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U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 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 23-2498715
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1341 North Delaware Avenue, Philadelphia, PA 19125
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (215) 425-8682
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: NONE
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 ( )
Check if the disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. ________
The Registrant's revenues for its most recent fiscal year were: $2,000
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The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the average closing bid and asked prices of the
Registrant's Common Stock in the over-the-counter market on October 16, 1996,
was approximately $ 16,034,000. Shares of voting stock held by each officer
and director and by each person who owns 5% or more of the outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily
conclusive.
As of October 16, 1996, 16,436,210 shares of Common Stock, $.001 par value
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format: Yes ( ) No (X)
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PART I
ITEM 1. BUSINESS
General Background
Sigma Alpha Group, Ltd. (the "Company") was incorporated under the laws of
the Commonwealth of Pennsylvania in February, 1988 and commenced operations in
June, 1989, as the successor-in-interest of Sigma Sound Studios, Inc. ("Sigma
Sound") a recording studio owned and operated by Joseph Tarsia, the former
Chairman of the Company. In 1987, Sigma Sound purchased the assets of Alpha
International Recording Studios, Inc. ("Alpha International"), a recording
studio owned and operated by Peter Pelullo, the Chief Executive Officer,
President and Chairman of the Company's Board.
The Company became publicly held upon its merger in January, 1991 with
Fabulous Mergers, Inc., an inactive public company incorporated in Nevada.
Pursuant to the terms of the merger, Fabulous Mergers, Inc., as the surviving
corporation changed its name to "Sigma Alpha Entertainment Group, Ltd." and
was subsequently reincorporated in Delaware. In 1995 the Company changed its
name to Sigma Alpha Group, Ltd.
From 1993 through early 1995, the Company's management attempted to
develop valuable contacts in the Southeast Asia region, particularly in China,
in an effort to establish distribution and agency arrangements that would link
Southeast Asian and U.S. based recording companies and artists and other
business ventures in Southeast Asia. In April 1995, the Company acquired an
80% interest in Global Telecommunications of Delaware, Inc. ("Global"), an
entity which was formed to complete development of wireless telecommunication
technology.
During 1996, management discontinued its plans to reestablish its music
industry operations and all other proposed ventures in Southeast Asia
with the exception of the continued development and marketing of
telecommunication products by Global.
The Company's Telecommunications Products
The Company is presently developing wireless telecommunication products
which utilize radio frequencies transmitted by FM radio stations. Management
believes that a need exists in second and third world developing countries
which lack developed telecommunication infrastructures such as China, for
telecommunication products which communicate information in an economically
feasible manner without the need for intensive capital investment. The Company
has filed a U.S. patent application on a process which utilizes FM radio
frequencies to allow for implementation of a voice paging network without the
significant investment capital requirements of traditional telecommunication
and cellular infrastructure. The first two products which the Company intends
to produce which will utilize this process is a hand held Voice Information
Pager ("Voice Pager") which will allow subscribers to receive voice messages
through a hand held pager and a Stock Market Information Receiver ("SIR") which
will allow subscribers to receive a scrambled analog FM radio signal,
transmitted by an FM radio station's transmitter, over their excess bandwidth.
The SIR allows a subscriber to receive stock market information from the stock
exchange in China, which is special programming transmitted by the Chinese
radio stations. Implementation of the Company's products requires access to
existing FM radio stations in their respective marketplaces, which currently
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transmit FM radio broadcasts. The Company believes that only minimal
modification to existing FM radio station transmitters is necessary in order to
utilize the Company's products. The Company will market the Voice Pager
and SIR units to Chinese and other radio stations. The Company's goal is to
educate station owners as to the advantages that the Company's products possess
over competitive products and the ability of radio stations to generate
revenues through the use of a portion of their FM radio frequencies which are
currently underutilized, without incurring substantial capital expenditures.
From April, 1995 through July 31, 1996, the Company has spent
approximately $516,000 on the research and development of the Voice Pager and
SIR products. In June, 1996, the Company received an initial order for
10,000 SIR units from an affiliate of Radio Guangdong and began to deliver
such units on October 12, 1996, and has generated revenue of $196,000 through
October 28, 1996. An additional order for 10,000 units has now been placed by
Radio Guangdong. The Company has completed the engineering prototype design of
the Voice Pager and believes that a production prototype will be available in
early 1997. There can be no assurance that the Company will be able to develop
the prototype, or if developed, that the Company will be able to bring the
final product to market. The Company believes that approximately $2,000,000
will be needed to complete development of the Voice Pager and commence
commercial production.
The Technology
The Company's Voice Pager will utilize digital signal processing ("DSP")
technology, originally developed for use in military applications and one FM
broadcasting technology, Sub Carrier Administration ("SCA"), which has been in
existence in excess of two decades. The combined product utilizing an
integration of the FM/SCA/DSP technologies will provide a voice paging service
through an existing FM broadcasting station network. The system will be
designed to deliver fast and reliable voice messages to the whole FM station's
coverage area with the addition of simple SCA encoding boxes to existing FM
transmitters. The system will utilize the unused bandwidth which a radio
station does not use while transmitting its regular FM radio broadcasts.
Accordingly, the implementation of the Voice Pager System will not require the
purchase of new radio frequencies from government entities.
Cellular phone and pager systems typically require a large spectrum of
frequencies to be dedicated to their services. Clear frequencies, particularly
frequencies allocated to cellular phones and pagers, may be difficult to obtain
due to the rapid expansion of cellular and paging services. Even when
bandwidth has been made available, technology considerations typically
associated with operating these newly available frequencies have costs which,
in the Company's opinion, are prohibitively high. However, within that area of
the radio frequency spectrum associated with FM broadcasting, i.e. the band
from 88 to 108 MHz, there is a portion of bandwidth within each FM channel
which is not required for transmitting the main FM station broadcast signal,
and which the Company believes has not been fully utilized.
The management of the Company understands, based on discussions with FM
radio stations, that a demand exists for more efficient utilization of their
allotted frequency resource including this available "excess" bandwidth. In
China, like the United States, FM radio stations are granted government
licenses to operate an FM radio signal within an assigned range of frequency.
A typical FM station is assigned a bandwidth of 100KHz. An FM station will
take up to a maximum of 53 KHz for the main FM stereo broadcasting station, and
less for a monaural station. The remaining portion of the baseband signal from
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54 KHz to 99 KHz, approximately 50% of the available FM channel spectrum
resource, is not required for broadcasting the main FM station signal.
Radio stations have traditionally leased frequencies in the "excess"
bandwidth to other users through various subcarrier based systems. One such
service is known as Sub-Carrier Administration ("SCA") and is available in
China and the United States. SCA has been used in the United States for over
forty years for background music without commercial interruption, reading
services for the blind, stock market, sports, and weather information, and
educational and religious applications. SCA has also been used for data
transmission, having the ability to reliably support a data rate of 4,800
bits/second or higher.
As a result, the use of in-place FM transmission systems to provide wide
coverage paging application may in some instances be limited due to previous
user allocation (e.g. weather information, stock market information or other
types of data transfer). The ability of a paging system to transmit data
over the excess portion of an FM channel, via an FM station infrastructure
providing wide coverage, is a function of the amount of bandwidth that is
available. The paging system operator is otherwise limited in the amount and
speed of data transfer by the bandwidth. The use of a narrow bandwidth with
voice paging systems is usually not desirable due to the amount of data to be
transmitted, but may in fact be necessary.
Management believes that Chinese FM radio stations have actively pursued
the use of excess bandwidth to generate revenues for operations. Such uses
have included traffic reports, stock information and data transmission.
DSP had been in the military domain for quite some time, but was recently
made available to commercial applications after the end of the Cold War. DSP
allows for the length of a voice message to be compressed for storage and
transmission to a hand held Voice Pager. This technology as utilized by the
Company will compress voice messages for storage at the main paging base
station before it is transmitted to an individual Voice Pager where the message
is decompressed for playback by a subscriber. The Company believes that the
combination of SCA and DSP presents a unique opportunity to implement an
effective paging system in a relatively short time with low capital investment
costs.
The Digital Voice Information Pager
The Company believes that the demand for personal telecommunication
devices has increased drastically in the past decade in China and other
emerging markets, with the major market growth focused on two products:
cellular mobile phones and paging systems. Cellular phone networks require
intensive front end investment for their initial implementation, and continuous
investment to increase the number of cells in order to maintain an acceptable
user density level per cell, since the density level grows with the increase in
numbers of subscribers. Cellular phone networks also require a developed
telephone infrastructure network encompassing a large coverage area which the
Company believes China and other emerging markets presently lack.
Traditional paging systems, on the other hand, require less investment,
but typically provide a one way message service in numbers or characters. The
first generation pager was a beeper-based system which "beeped" when a number
associated with a specific pager was accessed. Subsequently, numerical based
pagers were developed, capable of transmitting a telephone number to a hand
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held pager device. Both of these systems are "notification" based in that no
actual message is sent. The individual carrying the pager needs to call a
telephone number to receive the particular message. The Company believes that
this presents a problem to users in countries with a low per capita number of
telephones and underdeveloped telecommunication infrastructures such as China.
Accordingly, users of beepers or numeric pagers in China may not have ready
access to a telephone to receive their messages. Chinese character pagers, on
the other hand, are not "notification" based as they provide a subscriber with
an actual character message. These pagers allow subscribers to receive and
store messages consisting of both letters and numbers. The Company believes,
based solely upon its internal research, that as a result of the number and
complexity of Chinese characters (in excess of 13,000), significant problems
exist regarding the use of Chinese character pagers in the Chinese marketplace.
These problems include the need for large pools of typists who possess the
skills needed to translate different Chinese dialects with accuracy and speed
into correct Chinese characters for transmission to Chinese character pagers.
In addition, substantial investment is required in China and other marketplaces
to establish the network and to purchase the necessary hardware to operate a
paging system.
The use of beepers, numeric pagers and alphanumeric pagers in China has
grown at tremendous rates. Based upon information from the Chinese Ministry of
Post and Telecommunications, subscribers to pager services in China rose from
approximately 400,000 in 1990 to approximately 25,000,000 in 1995. The New
China News Agency has reported that pagers use in China is expected to continue
to increase rapidly into the next century.
The Company believes that its Voice Pager system will possess significant
advantages over existing Chinese numeric, alphanumeric and character pagers by
allowing a subscriber to receive and play on a hand held Voice Pager, a voice
message from the actual party trying to reach the subscriber. The Voice Pager
system will not require the subscriber to have access to a telephone to receive
a message. Moreover, the Voice Pager System does not require large pools of
typists to enter Chinese characters and eliminates translation errors from
dialect differences that the Company believes are currently being experienced
in the Chinese pager market, and also eliminates significant investments
required for establishing the network and hardware of other pager systems.
The Voice Pager system allows a designated FM radio station to provide a
service which transmits a message to the owner of a Voice Pager in the actual
voice of the person generating the message. In order to implement a Voice
Paging System, hardware containing the Company's software would be connected at
the base station of the radio station's FM transmitter. A customer to the
paging system would buy the hand held Voice Pager from the radio station and in
addition pay a monthly subscription fee for the paging service. Once a
customer account is established the customer receives a designated account
number, which is referenced when someone wants to leave a voice message. The
message is called in to a central phone number held by the radio station for
its customers. The calling party receives a signal to enter the Voice Pager
customer account number and begins leaving a voice message. The calling
party's message is then digitized, compressed and transmitted by the radio
station's FM transmitter to the specific Voice Pager customer.
The Voice Pager system provides a paging system which is adaptable to
existing FM radio transmitters. The Voice Pager system utilizes the "excess"
bandwidth of an FM radio station's signal and will not interfere with the radio
station's broadcast of its regular programming. The Company believes that a
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maximum of $30,000 in capital investment and equipment purchases are required
in order to upgrade existing FM radio transmitters to fully utilize the
Company's Voice Pager technology. Since the Voice Pager System provides paging
which is "piggy-backed" to an existing FM transmission, a very short start-up
time is needed to set up a paging service. The Company believes that such a
system is inexpensive when compared to the extensive transmitter network
required for prior art paging systems.
Voice Pager System Equipment Description
The Voice Pager System consists of two major parts, a base station and a
hand held Voice Pager.
Base Station
The base station features accessory equipment built around an existing FM
radio transmitter and includes an Automatic Call Distributor ("ACD") to
receive and distribute the incoming messages to subscribers. Messages will be
automatically handled through a DSP processor to compress messages into digital
form for storage at the base station and for retrieval and transmission through
the SCA channel in FM broadcasting.
Voice Pager
The Voice Pager will include the following modules:
(1) SCA Module
The SCA Module will receive the main body of the voice message at a
data stream rate of 4,800 bits per second and then pass it to the
DSP Module for processing.
(2) DSP and Storage Modules
The data stream received from the SCA Module will be stored, it will
be decompressed into audible voice form and transferred over to the
user when it is called through a speaker or an ear phone. The Voice
Pager will have the capacity to store and playback messages.
(3) Power Module
The power supply for the Voice Pager will consist of AAA or AA
batteries.
Stock Information Receiver
The Company believes that its Voice Pager technology has other market
applications in addition to the Voice Pager System. The Company has identified
one such market application for its technology concerning the distribution of
stock market information in the Chinese market place. The Company has a
working relationship with several Chinese radio stations and as a result of
their requests, the Company developed a stock market information receiver
("SIR"). The SIR is a radio receiver designed to receive a scrambled analog FM
radio signal transmitted by an FM radio station's transmitter over their excess
bandwidth. The SIR allows a subscriber to receive stock market information
from the stock exchange in China, which is transmitted by Chinese radio
stations.
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Currently certain Chinese radio stations sell a stock market information
device to interested subscribers. Subscribers pay a fee to the radio station
to purchase the device and a monthly fee to receive the radio transmission.
The Company believes, based on discussions with Chinese radio stations, that in
the past unauthorized receivers have appeared in the Chinese market. These
devices allow unauthorized users to pirate the radio station's signal without
paying a monthly subscription fee.
The Company's SIR system is designed to allow the radio station to install
a computer with the Company's software at the FM transmitter and broadcast the
information in a scrambled form, which is then unscrambled at the subscribers
SIR through a proprietary chip designed by the Company. The Company believes
that the SIR will decrease the risk of piracy and allow radio stations to
better maintain their subscription revenue streams. In addition, the SIR
system will allow the radio station to remotely turn off an SIR receiver, if
the subscriber has not paid his/her monthly subscription fee. The Company
believes its SIR system has additional applications and can be used wherever
there is a market demand for one way communications that can be received by a
select receiver and turned off at the source of the signal. The Company
believes that these additional markets include corporate communications to
select employees, sports information dissemination, weather reporting services,
educational courses, and special programming.
In June, 1996, the Company received an initial order for 10,000 SIR units
from Pearl River Economic Radio, an affiliate of Radio Guangdong, in China.
The Company has begun the production of these SIR units through various
subcontractors and is currently delivering these units to the radio station.
The first unit sales from October 12, 1996 through October 28, 1996 have
generated approximately $196,000 in revenue for the Company. An additional
order for 10,000 units has now been placed by Radio Guangdong.
Production and Manufacturing Plans
The Company does not presently intend to establish its own manufacturing
facilities in order to produce its Voice Pager and SIR products. Instead the
Company plans to contract manufacture custom made Application Specific
Integrated Circuits ("ASIC") and masked Central Processing Units ("CPU"). In
addition, the Company will purchase the various component parts necessary to
produce finished products from a variety of vendors. The Company has entered
into an agreement with a California based semi-conductor manufacturer to
produce an ASIC which will integrate all components and modules necessary to
manufacture the Company's final products. The Company intends to ship ASIC
and other component parts to contract manufacturers in China to assemble the
Voice Pager and SIR units. The Company has identified a suitable contract
manufacturer to assemble the Company's Voice Pager and SIR products. The SIR
units necessary to fill the Radio Guangdong order are currently being
manufactured by a subcontractor located in China. Since the Company will not
operate its own manufacturing facilities, the Company will depend upon the
ability of subcontract manufacturers to manufacture and assemble products in
accordance with specifications provided by the Company. In the event that the
subcontractors are unable to meet these specifications or experience delays in
delivering products to the Company, the Company's business would be adversely
affected.
The Company may in the future seek to establish its own manufacturing
facilities and/or form joint ventures with manufacturers in China and abroad in
order to manufacture and assemble the Company's products. In such event, the
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Company may need further financing to implement such manufacturing plans.
There can be no assurance that financing will be available to the Company at
such time, or if available on terms acceptable to the Company.
Marketing
The Company's initial marketing efforts have been targeted to Chinese
radio stations. The Company's strategy is to educate radio stations as to the
possibility of generating significant revenues while utilizing the excess
bandwidth for their FM signal through use of the Company's technology without
the requirement for significant investment capital. The Company's goal is to
explain the perceived advantages of the Company's products as opposed to
existing paging systems currently in use in China. The radio stations will be
responsible to market Voice Pager and SIR services to local subscribers and
implement support and service personnel needed to run a paging and information
service. The benefit of this plan is that the Company will not be required to
act as a paging company or information provider in China. The Company believes
that radio stations possess greater financial strength and contacts at
broadcasting and other governmental levels in order to properly promote Voice
Pager and SIR use within the Chinese market place.
According to statistics of the Chinese Ministry of Post and
Telecommunications the number of paging subscribers in China has grown from
approximately 400,000 in 1990 to approximately 25,000,000 at the end of 1995.
The New China News Agency reported that it projects that paging users in
mainland China will continue to expand at rapid rates. The Company believes
that the advantages associated with its Voice Pager System as opposed to
beepers, numeric pagers, and alphanumeric and Chinese character pagers, which
are currently used in China, will allow the Company to successfully market its
products. However, there can be no assurance that the Company's products will
be successfully received in China or other market places. The Company believes
that the price of its Voice Pager will be competitive with existing Chinese
character pagers in use in China.
The Company also intends to market its SIR to Chinese radio stations by
educating such stations as to the ability of the Company's system to reduce
the possibility of pirating the station's services thereby protecting the
station's subscriber revenue streams. The Company also believes that the
ability to turn off SIR units if a subscriber has not paid his monthly fees
will be deemed a significant advantage to radio stations. The Company believes
that the price of its SIR unit is competitive with other receivers on the
market which do not offer the Company's security features.
Patents and Trade Secrets
In January, 1996, the Company filed a patent application for protection
of the Voice Pager product under United States patent laws. There can be no
assurance as to the ultimate success of the Voice Pager patent application.
Furthermore, even if a patent is issued to the Company, there can be no
assurance that such patent will not be circumvented and/or invalidated by
competitors of the Company. Further, the enforcement of patent rights often
requires the institution of litigation against infringers, which litigation is
often costly and time consuming. The Company also intends to rely on trade
secrets, know how and continuing technological advancement to establish a
competitive position in the marketplace. There can be no assurance that the
Company will be able to adequately protect its technology from competitors in
the future.
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Government Regulations
The Company's proposed operations relate to conduct of operations in China
and Hong Kong. Accordingly upon receipt of necessary funding to commence its
ventures, the Company's operations will be subject to the risks of conducting
business internationally, including possible instability in foreign
governments, changes in regulatory requirements, difficulties in obtaining
foreign licenses, as well as other general barriers and restrictions in
relation to compliance with foreign laws. Moreover, certain of the Company's
proposed plans concern operations in Hong Kong. Pursuant to an existing
treaty between the Government of the United Kingdom and the People's Republic
of China, Hong Kong will revert and become part of China in July, 1997. The
Company is uncertain as to the impact that such a change in government would
have upon its proposed venture operations in Hong Kong.
Competition
The Company's products compete with those of numerous well-established
companies which design, manufacture or market beepers, numeric pagers and
alphanumeric pager systems and telecommunications products. All of these
companies have substantially greater financial, technical, personnel and other
resources than the Company, and have established reputations for success in the
development, licensing, sale and service of their products and technology.
Certain of these competitors may also have the financial resources necessary to
enable them to withstand substantial price competition or downturns in the
market for integrated security systems and related products.
Research and Development
The Company has spent approximately $434,000 and $82,000 for the years ended
July 31, 1996 and 1995, respectively for the research and development of its
Voice Pager and SIR products.
Employees
The Company has seven employees, all of whom are full time, consisting of
its Chief Executive Officer and Chairman of the Board, Principal Financial
Officer, Secretary, Investor Relations, Controller, President of Global and
administrative staff.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 1341 N. Delaware Avenue, Suite
408, Philadelphia, Pennsylvania 19125, which the Company leases pursuant to a
written lease expiring in 1999. The rent for the 3,233 square feet of office
space is $29,100 per year subject to certain customary increases.
ITEM 3. LEGAL PROCEEDINGS
As of October 11, 1996, the Company had approximately 10 judgments related
to accounts payable totalling approximately $71,000. The City of Philadelphia
maintains a judgment in the Pennsylvania Court of Common Pleas, Philadelphia
County in the amount of approximately $16,000. The judgment was entered on
April 30, 1994. 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 this obligation over a period of time. There
can be no assurances, however, that an acceptable agreement will be reached in
this regard.
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In August, 1996, the Company was served with a Summons and Complaint. The
Complaint seeks specific performance of a contract and plaintiff claims they
are entitled to receive 15,000 shares of the Company's common stock or in the
alternative the sum of $66,000. The Company has filed an answer to the
complaint denying the complaintant's right to receive such shares or any
monetary compensation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the National Association of
Securities Dealers, Inc., over-the-counter market on the OTC Bulletin Board
under the symbol "SGAL."
The following table sets forth the high and low bid prices per share of
Common Stock as quoted by National Quotation Bureau, Inc. for the periods
<TABLE>
Fiscal Year Ended July 31, 1995
_______________________________
<CAPTION>
High Bid Low Bid
________ _______
<S> <C> <C>
Quarter ended
October 31, 1994 $ 1.875 $ .875
January 31, 1995 3.125 1.6875
April 30, 1995 4.9375 2.875
July 31, 1995 5.875 4.75
Fiscal Year Ended July 31, 1996
_______________________________
<CAPTION>
High Bid Low Bid
________ _______
<S> <C> <C>
Quarter ended
October 31, 1995 $ 6 $ 5.25
January 31, 1996 5.9375 2.125
April 30, 1996 5.25 4.125
July 31, 1996 4.875 2.375
The above prices presented are bid prices, which represent prices between
broker dealers and do not include retail mark-ups, mark-downs or commissions to
the dealer. The prices also may not necessarily reflect actual transactions.
On October 28, 1996 the closing bid and ask price for the Company's common
stock was $2.125 and $2.625, respectively.
As of October 16, 1996 the Company had 141 shareholders of record of its
Common Stock. Such number of record holders was derived from the stockholder
list maintained by the Company's transfer agent, American Stock Transfer &
Trust Co., and does not include the list of beneficial owners of the Company
whose shares are held in the names of various dealers and clearing agencies.
The Company's transfer agent has advised the Company that it has in excess of
300 record and beneficial owners of its common shares.
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Dividends
To date, the Company has not declared or paid any cash dividends and does
not intend to do so for the foreseeable future. The Company intends to retain
all earnings, if any, to finance the continued development of its business.
Any future payment of dividends will be determined solely by the discretion of
the Company's Board of Directors.
ITEM 6. MANAGEMENT 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
__________________
The Company through its subsidiary, Global Telecommunications of Delaware,
Inc. ("Global") is developing and manufacturing telecommunication products.
Within the telecommunications industry, the Company has focused its efforts on
two main products, the Stock Information Receiver ("SIR") and the Voice
Information Pager ("VIP").
During fiscal 1996, the Company has provided cash advances to Global, in
order to fund the development of Global's technology (see "Business"). The
Company has sought and obtained equity financing to fund the development
process, however, additional proceeds will be needed to successfully consummate
its plans. There can be no assurances that the Company will be successful in
obtaining the necessary financing to develop, market and manufacture its
products or that it will be commercially profitable. There are a number of
companies in the telecommunications industry with greater experience and
resources than the Company.
The Company will be subject to all risks inherent in attempting to
engage in business operations in the People's Republic of China ("PRC") and
other foreign jurisdictions (see "Business"). There can be no assurance that
the Company will either generate sufficient proceeds to fulfill its business
plans, or, when started, to operate them effectively.
Year Ended July 31, 1996
v. Year Ended July 31, 1995
___________________________
Results of Operations
For the year ended July 31, 1996, the Company incurred a net loss of
$2,189,000 on revenues of $2,000. This compares to a net loss of $1,476,000
on revenues of $6,000 for the year ended July 31, 1995. The increase of
$713,000 in net loss for the year is attributed to an increase in operating
expenses of $260,000, offset by a reduction in the extraordinary gain on
extinguishment of debt of $648,000 as a result of a majority of the debt being
settled in fiscal 1995. In conjunction with the majority of debt being settled
in fiscal 1995, interest expense accordingly decreased by $187,000 in fiscal
1996.
Operating expenses for the year ended July 31, 1996 were $2,253,000 as
compared to $1,993,000 for the year ended July 31, 1995, a $260,000 increase.
Officers' compensation decreased by $138,000, as a result of the resignation of
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the former Chairman in April, 1995, which is offset by the hiring of the Chief
Accounting Officer and Secretary in August, 1995. Other salaries increased by
$73,000 by the Company hiring a Controller, Investor Relations, and
administrative staff in fiscal 1996. Consulting fees decreased by $106,000,
because a consultant was issued 1,083,000 shares of common stock, valued at
$108,000 in fiscal 1995. The increase in director fees of $40,000 relates to
200,000 shares of common stock, valued at $50,000 being issued to two outside
members of the Board of Directors in fiscal 1996. The increase in research
and development costs of $352,000 and travel expenses of $217,000, is related
to the SIR and VIP projects and travel expenses to China to test and
preliminarily market both products. Travel expenses also increased as a result
of travel to obtain additional financing overseas.
Liquidity and Capital Resources
At July 31, 1996 the Company had working capital of $924,000. The
Company's efforts are being directed towards the development and marketing of
the SIR and VIP, and also to raising additional capital to finance both
projects.
In November, 1995, the Company and Mid-West Financial Consultants
Corporation ("Mid-West" or the "Underwriter") amended the Underwriting
Agreement and agreed to cancel the right of the Underwriter to purchase
1,250,000 of the 3,000,000 shares and also agreed that the Underwriter would
have the right to purchase 833,334 shares of common stock at $3 per share. The
Company received $100,000 for 33,334 shares in November, pursuant to this
amendment, which expired on November 30, 1995.
In December, 1995, the Company also issued Common Stock Purchase Warrants
("CSP Warrants") to purchase 400,000 common shares at an exercise price of
$2.50 per share, which were to expire on June 30, 1996. The CSP Warrants were
exercised generating $1,000,000 in capital for the Company.
In December, 1995, the Company issued to 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 were to originally expire on June 30, 1996.
The expiration date was later extended to August 31, 1996. As of July 31,
1996, 480,000 P.A. Warrants had been exercised for a total of $1,158,000, net
of commissions. Subsequently, the remaining 1,186,667 P.A. Warrants expired on
August 31, 1996.
On September 6, 1996 the Company registered 2,500,000 shares of its common
stock for sale at a price of $2.00 for sixty days, subject to an additional
extension of 30 days. Additionally, a Warrant ("SCC Warrant") to purchase
100,000 shares of the Company's common stock at $2 per share were issued with
an expiration date of August 31, 1999. The shares underlying the SCC Warrant
were also registered. If all of the registered shares described above were
sold, the Company would receive $5.2 million dollars exclusive of commissions.
The proceeds received by the Company from various financings have been
used to settle tax judgments and other debt, as well as to further the
development of the SIR and VIP, purchase inventory, pay overhead and
administrative costs, and fund operations. As of October 15, 1996, the Company
maintained a cash balance of $845,000. The sales of the Company's SIR began on
October 12, 1996, and have generated revenue of approximately $196,000 for the
Company through October 28, 1996. The Company expects that it will need
approximately $200,000 to finish the development of the VIP, $1.5 million for
production and $300,000 for marketing the first units. Sales of the VIP are
14
<PAGE>
currently expected to begin in the first quarter of calendar 1997. Therefore,
the Company estimates that it will require $2 million to be generated or
raised in order to begin production and sales of the VIP in early 1997, and to
consummate its plans. There can be no assurances that the revenues for the VIP
will commence, or sales begin on the estimated dates, or that the financing
will be completed. The VIP project may need to be delayed until the Company
can generate sufficient cash flow internally to fund the project. The Company's
ability to achieve its plan of operations depends on its ability to secure
sufficient proceeds from financings. There can be no assurance that such
revenues or funding will be generated or available, or if available on terms
acceptable to the Company.
Cash requirements subsequent to July 31, 1997, depend on the Company's
profitability, its ability to manage working capital requirements, and its rate
of growth.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, including the notes
thereto, together with the report of independent certified public accountants
thereon, are presented beginning at page F-1. Such consolidated financial
statements are hereby incorporated by reference into this Item 7.
15
<PAGE>
SIGMA ALPHA GROUP, LTD.
INDEX TO FINANCIAL STATEMENTS
PAGE
A. Independent Auditor's Report F-1
B. Consolidated Balance Sheets at July 31, 1996
and 1995 F-2 to F-4
C. Consolidated Statements of Operations for the
years ended July 31, 1996 and 1995 F-5
D. Consolidated Statements of Stockholders' Equity
for the years ended July 31, 1996 and 1995 F-6 to F-9
E. Consolidated Statements of Cash Flows for the
years ended July 31, 1996 and 1995 F-10 to F-11
F. Notes to Consolidated Financial Statements F-12 to F-22
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sigma Alpha Group, Ltd.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheets of Sigma Alpha
Group, Ltd. and subsidiaries as of July 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended July 31, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sigma Alpha Group,
Ltd. and subsidiaries as of July 31, 1996 and 1995, and the results of their
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
s/COGEN SKLAR LLP
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
September 13, 1996
F-1
<PAGE>
</TABLE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<CAPTION>
1996 1995
__________ __________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $1,173,000 $1,423,000
Receivable from underwriting - 198,000
Inventory 119,000 -
Prepaid expenses and other current assets 20,000 7,000
_________ _________
1,312,000 1,628,000
PROPERTY AND EQUIPMENT 80,000 26,000
OTHER ASSETS
Goodwill 58,000 74,000
Patent 9,000 -
_________ _________
67,000 74,000
_________ _________
TOTAL ASSETS $1,459,000 $1,728,000
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-2
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<CAPTION>
1996 1995
___________ _________
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Note payable, bank $ - $ 50,000
Loan payable 16,000 -
Accounts payable - trade 231,000 173,000
Taxes, other than income taxes 7,000 76,000
Accrued wages - officers 40,000 -
Accrued interest - 31,000
Accrued expenses and other current
liabilities 94,000 94,000
_________ _________
TOTAL LIABILITIES 388,000 424,000
COMMITMENTS AND CONTINGENCIES
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-3
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<CAPTION>
1996 1995
________ _______
<S> <C> <C>
STOCKHOLDERS' EQUITY
PREFERRED STOCK
SERIES A, $5.00 CONVERTIBLE, $.001 par value;
authorized, 750,000 shares; issued and
outstanding, 178,000 shares at July 31,
1996 and 1995. - -
SERIES B, $5.00 CONVERTIBLE, $.001 par value;
authorized, 800,000 shares; issued and
outstanding, 664,000 shares at July 31,
1996 and 726,000 shares at July 31, 1995. 1,000 1,000
SERIES C, $5.00 CONVERTIBLE, $.001 par value;
authorized, 109,000 shares; issued and
outstanding, 97,000 shares at July 31,
1996 and 109,000 shares at July 31, 1995. - -
ADDITIONAL PAID-IN CAPITAL 4,690,000 5,054,000
COMMON STOCK, $.001 par value; authorized
50,000,000 shares; issued and outstanding,
14,809,000 shares at July 31, 1996 and
12,837,000 at July 31, 1995. 15,000 13,000
COMMON STOCK SUBSCRIBED - 1,499,000
WARRANTS OUTSTANDING 2,000 -
ADDITIONAL PAID-IN CAPITAL 16,471,000 12,664,000
ACCUMULATED DEFICIT (20,108,000) (17,919,000)
__________ __________
1,071,000 1,312,000
LESS: UNEARNED FUTURE COMPENSATION - 8,000
__________ __________
TOTAL STOCKHOLDERS' EQUITY 1,071,000 1,304,000
__________ __________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,459,000 $ 1,728,000
========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-4
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<CAPTION>
1996 1995
__________ _________
<S> <C> <C>
SALES $ - $ -
COST OF SALES - -
__________ _________
GROSS PROFIT - -
__________ _________
OPERATING EXPENSES:
Officers' compensation 540,000 678,000
Other salaries and payroll costs 73,000 -
Consulting fees 319,000 425,000
Directors' fees 54,000 14,000
Professional fees 148,000 168,000
Research and development 434,000 82,000
Travel 358,000 141,000
Other 327,000 485,000
_________ _________
TOTAL OPERATING EXPENSES 2,253,000 1,993,000
_________ _________
LOSS FROM CONTINUING OPERATIONS BEFORE OTHER
INCOME (EXPENSE) AND EXTRAORDINARY GAIN (2,253,000) (1,993,000)
_________ _________
OTHER INCOME (EXPENSE)
Royalties 2,000 6,000
Interest income 21,000 9,000
Interest expense (21,000) (208,000)
_________ _________
2,000 (193,000)
_________ _________
LOSS BEFORE EXTRAORDINARY GAIN (2,351,000) (2,186,000)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT 62,000 710,000
_________ _________
NET LOSS $(2,189,000) $(1,476,000)
========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,848,000 9,444,000
NET LOSS PER COMMON SHARE
Net loss before extraordinary gain $ (0.16) $ (0.23)
Extraordinary gain on extinguishment of debt - 0.07
_________ _________
NET LOSS PER SHARE $ (0.16) $ (0.16)
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-5
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
COMMON STOCK
____________________________________________________________
<CAPTION>
COMMON ADDITIONAL
NUMBER OF STOCK WARRANTS PAID-IN
SHARES AMOUNT SUBSCRIBED OUTSTANDING CAPITAL
__________ _______ __________ ___________ __________
<S> <C> <C> <C> <C> <C>
BALANCES,
AUGUST 1, 1994 7,381,000 $ 7,000 $ 699,000 - $ 9,017,000
Year ended
July 31, 1995
Common stock
subscription,
net of $2.5
million
receivable - - 3,717,000 - -
Issuances of
common stock
Under
subscription
agreement 1,517,000 2,000 (2,917,000) - 2,915,000
Cash 533,000 1,000 - - 262,000
Interest 75,000 - - - 25,000
Professional
services 13,000 - - - 2,000
Officers and
Directors 2,085,000 2,000 - - 206,000
Lease
obligation 50,000 - - - 50,000
Acquisition 100,000 - - - 80,000
Consulting 1,083,000 1,000 - - 107,000
__________ ______ _________ __________ ___________
BALANCES JULY
31, 1995 12,837,000 $13,000 $1,499,000 - $12,664,000
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'S EQUITY
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
COMMON STOCK
____________________________________________________________
<CAPTION>
COMMON ADDITIONAL
NUMBER OF STOCK WARRANTS PAID-IN
SHARES AMOUNT SUBSCRIBED OUTSTANDING CAPITAL
__________ ______ __________ ___________ __________
<C> <C> <C> <C> <C>
BALANCES JULY
31, 1995 12,837,000 $13,000 $1,499,000 - $12,664,000
Issuances of
common stock
Under
subscription
agreement 850,000 1,000 (1,499,000) - 1,498,000
Under
underwriting
agreement 33,000 - - - 100,000
Interest 9,000 - - - 1,000
Directors fees 200,000 - - - 50,000
Warrant
exercise, net
of commission
$42,000 880,000 1,000 - - 2,158,000
Warrants issued
to consultant - - - 2,000 -
__________ ______ _________ ___________ __________
BALANCES, JULY
31, 1996 14,809,000 $15,000 $ - 2,000 $16,471,000
========== ====== ========= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
___________________
<S> <C>
BALANCE, AUGUST 1, 1994 $(16,443,000)
Net loss (1,476,000)
___________
BALANCE JULY 31, 1995 (17,919,000)
Net loss (2,189,000)
___________
BALANCE JULY 31, 1996 $(20,108,000)
===========
</TABLE>
[FN]
The accompanying notes are an integral part of the consolidated financial
statments
F-7
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<TABLE>
PREFERRED STOCK "SERIES A"
___________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
________ _______ ________
<S> <C> <C> <C>
BALANCES, AUGUST 1, 1994 - $ - $ -
Year ended July 31, 1995
Issuance of preferred stock
Professional services 3,000 - 15,000
Conversion of debt 175,000 - 867,000
________ _______ ________
BALANCES, JULY 31, 1995 AND
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 AUGUST 1, 1994 - $ - $ -
Year ended July 31, 1995
Issuance of preferred stock
Conversion of debt 726,000 1,000 3,628,000
________ _______ _________
BALANCES, JULY 31, 1995 726,000 $ 1,000 $3,628,000
Year ended July 31, 1996
Issuance of preferred stock
Conversion of debt 15,000 - 77,000
Repurchase of shares for
retirement (77,000) - (385,000)
________ _______ _________
BALANCES, JULY 31, 1996 664,000 $ 1,000 $3,321,000
======== ======= =========
</TABLE>
[FN]
The accompanying notes are an integral part of the consolidated financial
statements
F-8
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<TABLE>
PREFERRED STOCK "SERIES C"
_____________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
________ _______ __________
<S> <C> <C> <C>
BALANCES, AUGUST 1, 1994 - - -
Year ended July 31, 1995
Issuance of preferred stock
Deferred compensation 109,000 $ - $ 544,000
________ _______ _________
BALANCES, JULY 31, 1995 109,000 - 544,000
Year ended July 31, 1996
Repurchase of shares for
retirement (12,000) - (57,000)
________ _______ _________
BALANCES, JULY 31, 1996 97,000 $ - $ 487,000
======== ======= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-9
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<CAPTION>
1996 1995
___________ ________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,189,000) $(1,476,000)
Adjustments to reconcile net loss
to net cash flows used in operating
activities:
Extraordinary gain on extinguishment
of debt (62,000) (710,000)
Depreciation of property and
equipment and amortization of
goodwill and patent 34,000 14,000
Amortization of unearned compensation 8,000 42,000
Issuance of preferred stock for
professional services - 15,000
Issuance of common stock for consulting,
compensation, and other expenses 50,000 393,000
Warrants outstanding 2,000 -
(Increase) decrease in:
Receivable from underwriting 198,000 -
Inventory (119,000) -
Prepaid expenses and other current
assets (13,000) (5,000)
Increase (decrease) in:
Accounts payable 107,000 (76,000)
Due to distributor - (8,000)
Taxes, other than income taxes (56,000) (154,000)
Accrued expenses and other current
liabilities 38,000 (148,000)
_________ _________
Net cash used in operating activities (2,002,000) (2,113,000)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of patent (10,000) -
Purchase of equipment (71,000) (13,000)
_________ _______
Net cash used in investing activities (81,000) (13,000)
_________ _______
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-10
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1996 AND 1995
(Rounded to Nearest Thousand)
<CAPTION>
1996 1995
_________ ________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net principal payments on notes payable,
bank $ - (6,000)
Net principal payments on long-term debt $ - $ (80,000)
Principal payments on notes payable
to others - (165,000)
Proceeds from loans payable 16,000 -
Proceeds from issuance of common stock 2,259,000 263,000
Proceeds from common stock subscribed - 3,520,000
Repurchase of Preferred Series B stock (385,000) -
Repurchase of Preferred Series C stock (57,000) -
_________ _________
Net cash provided by financing activities 1,833,000 3,532,000
_________ _________
NET CHANGE IN CASH AND EQUIVALENTS (250,000) 1,406,000
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,423,000 17,000
_________ _________
CASH AND EQUIVALENTS, END OF YEAR $1,173,000 $1,423,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year:
Interest $ 21,000 $ -
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 $ 77,000 $3,629,000
Preferred stock Series C issued for
deferred compensation $ - $ 544,000
Common stock issued for conversion
of debt $ 1,000 $ -
Common stock issued for acquisition of
subsidiary $ - $ 80,000
Common stock subscribed $ - $ 198,000
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
F-11
</TABLE>
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
NOTE 1 - HISTORY AND NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Sigma Alpha Group, Ltd. (the "Company") was incorporated under the laws of the
Commonwealth of Pennsylvania in February, 1988 and commenced operations in
June, 1989, as the successor-in-interest of Sigma Sound Studios, Inc.
("Sigma Sound") a recording studio owned and operated by the former Chairman
of the Company. In 1987, Sigma Sound purchased the assets of Alpha
International Recording Studios, Inc. ("Alpha International"), a recording
studio owned and operated by the Company's Chief Executive Officer and Chairman
of the Board.
The Company became publicly held upon its merger in January, 1991 with Fabulous
Mergers, Inc., an inactive public company incorporated in Nevada. Pursuant to
the terms of the merger, Fabulous Mergers, Inc., as the surviving corporation
changed its name to "Sigma Alpha Entertainment Group, Ltd." and was
subsequently reincorporated in Delaware. In 1995, the Company changed its name
to Sigma Alpha Group, Ltd.
From 1993 through early 1995, the Company's manangement attempted to develop
valuable contacts in the Southeast Asia region, particularly in China, in an
effort to establish distribution and agency arrangements that would link
Southeast Asian and U.S. based recording companies and artists and other
business ventures in Southeast Asia. In April 1995, the Company acquired an
80% interest Global Telecommunications of Delaware, Inc. ("Global"), an entity
which was formed to complete development of the Voice Information Pager ("VIP")
technology.
During 1996, management discontinued its plans to reestablish its music
industry operations and all other proposed ventures in Southeast Asia with the
exception of the continued development and marketing of telecommunication
products by Global. Recently, the Company changed its name to Sigma Alpha
Group, Ltd. to reflect this new business focus. The Company is presently
developing wireless telecommunication products which utilize radio frequencies
transmitted by FM radio stations.
Principles of Consolidation
___________________________
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Cash Equivalents
________________
The Company considers certificates of deposit, money market funds and all other
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
F-12
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
Concentration of Credit Risk
____________________________
The Company maintains its cash balances in several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Company up to $100,000. During the year the Company may have cash balances
in these institutions in excess of these limits. At July 31, 1996, balances
were in excess of insurable amounts by approximately $1,072,000.
Estimates
_________
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Accordingly actual results may differ from those
estimates.
Fair Value of Financial Instruments
___________________________________
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses.
These balances, as presented in the financial statements as of July 31, 1996
and 1995, approximate their fair value because of their short maturities.
Inventory
_________
Inventory is stated at the lower of cost or market determined on a first-in,
first-out basis and consists of component parts for the Company's Stock
Information Receiver ("SIR").
Property and Equipment
______________________
Property and equipment are recorded at cost. Fixtures and equipment are
depreciated primarily using the declining balance and straight line methods
over the estimated useful lives of 3 to 10 years.
Goodwill
________
The Company amortizes goodwill on a straight-line basis over a 5 year period.
Goodwill in the consolidated financial statements relates to the Company's
1995 acquisition of 80% of Global Telecommunications of Delaware, Inc.
("Global"). The amortization recorded was $16,000 and $6,000 in 1996 and 1995,
respectively. Accumulated amortization was $22,000 and $6,000 at July 31, 1996
and 1995, respectively.
Patent
______
The Company amortizes its patent on a straight line basis over a 5 year period.
The amortization and accumulated amortization was $1,000 at July 31, 1996.
F-13
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
Research and Development Expenses
_________________________________
Research and development expenditures are expensed as incurred and totaled
approximately $434,000 and $82,000 for the years ended July 31, 1996 and 1995,
respectively.
Income Taxes
____________
The Company has adopted FASB Statement No. 109, "Accounting for Income Taxes",
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for temporary differences between financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
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.
New Authoritative Pronouncements
________________________________
The Company accounts for stock options according to the provisions of
Accounting Principles Board Opinion 25 (APB 25), "Accounting for Stock Issued
to Employees." In October 1995, the Financial Accounting Standards Board
issued FASB Statement No. 123, "Accounting for Stock-Based Compensation." The
new standard defines a fair value method of accounting for stock options and
similar equity instruments. Companies may elect to continue to use existing
accounting rules or adopt the fair value method for expense recognition.
Companies that elect to continue to use existing accounting rules will be
required to provide pro-forma disclosures of net income and earnings per share
assuming the fair value method was adopted. The Company will elect to continue
to use existing accounting rules. The new statement is effective for fiscal
years beginning after December 15, 1995. Accordingly, the Company will adopt
the provisions in the first quarter of fiscal 1997 and present the required
pro-forma disclosure provisions for its fiscal year ending July 31, 1997. As
the Company will continue to account for stock-based compensation for employees
using the intrinsic value method, this statement will not have a material
impact on earnings, financial condition or liquidity of the Company.
In accordance with FASB Statement No. 123, except for transactions with
employees, all transactions, in which goods or services are the consideration
received for the issuance of equity instruments, after December 15, 1995, have
been accounted for based on the fair value of the equity instruments.
F-14
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
Reclassifications
_________________
Certain 1995 amounts have been reclassified to conform with 1996
classifications.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
_______ _______
<S> <C> <C>
Equipment $ 92,000 $ 48,000
Molds 28,000 -
Automotive equipment 18,000 18,000
Furniture and fixtures 11,000 12,000
Equipment under capital lease 64,000 64,000
_______ _______
213,000 142,000
Less accumulated depreciation 133,000 116,000
_______ _______
$ 80,000 $ 26,000
======= =======
</TABLE>
Depreciation expense for the years ended July 31, 1996 and 1995 was $17,000
and $8,000, respectively.
NOTE 3 - NOTE PAYABLE, BANK
<TABLE>
<CAPTION>
1996 1995
_______ _______
<S> <C> <C>
Note payable, bank, accruing
interest at 11.5%. $ - $ 50,000
======= =======
</TABLE>
The note payable and related accrued interest of approximately $29,000 were
satisfied in full in September, 1995 for a cash payment of $20,000.
NOTE 4 - LOAN PAYABLE
Loan payable to Mid-West Financial Consultants Corporation has no terms of
repayment or interest. The loan was repaid in full in September, 1996.
F-15
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
NOTE 5 - INCOME TAXES
There is no income tax benefit for operating losses for the years ended July
31, 1996 and 1995 due to the following:
Current tax benefit - the operating losses cannot be carried back to
earlier years.
Deferred tax benefit - the deferred tax assets were offset by a valuation
allowance. Management believes that a valuation
allowance is considered necessary since it is more
likely than not that the deferred tax asset will
not be realized through future taxable income.
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1996 1995
_________ _________
<S> <C> <C>
Net operating loss carryforwards $7,113,000 $6,423,000
Research and development 30,000 27,000
Contribution carryforwards 6,000 5,000
Incorporation costs 1,000 -
Valuation allowance (7,150,000) (6,455,000)
_________ _________
$ - $ -
========= =========
</TABLE>
The use of net operating loss carryforwards is limited when there has been a
substantial change in ownership (as defined) during a three year period.
Because of the recent and contemplated changes in common stock, options and
warrants, such a change may occur in the future. In this event, the use of net
operating losses each year would be restricted to the value of the Company on
the date of such change multiplied by the federal long-term rate ("annual
limitation"); unused annual limitations may then be carried forward without
this limitation.
At July 31, 1996 the Company had net operating loss carryforwards of
approximately $19,758,000, which if not used will expire primarily during the
years 2005 through 2011. The Company also has a research and development
credit carryforward of $6,000 and a contribution carryforward of $16,000 as of
July 31, 1996.
F-16
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
______
Most of the Company's operations use leased facilities and equipment consisting
of administrative offices, office equipment and autos. Some of the leases
contain provisions for lease renewal, and also require payment of taxes,
maintenance, insurance and other occupancy expenses.
The following is a schedule of future minimum rental payments for all
noncancelable operating leases that have initial or remaining lease terms in
excess of one year at July 31, 1996:
<TABLE>
<CAPTION>
Year Ending July 31,
____________________
<S> <C> <C>
1997 $ 47,000
1998 48,000
1999 37,000
2000 5,000
_______
$137,000
=======
</TABLE>
Rent expense for operating leases in 1996 and 1995 was $64,000 and $34,000
respectively.
Employment Agreements
_____________________
The Company agreed effective April, 1991, to pay the Chairman $250,000,
increasing 10% per year cumulatively, plus bonuses equal to 5% of pre-tax
income and certain fringe benefits, through the year 2001. Upon his death or
disability, the Company is to pay his annual salary for the lesser of eight
years or the balance of the term, or, upon termination without cause or
resignation for "good reason," his annual salary plus certain fringe benefits
for four years or the balance of the term. On November 14, 1995, the
Chairman's agreement was extended 5 years to the year 2006 by the Board of
Directors. On July 22, 1996, the Board of Directors authorized a 15% increase
in the Chairman's salary and a provision to increase his profit share from 5%
to 10%.
The Company agreed effective October, 1995 to pay the President of Global
Telecommnications of Delaware, Inc. ("Global") $100,000, increasing 4% per year
cumulatively, plus bonuses equal to 25% of Global's pre-tax net profits in
excess of 20% of Global's pre-tax gross revenues (as defined), and certain
fringe benefits, through October 18, 1998. The President of Global will be
paid for the lesser of two month or a mutually agreed upon term after
termination.
F-17
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
The Company agreed effective July, 1995 to pay the Chief Accounting Officer
("CAO") $85,000, increasing 4% per year cumulatively (or such amount as
approved by the President and CEO) plus certain fringe benefits. As
consideration for entering into the agreement the Company will issue the CAO
5,000 shares of restricted Common Stock two years from the date of the
agreement, provided that the CAO has not terminated employment prior to that
time. The fair market value of the stock at July 31, 1996 was approximately
$16,000. For the year ended July 31, 1996, the Company accrued approximately
$8,000 for the amount vested in the stock as of the year end. Additionally,
the Company issued the CAO options to purchase 25,000 shares of Common Stock at
the market price as of the date of the commencement of his employment, and
minimum options after each year of employment to purchase 5,000 shares of
Common Stock at the market price on the anniversary date of the agreement. The
options remain in effect for two years from the date of the grant, except upon
termination, in which case the CAO will have 30 days to exercise the options
before they are canceled.
Separation Agreement
____________________
As of April 27, 1995, the Company entered into a Separation Agreement with the
former Chairman of the Board. The Company was released of all obligations,
claims and debts due him. These obligations, claims and debts were assumed by
a third party in consideration for $61,000 in cash and 395,000 Preferred Series
B shares of the Company valued at $1,977,000. In addition, the third party
agreed to purchase the former Chairman's shares (1,740,063) in the Company. In
accordance with the Separation Agreement, the Company agreed to pay up to
$2,000 per week until such time that these obligations (due December 31, 1996)
are paid to the former Chairman by the third party. The compensation paid by
the Company was $18,750 and $6,000 in fiscal 1996 and fiscal 1995,
respectively. In addition, $40,250 has been accrued as of July 31, 1996, which
represents the estimated maximum liability by the Company to the former
Chairman in the event that the third party fails to perform.
Development Agreement
_____________________
On January 18, 1996, Global entered into a Development Agreement with Innotel,
Inc. ("Innotel"). On or before March 15, 1996, Innotel was to deliver to
Global a VIP prototype for inspection, demonstration, and field testing unless
said term was extended by Global. Upon acceptance of the VIP prototype, Global
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, Global may terminate the
Agreement and Innotel will be required to return 10% of the proceeds
previously paid for the development of the prototype.
Global has extended the date of delivery of the VIP prototype until December,
1996. This is a result of the SIR project becoming a priority in order to
meet the needs of Global's proposed customers.
F-18
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
Legal Proceedings
_________________
As of July 31, 1996, the Company had approximately 10 judgments related to
accounts payable totalling approximately $71,000 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.
In August, 1996, the Company was served with a Summons and Complaint. The
Complaint seeks specific performance of a contract and entitles the plaintiff
to receive 15,000 shares of the Company's common stock or alternatively
$66,000. The Company has prepared an answer to the complaint denying the right
to receive such shares or any monetary compensation.
NOTE 7 - MAJOR VENDORS
The Company purchases various integrated circuits for use in its products.
Purchases from three vendors, individually totalled more than 10% of the
Company's total purchases for the year ended July 31, 1996.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company entered into a three year agreement with a consultant (stockholder)
as of April 1, 1993. The consultant was to receive $2,500 per week through
July 31, 1993 and 350,000 shares of the Company's common stock, and $3,000 per
week thereafter. During 1995, the Company raised the consultant's payment to
$4,000 per week. During 1996, the term of the agreement was extended three
years and subsequent to the year end, the consultant's payment was increased to
$4,200. As of July 31, 1996 and 1995, the balance due the consultant was
approximately $34,000 and $24,000, respectively.
NOTE 9 - PREFERRED STOCK, COMMON STOCK, WARRANTS AND OPTIONS
Preferred Stock
_______________
The Company is authorized to issue 2,000,000 shares of preferred stock, $.001
par value, in one or more series. On August 17, 1993, the Board of Directors
designated 750,000 shares as Series A, $5 convertible preferred stock with
preferences over common as to dividends and liquidation. On August 31, 1996,
each share of the preferred stock were converted into one share of common
stock. As of July 31, 1996 and 1995 178,000 shares have been issued. The
shares were issued to stockholders and certain trade creditors in lieu of debt
and professional services, in consideration for $15,000 in professional
services and $867,000 for conversion of debt.
F-19
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
On March 16, 1995, the Board of Directors designated 800,000 shares of
Series B, $5 convertible preferred stock to have preference over common
stock and Preferred Series A stock as to dividends and liquidation. The
Company has issued one investor 741,000 shares of Series B, $5 Convertible
Preferred Stock in consideration for assuming $3,706,000 of debt of the
Company. The Company has also paid the investor an aggregate amount of
$115,000, pursuant to the terms of the Preferred Series B Stock, which includes
a provision for the payment of three percent of the debt assumed by the
investor to be paid in cash. During the year ended July 31, 1996, the Company
retired approximately 77,000 shares of Preferred Series B for approximately
$385,000. In addition the investor returned approximately $12,000 to the
Company for three percent of the debt assumed on the 77,000 shares retired.
The Company may redeem the Series B Preferred Shares for shares of the
Company's common stock or cash as follows: (i) From May 1, 1996 to April 30,
1997 at a price of $5.50 per share or by the issuance of 2.5 common shares for
each Preferred share; or (ii) from May 1, 1997 to April 30, 1998 at a price of
$6.10 per share or by the issuance of two common shares for each Preferred
share. Notwithstanding the foregoing, each share of Series B Preferred Stock
shall automatically be converted into one share of common stock of the Company
(i) after April 30, 1998, or (ii) once $5 per share has been paid as a dividend
or other distribution to the holders of the Series B Preferred Stock.
On June 7, 1995, the Board of Directors designated 109,000 shares of Series C,
$5 Convertible Preferred Stock to have preference over common stock and
Preferred Series A and B stock for dividends and liquidation. The Company has
issued the President of the Company 109,000 shares of Series C, $5 Convertible
Preferred Stock in consideration for $544,000 of deferred compensation. During
the year ended July 31, 1996, the Company retired approximately 12,000 shares
of Preferred Series C for approximately $57,000. In. September, 1996, the
Company retired 17,000 shares of Preferred Series C for $94,000. The Company
may redeem the Series C Preferred Shares for shares of the Company's common
stock or cash as follows: (i) From May 1, 1996 to April 30, 1997 at a price of
$5.50 per share or by the issuance of 2.5 common shares for each Preferred
share; or (ii) from May 1, 1997 to April 30, 1998 at a price of $6.10 per share
or by the issuance of two common shares for each Preferred share.
Notwithstanding the foregoing, each share of Series C Preferred Stock shall
automatically be converted into one share of common stock of the company
(i) after April 30, 1998; or (ii) once $5 per share has been paid as a dividend
or other distribution to the holders of the Series C Preferred Stock.
Common Stock
____________
In August, 1995, the Company authorized the issuance of 5,000 shares of the
Company's common stock to the Chief Accounting Officer, provided that he
remains with the company for a term of two years, pursuant to his employment
agreement. The shares are currently being held by the Company.
In November, 1995, the Company and Mid-West Financial Consultants Corporation
("Mid-West" or the "Underwriter") amended the Underwriting Agreement and agreed
to cancel the right of the Underwriter to purchase 1,250,000 of the
3,000,000 shares and also agreed that the Underwriter would have the right to
F-20
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
purchase 833,334 shares of common stock at $3 per share. The Company received
$100,000 for 33,334 shares in November, pursuant to this amendment, which
expired on November 30, 1995.
In January, 1996, 100,000 shares of the Company's common stock was issued to
each of two outside members of the Board of Directors valued at $50,000 in
recognition of services.
In November, 1995, the Board had authorized a 33% increase in the President's
stock position upon the next substantial receipt of funding. In August, 1996,
the Board approved the issuance of 1,250,000 shares, valued at $188,000, for
the President's equity financing efforts.
Warrants
________
In December, 1995, 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 were exercised generating $1,000,000 in
capital for the Company.
In December, 1995, the Company issued to 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 were to originally expire on June 30, 1996. The expiration
date was later extended to August 31, 1996. As of July 31, 1996, 480,000
P.A. Warrants had been exercised for a total of $1,158,000, net of commissions.
The remaining 1,186,667 P.A Warrants expired on August 31, 1996.
On December 29, 1995, the Company issued a consultant a Common Stock Purchase
Warrant ("JF. Warrant") in consideration for services rendered to the Company,
to purchase 10,000 common shares at an exercise price of $.01 per share, valued
at $2,000. The JF. Warrant expires December 15, 1997.
Stock Option Plan
_________________
The Company, with stockholder approval, has adopted a Stock Option Plan (the
"Plan") which provides for the granting of options to officers, key employees,
consultants and others. Options to purchase the Company's common stock may be
made for a term of up to ten years at the fair market value at the time of the
grant. Incentive options granted to a ten percent or more stockholder may not
be for less than 110% of fair market value nor for a term of more than five
years.
The aggregate fair market value of the stock for which an employee may be
granted incentive options which are first exercisable in any calendar year
shall not exceed $100,000. The Company has reserved a total of 5,000,000
shares for issuance under the Plan. No options have been granted under this
plan through July 31, 1996. The Plan terminates in November, 2001, unless
terminated earlier by the Board of Directors.
F-21
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
Options
_______
The Company has issued options to purchase 283,000 shares of common stock. As
of July 31, 1996 only 16,667 of these options to purchase the Company's common
stock at $15 per share remained and they expire in November, 1996.
On August 14, 1995, the Company granted the Chief Accounting Officer the option
to purchase 25,000 shares of the Company's common stock at a price of $5.75.
In addition, after each year of employment, he is to receive a minimum
additional option to purchase 5,000 shares of the Company's common stock at the
then current market price. On August 14, 1996, the market price was $2.75.
Such options shall remain in effect for two years from the date of grant,
except upon termination in which case the Chief Accounting Officer will have
30 days to exercise the options before they are cancelled. As of July 31,
1996, options to purchase 25,000 shares of common stock were outstanding.
The Company entered into a financial consulting agreement as of October 16,
1995, whereby the Company would issue the consultant options to purchase
100,000 shares of the Company's common stock at a price of $6.25 as
compensation for consulting services to be performed. The agreement expired
October 16, 1996 without performance by the consultant, therefore no options
were issued.
On July 22, 1996, the Board of Directors authorized 250,000 options to purchase
shares of the Company's common stock at $3.875 per share, which represents the
fair market value of the common stock as of that date, to be awarded to each
of two outside members of the Board of Directors. The options expire on July
22, 2006 and carry such terms that are outlined in the Company stock option
plan.
Also on July 22, 1996, the Board of Directors authorized 500,000 options to
purchase shares of the Company's common stock at $3.875 per share, which
represents the fair market value of the common stock as of that date, to be
awarded to the President of the Company. The options expire on July 22, 2006
and carry such terms that are outlined in the Company stock option plan.
NOTE 10 - EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
The Company recognized an extraordinary gain on the extinguishment of debt of
$62,000 and $710,000 during the years ended July 31, 1996 and 1995,
respectively, relating to the settlement of trade payables, taxes payable, and
accrued expenses in the aggregate amount of $129,000 and $906,000,
respectively. The funds used to reduce the Company's outstanding debt were
received from the Underwriting Agreement and other financings.
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to July 31, 1996, the Board of Directors approved the issuance of
100,000 Warrants to purchase the Company's common stock at a price of $2 per
share to the Company's SEC counsel. The Warrants expire on August 31, 1999.
F-22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names and ages of all directors and
officers of the Company and their positions in the Company:
<TABLE>
<CAPTION>
Position(s)
Name Age with Company Director Since
____ ___ ____________ ______________
<S> <C> <C> <C>
Peter S. Pelullo 44 President, Chief June 1989
Executive Officer, (Class Two)
Chairman of the
Board, Chief
Financial Officer
and Director
Scott A. McPherson 35 Principal
Financial Officer
Ernest J. Cimadamore 34 Secretary
John N. D'Anastasio 48 Director June 1991
(Class Three)
Robert J. Sannelli 51 Director June 1991
(Class Three)
</TABLE>
The Board of Directors is divided into three classes; first class, second
class and third class, with the term of one class expiring each year. The term
of each class is three years. The term of each class has expired. Therefore,
all current directors serve until their successors are duly elected and
qualified. Vacancies in the board are filled by majority vote of the remaining
directors. The executive officers of the Company are elected by, and serve at
the discretion of, the Board of Directors.
The business experience during the past five years or more of each
director and executive officer of the Company is as follows:
Peter S. Pelullo became President, Chief Executive Officer and Chief
Financial Officer of the Company in 1991. In 1995, Mr. Pelullo was appointed
as the Company's Chairman of the Board. Mr. Pelullo has been involved in the
music industry since 1976, when he formed Philadelphia-based Alpha
International Recording Studios, Inc. ("Alpha International"). Mr. Pelullo
also founded Philly World Records in 1982 to establish domestic and
international record distribution networks. Mr. Pelullo created a promotional
team which has successfully marketed artists such as Anita Baker, Teddy
Pendergrass, Levert, The Whispers, and NEW Edition, and record companies
17
<PAGE>
including Capitol Records, Manhattan, EMI, Atlantic and Elektra have
subcontracted this team to market their acts. In 1986, Philly World Records
was sold to Magnolia Sound, while Alpha International was retained in order
to focus on studio operations and the formation of a new record company. Alpha
International was merged with Sigma Sound in 1987 creating Sigma Alpha
Entertainment Group, Ltd., which became a public company in 1991.
Scott A. McPherson was appointed as Principal Financial and Accounting
Officer of the Company on August 14, 1995. From November, 1994 through July
21, 1995, Mr. McPherson was employed by the accounting firm of
Cogen Sklar, LLP, the Company's current independent accountants. During Mr.
McPherson's employment with Cogen Sklar, he was the manager of audits conducted
by Cogen Sklar on the Company's financial statements as of July 31, 1994 and
for each of the three years in the period ended July 31, 1994, and was
instrumental in bringing the Company current on all filings required under the
the Securities and Exchange Act of 1934. Prior to Mr. McPherson's association
with Cogen Sklar, he was a manager in the accounting firm of Glickman,
Berkovitz, Levinson and Weiner where he served as a manager with the
responsibility for auditing a number of public companies. Mr. McPherson is a
certified public accountant licensed in Pennsylvania and Florida.
Mr. McPherson received a Bachelors of Science Degree in Accounting and Law
from Clarkson University, Potsdam, New York in 1983.
Ernest J. Cimadamore became secretary of the Company in 1990. Mr.
Cimadamore was employed by Alpha International from 1981 to 1993, where he
oversaw marketing sales and promotions of the Company's music products. Mr.
Cimadamore attended Temple University, where he studied business.
John N. D'Anastasio has been the President of D'Anastasio Corp., a real
estate development company, since 1986. Prior thereto, Mr. D'Anastasio was
President of South Philly Productions from 1979 through 1981, and has been
involved with the entertainment industry for approximately thirty years. Mr.
D'Anastasio received a Bachelor of Arts Degree in Economics and Accounting from
Villanova University in 1968.
Robert J. Sannelli has served, since 1986, as director of operations and
Vice President of D'Anastasio Corp., a real estate development company of which
John D'Anastasio is President. Prior thereto, Mr. Sannelli was employed as
director of operations by Philly World Records. Mr. Sannelli holds a Bachelor
of Science Degree in Accounting from Rutgers University, where he graduated
Summa Cum Laude in 1975.
Significant Employees
Michael Yang is the Chairman and founder of Global Telecommunications,
Inc., and the President of Global Telecommunications of Delaware, Inc. He has
over 20 years experience in business development, management, data processing,
communications and engineering. Mr. Yang is also a director of several joint
venture companies in China and Indonesia. Mr. Yang has expertise in the
following areas: business, planning, development and management; systems
integration; international marketing, venture planning, setup management; and
product development. Mr. Yang received a Masters Degree in International
Business from Fairleigh Dickinson University in 1978, and a Masters Degree in
Chemical Engineering from the University of Western Ontario in 1970. Mr. Yang
also received a Bachelor of Science Degree in Chemical Engineering from
National Taiwan University in 1966.
18
<PAGE>
Ying Dong was hired on October 9, 1995 as Controller of the Company. Miss
Dong has experience with the Bank of Communication, New York Branch and China
National Textile Import and Export Corporation. Miss Dong received a Bachelor
of Arts in International Business from Shanghai International Business College
in Shanghai, China in 1991. Miss Dong completed her Masters of Business
Administration in Finance from Temple University, Philadelphia, Pennsylvania in
December, 1995. Miss Dong is fluent in Mandarin and Shanghainese as native
languages.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth cash compensation paid or accrued to the
Company's most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000 during the fiscal years ended July 31, 1996 and
1995.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-term
Compensation
__________________
Awards
__________________
(A) (B) (C) (D) (E) (F) (G)
Other Annual Restricted
Name and Principal Salary Bonus Compensation Stock Options
Position Year ($)(1) ($) ($) ($)
__________________ ____ ________ _____ ____________ __________ _______
<S> <C> <C> <C> <C> <C> <C>
Peter S. Pelullo 1996 389,000 51,000(2) 625,000 500,000
Chief Executive 1995 344,000 26,000(3)
Officer, Chairman 1994 312,000 16,000(4)
of the Board
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Long-term
Compensation
____________
Payouts
____________
(A) (H) (I)
Name and Principal LTIP All Other
Position Payouts Compensation
__________________ ____________ ____________
<S> <C> <C>
Peter S. Pelullo
Chief Executive
Officer, Chairman
of the Board
</TABLE>
(1) In fiscal year 1994, Mr. Pelullo was paid $55,456. In fiscal year
1995, Mr. Pelullo was paid $723,733 of which $379,732 represented the
payment of prior years accrued salaries. All compensation not paid in
1994 was accrued. Accordingly, salaries accrued on behalf of Mr.
Pelullo for the fiscal year 1994 was $262,125. In July, 1995, $543,795
in accrued compensation due Mr. Pelullo was retired in exchange for
108,759 shares of Series C Preferred Stock. As of July 31, 1996
accrued compensation due to Mr. Pelullo was $23,561.
(2) Represents $38,000 in auto expense, $5,000 in travel allowance, and
$8,000 in health benefits.
(3) Represents $8,000 in auto expense, $5,000 in travel allowance, and
$3,000 in health benefits.
(4) Represents $16,000 in auto expense, $5,000 in travel allowance, and
$6,000 in health benefits.
<PAGE>
<TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
For the Year Ended July 31, 1996
<CAPTION>
(A) (B) (C) (D) (E)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Expiration
Name Granted (#) Fiscal Year Base Price ($/Sh) Date
____ ____________ ____________ _________________ ______________
<S> <C> <C> <C> <C>
Peter S. Pelullo 500,000(1) 100% 3.875 July 22, 2006
Common Stock
</TABLE>
20
<PAGE>
<TABLE>
Aggregated Option/SAR in Last Fiscal Year
and FY-End Option/SAR Values
For the Year Ended July 31, 1996
<CAPTION>
(A) (B) (C) (D) (E)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
____ _______________ ___________ _____________ ______________
<S> <C> <C> <C> <C>
Peter S. Pelullo 0 0 500,000 0
</TABLE>
Compensation Plans
With the exception of compensation in the form of certain health, medical
and similar benefits paid pursuant to plans that do not discriminate in favor
of officers or directors of the Company and are available generally to all
employees who have been employed by the Company for three months, the Company
has no plans pursuant to which cash or non-cash compensation was paid or
distributed during the fiscal years July 31, 1996 and 1995, or is proposed to
be paid or distributed in the future, to the individuals and group specified
under "Cash Compensation" above, except as noted below.
Employment Arrangements
The Company entered into a employment agreements (the "Agreements") with
Peter S. Pelullo (the "Executive") on September 1, 1991. The Agreement was
effective as of April 11, 1991. Pursuant to the provisions of the Agreements,
as amended, which continue for a period of fifteen years (the "Term") unless
earlier terminated in accordance with their terms, the Executive is entitled to
a base salary, initially $250,000 per year, and a bonus based upon the
Company's net profits, if any, an automobile allowance of $1,500 per month, as
well as health insurance and other benefits generally available to the
Company's executives. The Agreement also provides that, upon termination of
the Executive by the Company without cause or the Executive's resignation for
"Good Reason" as defined in the Agreement, the Executive will be entitled to
receive his base salary plus executive bonuses prescribed by the Agreements
for the longer of four years or the balance of the Term. In addition, the
Company shall maintain in full force and effect, for the longer of the four
years or the balance of the Term, all employee benefit plans and programs in
which the Executive was entitled to participate immediately prior to
termination or resignation for Good Reason. For purposes of this provision,
"Good Reason" is defined to include (i) a material change in the nature or
scope of the Executive's responsibilities, duties or authority, (ii) failure
21
<PAGE>
by the Company to comply with the Agreements or to obtain the assumption of
the Agreements by any successor to the Company, (iii) the removal of the
Executive as director of the Company (iv) ill health of the Executive or a
member of his family, or any other compelling circumstance, which in the sole
discretion of the Executive makes his continued employment impossible or
inappropriate; and (v) a change in control of the Company. The Company's
Board authorized a 15% increase in Mr. Pelullo's salary as well as a 5%
increase in his bonus based on net profits bringing the bonus to 10% based on
net profits. The Board also authorized a bonus in the amount of 1,250,000
shares of the Company's common stock. The salary increase and net profit bonus
became effective upon the receipt of $2,400,000 in additional capital. On
July 22, 1995, Mr. Pelullo received options to purchase 500,000 shares at a
price of $3.875.
Stock Option Plan
The Company's Stock Option Plan (the "Stock Option Plan") was approved
by a majority of the Company's stockholders in November, 1991. The Stock
Option Plan is intended to qualify, in part, as an incentive stock option plan
under Section 422 of the Internal Revenue Code (the "Code") and in part as a
non-qualified stock option plan, and to provide an incentive to those
directors, key employees of the Company and its subsidiaries and certain other
persons who are contributing materially to the Company's progress. As of
July 31, 1996, no options have been issued under the Stock Option Plan.
The Stock Option Plan is administered by a committee of the Board of
Directors, none of whom has received a descretionary grant or award under any
stock plan of the Company, during one year prior to serving on the committee.
The Stock Option Plan terminates November, 2001, unless terminated sooner
by the Board of Directors. A total of 5,000,000 shares of common stock have
been reserved for issuance under the Stock Option Plan. The Board of Directors
may terminate, modify or suspend the Stock Option Plan. The Board of Directors
may not, however, without the approval of the stockholders of the Company,
(i) increase the maximum number of shares of common stock which may be issued
under the Stock Option Plan, except pursuant to a stock split, stock dividend,
or similar transaction; (ii) change the provisions of the Stock Option Plan
relating to the establishment of the option exercise price; (iii) extend the
period during which the options may be granted under the Stock Option Plan,
except for non-qualified options; (iv) materially modify the benefits accruing
to employees participating under the Stock Option Plan; or (v) materially
modify the requirements as to eligibility for participation in the Stock
Option Plan. Since the adoption of the Stock Option Plan, no options have
been granted thereunder.
Committees of the Board
The Board of Directors has established separate compensation, audit and
nominating committees. However, there have been no meetings of such committees
as of July 31, 1996.
22
<PAGE>
Compensation of Directors
Outside directors receive payments of $200 per month plus reasonable costs
and expenses of travel and lodging for attendance at director's meetings.
During fiscal 1996, directors D'Anastasio and Sannelli received 100,000 shares
of common stock each and options to purchase 250,000 shares of common stock
each at a price of $3.875.
Limitations of Liability and Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, the Company's
Articles of Incorporation and the Company's Bylaws contain provisions for
indemnification of officers, directors, employees and agents of the Company.
The Company's Bylaws require the Company to indemnify such persons to the full
extent permitted by Delaware law. Each person will be indemnified in any
proceeding if he acted in good faith and in a manner which he reasonable
believed to be in, or not opposed to the best interests of the Company.
Indemnification would cover expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement.
The Company's Bylaws also provide that the Company may purchase and
maintain insurance on behalf of any present or past director or officer
insuring against any liability asserted against such person incurred in the
capacity of director or officer or arising out of such status, whether or not
the Company would have the power to indemnify such person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer, or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with registered securities, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the questions whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such court.
23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 16, 1996, certain
information with respect to ownership of the Company's common stock by the
record and beneficial ownership by each person known to the Company to be the
beneficial owner of more than 5% of the Company's common stock, and each of the
Company's directors and named executive officers, and by all officers and
directors as a group. Unless otherwise specified, the individuals listed
possess sole voting and investment power with respect to the shares indicated
as owned by them.
<TABLE>
<CAPTION>
Amount and Percent of Class
Nature of Giving Effect
Beneficial Title of to Completion
Name and Address Position Ownership Class Offering(1)
________________ ________ ___________ ________ ________________
<S> <C> <C> <C> <C>
Peter S. Pelullo Director, 5,500,000 (2) Common 29.0%
1341 N. Delaware Ave. Chairman,
Philadelphia, PA 19125 Chief
Executive
Officer and
President
Mid-West Financial 1,001,597 Common 5.3
Consultants Corp.
Neutorgasse 12
A-1010 Vienna, Austria
Joseph D. Tarsia Former 1,740,063 (3) Common 9.2
1341 N. Delaware Ave. Chairman
Philadelphia, PA 19125 and Treasurer
Kathleen Patten 1,931,234 (4) Common 10.2
John Patten
5 Saddlehill Road
Far Hills, NJ 07931
Jacob Der Hagopian 1,500,000 Common 7.9
1341 N. Delaware Ave.
Philadelphia, PA 19125
John N. D'Anastasio Director 375,000 (5) Common 2.0
4300 Haddonfield Road
Suite 111
Pennsauken, NJ 08109
Robert J. Sannelli Director 375,000 (6) Common 2.0
4300 Haddonfield Road
Suite 111
Pennsauken, NJ 08109
All officers and 6,280,000 Common 33.2%
directors as a group
(5 persons)
</TABLE>
24
<PAGE>
(1) Based upon an aggregate of 18,936,210 shares of common stock outstanding,
including the sale of 2,500,000 shares of stock in a recent Offering.
(2) Does not give effect to Mr. Pelullo's ownership of 80,459 shares of the
Company's Series C Preferred Stock. Gives effect to the issuance of
1,250,000 shares of common stock to Mr. Pelullo for raising equity
capital. Also gives effect to options for 500,000 shares of common stock
at an exercise price of $3.875 per share, which expires July, 2006 (see
"Employment Agreements").
(3) The Company has been advised by Mr. Tarsia that all of his shares have
been sold. However, such shares are still listed on the Company's
transfer records as owned by Mr. Tarsia. The Company has been advised
that 1,400,000 of such shares are beneficially owned by Kathleen N.
Patten (see Note 4 below).
(4) Reflects Kathleen Patten's ownership of 1,400,000 shares of common stock
as set forth above, as well as John Patten's ownership of 531,234 shares
of common stock. Mr. Patten also owns 664,000 shares of the Company's
Series B Preferred Shares. Mr. and Mrs. Patten disclaim beneficial
ownership of each others shares in the Company.
(5) Gives effect to options to purchase 250,000 shares of common stock at an
exercise price of $3.875 per share, which expires in July, 2006.
(6) Gives effect to options to purchase 250,000 shares of common stock at an
exercise price of $3.875 per share, which expires in July, 2006.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August, 1996, the Company authorized the issuance of 1,250,000 shares
of common stock to Peter S. Pelullo, the Company's President, in consideration
for services rendered valued at $188,000.
In July, 1996, the Company authorized the issuance of 500,000 stock
options to Peter S. Pelullo, the Company's President, 250,000 options to John
N. D'Anastasio, a director of the Company, and 250,000 options to Robert J.
Sannelli, a director of the Company. These options are exercisable at a price
of $3.875 per share and expire in July, 2006.
In July, 1995, the Company authorized the issuance of an aggregate of
108,759 shares of Series C Preferred Stock to the Company's President, Peter
S. Pelullo. In consideration of the issuance of such shares, Mr. Pelullo
agreed to retire an aggregate of $543,795 in accrued compensation due him. In
October, 1995, the Company redeemed 8,800 shares of Preferred Series C through
the payment to Mr. Pelullo of $44,000, and in November, 1995 redeemed 2,500
shares of Preferred Series C through the payment to Mr. Pelullo of $12,500.
In September, 1996, the Company redeemed 17,000 shares of Preferred Series C
through the payment to Mr. Pelullo of $93,500.
During the first quarter of fiscal 1992, a bank foreclosed on a loan and
received a judgment against the Company, its former Chairman Joseph Tarsia, and
its President Peter S. Pelullo on notes payable to the bank by the Company,
which totalled $1,054,000. An agreement was reached with the bank whereby the
Company's engineering and recording facility was sold by the bank to a newly-
formed company owned by the spouse of the Company's former Chairman called
Sigma Sound Services, Inc. ("Services"). As part of these arrangements, the
25
<PAGE>
Company and its President remained as guarantors on $450,000. The Company's
former Chairman and his spouse became obligated for $600,000 to the bank and
Services became directly obligated to the bank for $450,000. In addition,
the Company, its former Chairman and its President guaranteed the repayment
of the $450,000 obligation of Services to the bank and the Company became
obligated to Services for the principle amount of $450,000. In April, 1995,
the Company and its President were released as guarantors and the obligation
was settled.
The Company rented the studio which housed its recording facility from a
corporation owned by the spouse of the Company's former Chairman. Such
arrangement ceased in October, 1991, when the recording facility was sold to a
corporation owned by the former Chairman's spouse. The amount of rent owed
was $89,435, which had been accrued. In April, 1995, this amount was
settled and the Company has been released of any further obligation related
thereto.
From October, 1991, when the Company's recording facility was sold, the
Company rented the facility to record their artists' music. The total amount
of the rent was approximately $110,000 of which $86,000 had been accrued. In
April, 1995, this amount was settled and the Company has been released of any
further obligations related thereto.
During fiscal 1995, a loan in the amount of $13,000 from Med Sound, Inc.,
a company controlled by the Company's President, was repaid in fiscal 1995,
through the payment of cash.
The Company entered into a consulting agreement ("Consulting Agreement")
for a period of three years commencing April 1, 1993 with Jacob Der Hagopian
(the "Consultant"). The Consultant agreed to provide consulting services to
the Company in the areas of general corporate finance, business plan
development, corporate reorganization, communication, and negotiations.
Pursuant to the Consulting Agreement, the Company issued 350,000 shares of its
common stock as consideration for Mr. Der Hagopian's entry into the Consulting
Agreement and agreed to pay a weekly retainer of $2,500 subject to increases
based upon future financing and/or revenues. As of August 1, 1994, the weekly
retainer payable to Mr. Der Hagopian was increased to $4,000. The Company has
also agreed to reimburse the Consultant for any out of pocket expenses. The
Consulting Agreement may be terminated for cause or amended upon the mutual
written consent of both parties. If the Company elects to terminate the
Agreement, any money due or required to be paid shall be accelerated and
payable upon termination. The Company's Board authorized a three year
extension of the Consulting Agreement and a 5% increase in Mr. Der Hagopian's
consulting fee commencing upon receipt by the Company of substantial
additional equity, which the Company has received. As of July 31, 1996, the
Company had accrued approximately $34,000 for the unpaid portion of the
Consultant's retainer.
In February, 1995, the Company's Board authorized the issuance of
2,009,937 shares of common stock to Peter Pelullo, the Company's President
and Chairman, 1083,333 shares of common stock to Jacob Der Hagopian, a
consultant to the Company, 10,000 shares of common stock to John D'Anastasio,
a director of the Company, 10,000 shares of common stock to Robert Sannelli, a
director of the Company, and 10,000 shares of common stock to Robert Schrock,
a former director of the Company. The shares were issued for services rendered
at a per share price of $.10.
26
<PAGE>
As of April 25, 1995, the Company acquired 80% of the outstanding
securities of Global Telecommunications of Delaware, Inc. ("Global") pursuant
to the terms of an agreement ("Global Agreement") with the shareholders of
Global. At the time of the acquisition, Global was a newly formed company
which had no operating revenues or material assets. The Company acquired its
interest in Global in exchange for 100,000 shares of the Company's common stock
and the Company's agreement to issue up to an additional 300,000 shares subject
to Global achieving specified sales and revenue performance objectives over
a five year period. The Global purchase price was negotiated on an arms length
basis. The Company considered various factors in reaching an agreement with
Global's shareholders on the purchase price for Global. These factors
included projections presented to the Company by Global, regarding the
potential results of Global's operation once its products were fully developed
and marketed. Globla intends to develop and market telecommunication products,
including the Voice Pager. Subsequent to the Company's acquisition of its
interest in Global, certain members of the Registrant's current Board of
Directors were appointed as board members of Global. Michael Yang continues
to serve as Global's President. Global intends to establish marketing
facilities in China and Southeast Asia, during fiscal year 1996, and enter
into agreements with manufacturing facilities.
In October, 1995, the Company entered into a consulting agreement with Joseph
Fanelli, a cousin of the Company's President ("Fanelli Agreement"). The
Fanelli Agreement requires Mr. Fanelli to identify and solicit indications of
interest from third parties in connection with the development, marketing, sale
and financing of the Digital Voice Pager and related telecommunication
products. Mr. Fanelli is entitled to receive $1,800 per week during the six
month term of the agreement. Further, upon consummation of a transaction with
a third party introduced to the Company by Mr. Fanelli, and within one year
from the date of the Fanelli Agreement, Mr. Fanelli shall receive such
additional compensation as agreed to by the Company based upon the nature of
and the benefits to the Company of such transaction. Under the terms of the
Fanelli Agreement, Mr. Fanelli is entitled to receive reimbursement of all
reasonable expenses which are authorized by the Company. The Fanelli
Agreement also provides that Mr. Fanelli shall not during his engagement under
the agreement and for a period of two years thereafter, directly or indirectly
compete with the Company or its affiliates. The Fanelli Agreement was
terminated in April, 1996.
On December 29, 1995, the Company issued Mr. Fanelli a Common Stock
Purchase Warrant ("JF. Warrant") to purchase 10,000 common shares at an
exercise price of $.01 per share. The JF. Warrant expires December 15, 1997.
27
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits marked with an * are filed herewith. All other
exhibits were previously filed by the Company:
1.1 Underwriting Agreement and Amendment between the Registrant and Midwest
Financial Consultants Corporation.
3(i) Articles of Incorporation (a)
3(ii) Bylaws (a)
4.1 Form of Warrant No. 1
4.2B Form of Warrant No. 2
4.3 Form of White Chapel Warrant
4.4 Form of Munyon Warrant, as amended
4.5 Form of Mid-West Warrant, as amended
4.6 Form of Silverman, Collura & Chernis Warrant (b)
10.1 Amendment to Employment Agreement between Registrant and Joseph Tarsia.
10.2 Form of Placement Agreement with White Chapel Managment, Ltd.
10.3 Form of Financial Consulting Agreement with White Chapel Management,
Ltd.
10.4 Placement Agreement between the Registrant and Midwest Financial
Corporation.
10.5 Form of Agreement between Global Telecommunications of Delaware, Inc.
and Guangdong Radio Station - Pearl River Stock Market Radio (c)
21.1 Subsidiaries of the Registrant
(i) Global Telecommunications of Delaware, Inc. (80% owned)
27.1 Financial data schedule *
Incorporated by reference from the Company's (a) Form S-18 Registration
Statement on Form S-18(File No. 32881-NY), (b) Form S-1 Registration Statement
on Form S-1(File No. 333-11233), (c) Report on Form 8-K dated June 12, 1996,
and July 9, 1996.
Reports on Form 8-K
(a) The Company filed a Form 8-K on June 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.
(b) The Company filed a Form 8-K on July 9, 1996. The report disclosed
in Item 5 that the expiration date of the Warrant issued to Midwest
Financial Consultants Corporation for 1,666,667 shares of common
stock had been extended to August 31, 1996.
28
<PAGE>
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
SIGMA ALPHA GROUP, LTD.
By: s/Peter S. Pelullo
Peter S. Pelullo
Chief Executive Officer
Dated: October 28, 1996
In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following person on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
_________ _____ ____
s/Peter S. Pelullo Principal Executive Officer October 28, 1996
Peter S. Pelullo and Chairman of the Board
s/Scott A. McPherson Principal Financial Officer October 28, 1996
Scott A. McPherson and Accounting Officer
s/John N. D'Anastasio Director October 28, 1996
John N. D'Anastasio
s/Robert J. Sannelli Director October 28, 1996
Robert J. Sannelli
</TABLE>
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jul-31-1996
<PERIOD-START> Aug-01-1995
<PERIOD-END> Jul-31-1996
<CASH> 1,173,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 119,000
<CURRENT-ASSETS> 1,312,000
<PP&E> 213,000
<DEPRECIATION> 133,000
<TOTAL-ASSETS> 1,459,000
<CURRENT-LIABILITIES> 388,000
<BONDS> 0
0
1,000
<COMMON> 15,000
<OTHER-SE> 1,055,000
<TOTAL-LIABILITY-AND-EQUITY> 1,459,000
<SALES> 0
<TOTAL-REVENUES> 2,000
<CGS> 0
<TOTAL-COSTS> (2,253,000)
<OTHER-EXPENSES> (21,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,000
<INCOME-PRETAX> (2,251,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,251,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 62,000
<CHANGES> 0
<NET-INCOME> (2,189,000)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
