCK "SERIES B"
__________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
_________ _______ ________
<S> <C> <C> <C>
BALANCES, JULY 31, 1995 726,000 $ 1,000 $3,628,000
Nine months ended April 30, 1996
Issuance of preferred stock
for conversion of debt 15,000 - 75,000
Repurchase of shares for
retirement (77,000) - (374,000)
________ _______ _________
BALANCES, APRIL 30, 1996 664,000 $ 1,000 $3,329,000
======== ======= =========
</TABLE>
<TABLE>
PREFERRED STOCK "SERIES C"
_____________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
________ _______ __________
<S> <C> <C> <C>
BALANCES, JULY 31, 1995 109,000 $ - $ 544,000
Nine months ended April 30, 1996
Repurchase of shares for
retirement (12,000) - (57,000)
________ _______ _________
BALANCES, APRIL 30, 1996 97,000 $ - $ 487,000
======== ======= =========
<FN>
See accompanying notes
7
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Rounded to Nearest Thousand)
NINE MONTHS ENDED
APRIL 30,
__________________________
<CAPTION>
1996 1995
___________ ________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,823,000) $(1,304,000)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Extraordinary gain on extinguishment
of debt (52,000) (433,000)
Depreciation of property and
equipment and amortization of
goodwill 24,000 6,000
Amortization of unearned compensation 8,000 39,000
Issuance of preferred stock for
professional services - 15,000
Issuance of common stock for:
Board of Directors 150,000 3,000
Consulting - 108,000
Interest - 25,000
Lease obligation - 50,000
Officers' compensation - 201,000
Professional services - 2,000
Subscription services - 267,000
(Increase) decrease in:
Accounts receivable (2,000) -
Receivable from underwriting 198,000 -
Prepaid expenses and other current
assets (12,000) -
Increase (decrease) in:
Accounts payable 1,000 (63,000)
Taxes, other than income taxes (56,000) (81,000)
Accrued expenses and other current
liabilities 1,000 218,000
_________ ________
Net cash used in operating activities (1,563,000) (947,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of patent (10,000) -
Purchase of equipment (42,000) (1,000)
_________ _______
Net cash used in investing activities (52,000) (1,000)
_________ _______
<FN>
See accompanying notes
8
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Rounded to Nearest Thousand)
NINE MONTHS ENDED
APRIL 30,
_______________________
<CAPTION>
1996 1995
_________ ________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net principal payments on long-term debt $ - $ (78,000)
Principal payments on notes payable
to others - (165,000)
Proceeds from loans payable 91,000 -
Proceeds from issuance of common stock 542,000 263,000
Proceeds from common stock subscribed - 1,287,000
Repurchase of Preferred Series B stock (374,000) -
Repurchase of Preferred Series C stock (57,000) -
_________ _________
Net cash provided by financing activities 202,000 1,307,000
_________ _________
NET CHANGE IN CASH AND EQUIVALENTS (1,413,000) 359,000
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,423,000 17,000
_________ _________
CASH AND EQUIVALENTS, END OF PERIOD $ 10,000 $ 376,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the six months:
Interest $ 20,000 $ -
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Preferred stock Series A issued for
conversion of debt $ - $ 867,000
Preferred stock Series B issued for
conversion of debt $ 75,000 $2,608,000
Common stock issued for conversion
of debt $ 1,000 $ 80,000
<FN>
See accompanying notes
9
</TABLE>
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management reflects
normal recurring adjustments necessary for a fair presentation of the
information for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended July 31, 1995.
The results of operations for the nine month periods ended April 30, 1996 and
1995 are not necessarily indicative of operating results for the full year.
NOTE 2 - MANAGEMENT'S PLANS
At April 30, 1996, the Company had a working capital deficit of $301,000.
During the nine months ended April 30, 1996, the Company conducted activities
directed toward the research and development of Global Telecommunications of
Delware, Inc.'s ("GTD") Stock Information Receiver ("SIR") and Voice
Information Pager ("VIP"), also sometimes referred to as the Digital Voice
Pager ("DVP"). In accordance therewith, the Company has provided cash advances
of $724,000 as of April 30, 1996 to GTD. Management believes that during the
twelve month period following April 30, 1996, in the event that the Common
Stock Purchase Warrants (See Note 4) are exercised on a timely basis, and the
approximate $4,700,000 in proceeds are generated therefrom, that the Company
will be able to complete the funding of GTD's SIR and VIP projects and continue
to improve its financial condition.
Subsequent to April 30, 1996, the Company entered into an agreement with a
radio station in China to sell 10,000 units of the SIR. Additionally, the
Company has entered into various agreements to begin the manufacturing of the
SIR.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Development Agreement
On January 18, 1996, GTD an 80% owned subsidiary of the Company, entered into
a Development Agreement with Innotel, Inc. ("Innotel"). On or before
March 15, 1996, Innotel was to deliver to GTD a VIP prototype for inspection,
demonstration, and field testing unless said term was extended by GTD. Upon
acceptance of the VIP prototype, GTD is obligated to pay Innotel up to
$414,000 of which $346,000 has already been paid and is acknowledged as having
been paid by Innotel.
If the VIP prototype is not accepted within 60 days from the initial
notification of the completion of the prototype, GTD may terminate the
Agreement and Innotel will be required to return 10% of the proceeds
previously paid for the development of the prototype.
10
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
GTD has extended the date of delivery of the VIP prototype until July 12, 1996.
This is a result of the SIR project becoming a priority in order to meet the
needs of GTD's proposed customers.
Legal Proceedings
As of April 30, 1996, the Company had approximately 10 judgments related to
accounts payable totalling approximately $58,000 outstanding against it. The
City of Philadelphia maintains a judgment in the amount of approximately
$16,000 against the Company. Management has been actively negotiating and
working out settlements with respect to judgments and tax assessments and
believes that the Company will be able to satisfy such obligations over a
period of time provided adequate funding is received from the warrants or other
financing activities.
NOTE 4 - COMMON STOCK PURCHASE WARRANTS
The Company issued Common Stock Purchase Warrants ("CSP Warrants") to purchase
400,000 common shares at an exercise price of $2.50 per share. The CSP
Warrants expire on June 30, 1996. Of the 400,000 CSP Warrants, 177,000 have
been exercised as of April 30, 1996, and an additional 20,000 CSP Warrants were
exercised subsequent to April 30, 1996.
The Company also issued to Mid-West Financial Consultants Corporation
("Mid-West"), Warrants ("P.A. Warrants") to purchase 1,666,667 common shares at
an exercise price of $2.50 per share. The P.A. Warrants expire on June
30, 1996.
On December 29, 1995, the Company issued to Joseph Fanelli a Common Stock
Purchase Warrant ("Fanelli Warrant") to purchase 10,000 common shares at an
exercise price of $.01 per share. The Fanelli Warrant expires December 15,
1997.
NOTE 5 - EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
The Company recognized an extraordinary gain on the extinguishment of debt of
$52,000 during the nine months ended April 30, 1996, relating to accounts
payable and taxes payable in the aggregate amount of $119,000. The funds
used to reduce the Company's outstanding debt were received from the
Underwriting Agreement and other financings.
NOTE 6 - INCOME TAXES
There was no provision for income taxes for the nine months ended April 30,
1996 as the Company had a net operating loss for the period, and net operating
loss carryforwards which are expected to offset profits, if any for the year.
11
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE 7 - NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of shares
outstanding, without assumed conversion of the warrants and stock options,
which are considered to be common stock equivalents, since the effect on net
loss per share would be anti-dilutive.
NOTE 8 - RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform with 1996
classifications. Such reclassifications had no effect on reported net
income.
12
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements appearing elsewhere in this
report.
General Operations
During the nine months ended April 30, 1996, the Company has been able to
reorganize significant amounts of its debt, which has reduced the threat of
discontinuance of its business operations. In addition, the Company has
provided cash advances, in the amount of $724,000 through April 30, 1996, to
Global Telecommunications of Delaware, Inc. ("GTD"), in order to fund the
development of GTD's Stock Information Receiver and Voice Information
Pager ("VIP"), also sometimes referred to as the Digital Voice Pager ("DVP").
Part of this funding was used for a Patent Application, filed on January 18,
1996 with the U.S. Patent and Trademark Office, on the VIP technology. There
can be no assurance that the Company's Patent Application will be approved by
the U.S. Patent and Trademark Office. Furthermore, even if a patent should be
issued, there can be no assurance that such patent will not be circumvented
and/or invalidated by competitors of the Company.
In December, 1995 representatives of GTD and a radio station in China
conducted field tests of the VIP system utilizing FM frequencies of the
Chinese radio station. During these tests, an additional use of the technology
was recognized. The new product that resulted is the Stock Market Information
Receiver ("SIR").
Subsequent to April 30, 1996, the Company entered into an agreement with a
radio station in China pursuant to which the radio station has agreed to order
10,000 SIR's. This agreement also provides that the radio station will serve
as GTD's agent in China to assist in marketing the SIR in other provinces.
Additionally, the Company has entered into various agreements to begin the
manufacturing of the SIR.
Once the SIR project is completed, the Company believes that GTD will have
validated the RF front end of the VIP and will resume testing and development
of the VIP. Management is aware, however, that there can be no assurances that
these tests will be successful, or that the VIP will be developed, or even if
developed, that the VIP would be profitable upon commercialization.
The Company is pursuing discussions with various companies, who are
considering licensing the technology for use in foreign markets.
Management believes that the SIR and VIP could be a source of revenue in
the future, provided that adequate funding can be obtained to successfully
consummate the Company's plans.
13
<PAGE>
Nine Months Ended April 30, 1996
v. Nine Months Ended April 30, 1995
Results of Operations
For the nine months ended April 30, 1996, the Company incurred a net
loss of $1,823,000 on revenues of $2,000. This compares to a net loss of
$1,304,000 on revenues of $5,000 for the nine months ended April 30, 1995.
The $519,000 increase in the net loss for the nine month period is attributed
to an increase in operating expenses of $174,000 and a decrease in the
extraordinary gain on extinguishment of debt of $381,000 offset by a decrease
in interest expense of $22,000 and an increase in interest income of $17,000.
Operating expenses for the nine months ended April 30, 1996 were
$1,874,000 compared to $1,700,000 for the nine months ended April 30, 1995, a
$174,000 increase. The difference can be attributed to a decrease in officers'
compensation of $193,000; an increase in other salaries and payroll costs of
$50,000; a decrease in consulting fees of $116,000; a decrease in professional
fees of $234,000; an increase in research and development costs of $390,000; an
increase in travel of $173,000; and an increase of $104,000 in other expenses.
The variances are attributed to the following components: the decrease in
officers' compensation and consulting fees relates to the issuance of 2,010,000
and 1,083,000 shares of the Company's common stock, valued at $201,000 and
$108,000 respectively during the nine months ended April 30, 1995; other
salaries and payroll costs increased because the Company hired a controller and
administrative staff; professional fees decreased due to the issuance of
267,000 shares of the Company's common stock, valued at $267,000 for services
related to the Subscription Agreement during the nine months ended April 30,
1995, which was offset by increases in attorney/accountant expenses related to
registration statements during the nine months ended April 30, 1996; research
and development increased as a result of the operations of GTD; travel expenses
increased as a result of increased travel to Europe and Southeast Asia to
pursue and implement the finalization of the Underwriting Agreement (discussed
in the Company's Annual Report on Form 10-KSB for the year ended July 31,
1995), other joint venture opportunities, and field testing for the GTD VIP and
SIR; other expenses increased as a result of increased directors' fees from the
issuance of 200,000 common shares valued at $150,000, auto lease expenses of
$19,000, taxes primarily from payroll taxes in the amount of $26,000, and these
increases were offset by decreases in meals and entertainment related to cost
containment policies of $85,000, and rent resulting from the issuance of 50,000
shares of the Company's common stock, valued at $50,000 for lease obligations
during the nine months ended April 30, 1995.
Three Months Ended April 30, 1996
v. Three Months Ended April 30, 1995
Results of Operations
For the three months ended April 30, 1996, the Company incurred a net
loss of $422,000 on revenues of $1,000. This compares to a net loss of
$733,000 on revenues of $1,000 for the three months ended April 30, 1995.
The $311,000 decrease in the net loss for the three month period is
attributed to a decrease in operating expenses of $614,000 and a decrease in
the extraordinary gain on extinguishment of debt of $208,000.
14
<PAGE>
Operating expenses for the three months ended April 30, 1996 were $440,000
compared to $1,054,000 for the three months ended April 30, 1995, a $614,000
decrease. The difference can be attributed to a decrease in officers'
compensation of $191,000; an increase in other salaries and payroll costs of
$23,000; a decrease in consulting fees of $113,000; a decrease in professional
fees of $292,000; an increase in research and development costs of $33,000; an
increase in travel expenses of $48,000; and a decrease in other expenses of
$122,000. The variances are attributed to the following components: the
decrease in officers' compensation and consulting fees relates to the issuance
of 2,010,000 and 1,083,000 shares of the Company's common stock, valued at
$201,000 and $108,000 respectively, during the three months ended April 30,
1995; other salaries and payroll costs relates to the hiring of a controller
and administrative staff; professional fees decreased due to the issuance of
267,000 shares of the Company's common stock, valued at $267,000 for services
related to the Subscription Agreement; research and development costs increased
as a result of the operations of GTD; travel increased due to field testing in
China and financing prospects in Europe; and other expenses decreased as a
result of a decrease in meals and entertainment expenses from cost containment
policies in the amount of $63,000, and rent resulting from the issuance of
50,000 shares of the Company's common stock, valued at $50,000 for lease
obligations during the three months ended April 30, 1995.
Liquidity and Capital Resources
At April 30, 1996, the Company had a working capital deficit of
$301,000. During the quarter, the Company conducted activities directed
toward the research and development of GTD's SIR and VIP.
As amended on January 12, 1996, the Company issued Common Stock Purchase
Warrants ("CSP Warrants") to purchase 400,000 common shares at an exercise
price of $2.50 per share. Of the 400,000 CSP Warrants, 177,000 have been
exercised as of April 30, 1996 and an additional 20,000 CSP Warrants were
exercised subsequent to April 30, 1996. The CSP Warrants expire on June 30,
1996.
As amended on January 12, 1996, the Company also issued to Mid-West
Financial Consultants Corporation ("Mid-West"), Warrants ("P.A. Warrants") to
purchase 1,666,667 common shares at an exercise price of $2.50 share. The P.A.
Warrants expire on June 30, 1996.
The Company has registered all of the shares issued pursuant to the
Underwriting Agreement and all of the shares underlying the Warrants under
the Securities Act of 1933, as amended.
As of April 30, 1996, the Company maintained a cash balance of
$10,000. As previously mentioned, the Company has collected $50,000 from
the exercise of Warrants subsequent to that date. Management estimates that
an additional $1.5 million will be needed to fully fund GTD to the
point where GTD may be generating positive cash flow. There can be no
assurance, however, that 1) the Company will be able to fund GTD's or
the Company's working capital requirements without the exercise of the warrants
and/or other financing and 2) GTD will be successful in marketing its SIR or
VIP products during Fiscal 1996 and/or generate positive cash flow.
15
<PAGE>
Management is relying upon the exercise of the remaining Warrants in order
to provide the financing necessary to complete the funding of GTD and meet the
Company's working capital needs. There can be no assurance, however, that
any of the Warrants will be exercised. In the event that the Warrants are
not exercised, the Company will need to pursue other financing opportunities
to provide the working capital, in the projected amount of $1,000,000,
consisting of approximately $300,000 for manufacturing, $300,000 for operating
expenses, $200,000 for payments against accounts payable, $150,000 for
marketing, and $50,000 for selling expenses, necessary to continue its
operations through July 31, 1996. The Company is currently pursuing such
opportunities, however, no assurance can be given that such funding will be
made available, or if available on terms acceptable to the Company.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Registrant's Annual Report on
Form 10-KSB for the year ended July 31, 1995.
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 Events
None
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: The Company filed a Form 8-K on
January 12, 1996. The report disclosed in Item 5, an
agreement entered with a radio station in China pursuant to
which the radio station agreed to purchase 10,000 SCA
Radios.
Exhibit - 27. Financial Data Schedule
17
<PAGE>
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.
Dated: June 14, 1996
SIGMA ALPHA GROUP, LTD.
(REGISTRANT)
By:s/Scott A. McPherson
Scott A. McPherson
Duly Authorized Officer
and Chief Accounting Officer
(Principal Financial and
Accounting Officer)
18
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<FISCAL-YEAR-END> Jul-31-1996
<PERIOD-START> Aug-01-1995
<PERIOD-END> Apr-30-1996
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