<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from _____________ to _________
Commission file number 33-90344
Sigma Alpha Group, Ltd.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
23-2498715
(IRS Employer Identification No.)
1341 North Delaware Avenue, Philadelphia, PA 19125
(Address of principal executive offices)
(X) (215) 425-8682
(Issuer's telephone number)
______________________________________________________________
(Former name, former address and former fiscal year,if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes (X) No ( )
Outstanding shares issued or to be issued of each of the registrant's
class of common stock $.001 par value per share as of February 21, 1997 were
18,774,204.
<PAGE>
SIGMA ALPHA GROUP, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Balance Sheets at
January 31, 1997 (unaudited) and
July 31, 1996 (audited) 3-4
Consolidated Statements of Operations
for the six months and three months
ended January 31, 1997 and 1996
(unaudited) 5
Consolidated Statement of Stockholders'
Equity for the six months ended January
31, 1997 (unaudited) 6-7
Consolidated Statements of Cash Flows
for the six months ended January 31,
1997 and 1996 (unaudited) 8-9
Notes to Consolidated Financial
Statements (unaudited) 10-13
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 14-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Events 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Rounded to Nearest Thousand)
<CAPTION>
January 31, July 31,
1997 1996
___________ _________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 822,000 $1,173,000
Certificate of deposit 50,000 -
Stock subscription receivable 3,110,000 -
Accounts receivable 191,000 -
Inventory 519,000 119,000
Prepaid expenses and other current assets 36,000 20,000
_________ _________
4,728,000 1,312,000
PROPERTY AND EQUIPMENT 91,000 80,000
OTHER ASSETS
Goodwill 50,000 58,000
Patent and trademark 10,000 9,000
_________ _________
60,000 67,000
_________ _________
TOTAL ASSETS $4,879,000 $1,459,000
========= =========
<FN>
See accompanying notes
3
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Rounded to Nearest Thousand)
<CAPTION>
January 31, July 31,
1997 1996
___________ _________
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Loan payable - 16,000
Accounts payable - trade 716,000 231,000
Taxes, other than income taxes 7,000 7,000
Accrued wages - officers 18,000 40,000
Accrued expenses and other current
liabilities 85,000 94,000
_________ _________
TOTAL LIABILITIES 826,000 388,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
PREFERRED STOCK
SERIES A, $5.00 CONVERTIBLE, $.001 par value;
authorized, 750,000 shares; issued and
outstanding, 0 shares at January 31, 1997
and 178,000 at July 31, 1996. - -
SERIES B, $5.00 CONVERTIBLE, $.001 par value;
authorized, 800,000 shares; issued and
outstanding, 664,000 shares at January 31,
1997 and July 31, 1996. 1,000 1,000
SERIES C, $5.00 CONVERTIBLE, $.001 par value;
authorized, 100,000 shares; issued and
outstanding, 0 shares at January 31,
1997 and 97,000 shares at July 31, 1996. - -
ADDITIONAL PAID-IN CAPITAL 3,321,000 4,690,000
COMMON STOCK, $.001 par value; authorized
50,000,000 shares; issued and outstanding,
18,737,000 shares at January 31, 1997 and
14,809,000 at July 31, 1996. 19,000 15,000
WARRANTS AND OPTIONS OUTSTANDING 29,000 2,000
ADDITIONAL PAID-IN CAPITAL 22,002,000 16,471,000
ACCUMULATED DEFICIT (21,319,000) (20,108,000)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 4,053,000 1,071,000
__________ __________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,879,000 $ 1,459,000
========== ==========
<FN>
See accompanying notes
4
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Rounded to Nearest Thousand)
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
_____________________ ______________________
1997 1996 1997 1996
_________ _________ __________ _________
<S> <C> <C> <C> <C>
SALES $ 348,000 $ - $ 129,000 $ -
COST OF SALES 314,000 - 102,000 -
_________ _________ __________ _________
GROSS PROFIT 34,000 - 27,000 -
_________ _________ __________ _________
OPERATING EXPENSES:
Officers' compensation 541,000 262,000 202,000 134,000
Other salaries and
payroll costs 40,000 27,000 21,000 24,000
Consulting fees 163,000 163,000 89,000 77,000
Professional fees 69,000 109,000 13,000 53,000
Research and
development 53,000 357,000 25,000 126,000
Selling expenses 35,000 - 13,000 -
Travel 192,000 181,000 90,000 115,000
Other 184,000 335,000 90,000 248,000
_________ _________ _________ _________
TOTAL OPERATING EXPENSES 1,277,000 1,434,000 543,000 777,000
_________ _________ _________ _________
LOSS FROM CONTINUING
OPERATIONS BEFORE OTHER
INCOME AND EXTRAORDINARY
GAIN (1,243,000) (1,434,000) (516,000) (777,000)
_________ _________ _________ _________
OTHER INCOME (EXPENSE)
Royalties 2,000 1,000 2,000 1,000
Interest expense - (20,000) - -
Interest income 22,000 17,000 12,000 3,000
_________ _________ _________ __________
24,000 (2,000) 14,000 4,000
_________ _________ _________ __________
LOSS BEFORE
EXTRAORDINARY GAIN (1,219,000) (1,436,000) (502,000) (773,000)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT 8,000 35,000 - 22,000
_________ _________ _________ _________
NET LOSS $(1,211,000)$(1,401,000) $ (502,000) $ (751,000)
========== ========= ========= ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 16,223,000 13,728,000 17,224,000 13,728,000
NET LOSS PER COMMON SHARE
Net loss before
extraordinary gain $ (0.07) $ (0.10) $ (0.03) $ (0.06)
Extraordinary gain on
extinguishment of debt 0.00 0.00 0.00 0.01
__________ _________ _________ _________
NET LOSS PER SHARE $ (0.07) $ (0.10) $ (0.03) $ (0.05)
========== ========= ========= =========
<FN>
See accompanying notes
5
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JANUARY 31, 1997
(Rounded to Nearest Thousand)
COMMON STOCK
______________________________________________________________
<CAPTION>
WARRANTS ADDITIONAL
NUMBER OF AND OPTIONS PAID -IN ACCUMULATED
SHARES AMOUNT OUTSTANDING CAPITAL DEFICIT
__________ _______ ___________ ___________ ____________
<S> <C> <C> <C> <C> <C>
BALANCES,
JULY 31, 1996 14,809,000 $15,000 $2,000 $16,471,000 $(20,108,000)
Six months ended
January 31, 1997
(Unaudited):
Issuances of
common stock 2,500,000 3,000 - 4,997,000 -
Commissions - - - (510,000) -
Officer's
compensation 1,250,000 1,000 - 187,000 -
Preferred Series
A conversion 178,000 - - 882,000 -
Warrants and
options issued - - 27,000 (25,000) -
Net loss - - - - (1,211,000)
__________ ______ _________ __________ ___________
BALANCES, JANUARY
31, 1997 18,737,000 $19,000 $ 29,000 $22,002,000 $(21,319,000)
========== ====== ========= ========== ==========
<FN>
See accompanying notes
6
</TABLE>
<PAGE>
<TABLE>
PREFERRED STOCK "SERIES A"
___________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
________ _______ ________
<S> <C> <C> <C>
BALANCES, JULY 31, 1996 178,000 $ - $ 882,000
Six months ended January 31,
1997 (Unaudited):
Converted to common stock (178,000) - (882,000)
________ _______ ________
BALANCES, JANUARY 31, 1997 - $ - $ -
======== ======= ========
</TABLE>
<TABLE>
PREFERRED STOCK "SERIES B"
__________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
_________ _______ __________
<S> <C> <C> <C>
BALANCES, JULY 31, 1996 664,000 $ 1,000 $3,321,000
________ _______ _________
BALANCES, JANUARY 31, 1997 664,000 $ 1,000 $3,321,000
======== ======= =========
</TABLE>
<TABLE>
PREFERRED STOCK "SERIES C"
_____________________________________
<CAPTION>
ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
________ _______ __________
<S> <C> <C> <C>
BALANCES, JULY 31, 1996 97,000 $ - $ 487,000
Six months ended January 31,
1997 (Unaudited):
Repurchase of shares for
retirement (97,000) - (487,000)
________ _______ _________
BALANCES, JANUARY 31, 1997 - $ - $ -
======== ======= =========
<FN>
See accompanying notes
7
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Rounded to Nearest Thousand)
SIX MONTHS ENDED
JANUARY 31,
__________________________
<CAPTION>
1997 1996
___________ ________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,211,000) $(1,401,000)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Extraordinary gain on extinguishment
of debt (8,000) (35,000)
Depreciation of property and
equipment and amortization of
goodwill 20,000 15,000
Amortization of unearned compensation - 6,000
Issuance of common stock for:
Directors fees - 150,000
Officer compensation 188,000 -
(Increase) decrease in:
Accounts receivable (191,000) (1,000)
Inventory (400,000) -
Prepaid expenses and other current
assets (16,000) (11,000)
Increase (decrease) in:
Accounts payable 494,000 (11,000)
Taxes, other than income taxes - (54,000)
Accrued expenses and other current
liabilities (30,000) (24,000)
_________ _________
Net cash used in operating activities (1,154,000) (1,366,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in certificate of deposit (50,000) -
Investment in patent and trademark (2,000) (10,000)
Purchase of equipment (22,000) (42,000)
_________ _______
Net cash used in investing activities (74,000) (52,000)
_________ _______
<FN>
See accompanying notes
8
</TABLE>
<PAGE>
<TABLE>
SIGMA ALPHA GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Rounded to Nearest Thousand)
SIX MONTHS ENDED
JANUARY 31,
_______________________
<CAPTION>
1997 1996
_________ ________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable $ - $ 146,000
Repayment of loans payable (16,000) -
Proceeds from issuance of common stock 5,000,000 100,000
Commission on common stock issuance (510,000) -
Increase in stock subscription receivable (3,110,000) -
Decrease in receivable from underwriting - 198,000
Repurchase of Preferred Series B stock - (374,000)
Repurchase of Preferred Series C stock (487,000) (57,000)
_________ _________
Net cash provided by financing activities 877,000 13,000
_________ _________
NET CHANGE IN CASH AND EQUIVALENTS (351,000) (1,405,000)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,173,000 1,423,000
_________ _________
CASH AND EQUIVALENTS, END OF PERIOD $ 822,000 $ 18,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the six months:
Interest $ - $ 20,000
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Preferred stock Series B issued for
conversion of debt $ - $ 75,000
Common stock issued for retirement
of Preferred Series A stock $ 882,000 $ -
<FN>
See accompanying notes
9
</TABLE>
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 AND 1996
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management reflects
normal recurring adjustments necessary for a fair presentation of the
information for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended July 31, 1996.
The results of operations for the six month periods ended January 31, 1997 and
1996 are not necessarily indicative of operating results for the full year.
NOTE 2 - MANAGEMENT'S PLANS
During the six months ended January 31, 1997, the Company conducted activities
directed toward the production and sale of the Company's Stock Information
Receiver ("SIR") in China and research and development of a Voice Information
Pager ("VIP"), also sometimes referred to as a Digital Voice Pager. During the
six months ended January 31, 1997, the Company received orders for a total of
41,000 SIR's from four radio stations in China, of which 12,430 were shipped.
Total revenue from sales of all 41,000 units is expected to be approximately
$1,335,000.
At January 31, 1997, the Company had working capital of $3,901,000. Funding
for the Company's operations was significantly improved during the six months
ended January 31, 1997 with the sale of 2,500,000 shares of common stock for
$4,490,000, net of commissions. Management believes that these funds will
provide working capital for the Company's current operations, enable the Com-
pany to market its SIR's in China, make improvements and refinements of its
products, and further develop the Company's digital voice pager system.
Management is aware, however, that there can be no assurances that the SIR and
VIP will be developed into commercially viable products, or as to whether the
Company can successfully market the SIR and VIP products.
NOTE 3 METHOD OF ACCOUNTING
The Company prepares its financial statements on the accrual method of
accounting, recognizing income when earned and expenses when incurred.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Development Agreement
Global has extended the date of delivery, under a development agreement, of the
VIP prototype until January 31, 1997 as a result of the higher priority of the
SIR project for Global's proposed customers in China, as well as the Company's
prior limited financial resources which restricted a parallel development path.
10
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1996
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
Letter of Credit
As collateral for performance and advances on manufacturing agreements, the
Company is contingently liable under a letter of credit in the amount of
$50,000. This standby letter of credit is in force for one year, commencing
January 1997, and is supported by a certificate of deposit in the amount of
$50,000. It is the Company's opinion that the replacement cost for the standby
letter of credit would not significantly vary from the present fee structure.
Legal Proceedings
As of February 28, 1997, the Company had approximately 9 judgments related to
accounts payable totalling approximately $69,000 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 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 believes that a settlement of such matter will be reached
pursuant to which the Company will issue 7,500 shares of its restricted common
stock to the Plaintiff.
NOTE 5 - PREFERRED STOCK
During the six months ended January 31, 1997, the Company redeemed the remain-
ing approximately 97,000 shares of Preferred Series C Stock which had been held
by the Company's Chairman. These shares were redeemed for approximately
$536,000 of which $49,000 was reflected as additional compensation pursuant to
the Preferred Series C Stock agreement.
NOTE 6 - COMMON STOCK
On November 14, 1995, the Board of Directors authorized a bonus to the Chairman
of 1,250,000 shares of common stock. These shares were issued in August 1996.
Pursuant to a registration statement dated September 6, 1996 which registered
2,500,000 shares of common stock at $2.00 per share, the Company raised
$4,490,000, net of commissions, during the six months ended January 31, 1997.
As of February 14, 1997, the entire amount of the stock subscription had been
collected in full by the Company, including $3,110,000 that was reflected as a
subscription receivable in the January 31, 1997 balance sheet.
11
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1996
NOTE 7 - WARRANTS
In August 1996, the Board of Directors approved the issuance of 100,000 war-
rants to purchase the Company's common stock at a price of $2.00 per share to
the Company's SEC counsel in consideration for services rendered to the
Company. These Warrants expire on August 31, 1999.
On December 16, 1996, the Company issued to its investment banker Common Stock
Purchase Warrants in consideration for $3,000 and services rendered to the
Company, to purchase 300,000 common shares at an exercise price of $2.00 per
share. These warrants expire in December 2001.
On February 5, 1997, the Company issued to a consultant Common Stock Purchase
Warrants, in consideration for $3,000 and services rendered to the Company, to
purchase 300,000 common shares at an exercise price of $3.00 per share. These
warrants expire in February 2001.
NOTE 8 - EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
The Company recognized an extraordinary gain on the extinguishment of debt of
$8,000 during the six months ended January 31, 1997, relating to accounts
payable in the aggregate amount of $8,000. The Company recognized an extra-
ordinary gain on the extinguishment of debt of $35,000 during the six months
ended January 31, 1996, relating to accounts payable and taxes payable in the
aggregate amount of $101,000.
NOTE 9 - INCOME TAXES
There is no income tax benefit for operating losses for the six months ended
January 31, 1997 and 1996 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 asset will not be
realized through future taxable income.
NOTE 10 - 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.
12
<PAGE>
SIGMA ALPHA GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1996
NOTE 11 - SUBSEQUENT EVENTS
The former Chief Accounting Officer ("CAO") of the Company has advised the
Company that he desires to pursue other opportunities and will leave the
Company's employ on or around February 28, 1997. The Board of Directors
granted the Former CAO 5,000 shares of common stock in lieu of the 5,000 shares
of Restricted Common Stock he will lose as a result of leaving the Company
prior to completing two years of service.
The Company agreed effective February 10, 1997, to pay the new Vice President
of Finance/Chief Accounting Officer ("VPF") $90,000 per year for three months
increasing to $95,000 per year after the three months and increasing 5%, 6%,
and 7% cumulatively and respectively for each of the three years. As consid-
eration for entering into the agreement the Company will issue to the VPF 5,000
shares of restricted Common Stock two years from the date of the agreement,
provided that the VPF has not terminated employment prior to that time.
Additionally, the Company issued to the VPF options to purchase 25,000 shares
of Common Stock at the market price as of the date of the commencement of his
employment and options after each year of employment to purchase 10,000 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 VPF will have 30 days to exercise the
options before they are canceled.
On February 18, 1997, the Board of Directors authorized options to purchase
250,000 shares of the Company's common stock at $2.375 per share, which rep-
resents 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 February 18,
2007 and carry such terms as are outlined in the Company stock option plan.
On February 18, 1997, the Board of Directors authorized options to purchase
50,000 shares of the Company's common stock at $2.375 per share, which rep-
resents 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 February 18, 2007 and carry such terms as are outlined in the Company
stock option plan.
On February 18, 1997, the Board of Directors authorized the issuance of 32,600
shares of the Company's common stock to be issued to a consultant in consider-
ation for services rendered to the Company valued at approximately $65,000.
13
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements appearing elsewhere in this
report.
General Operations
Sigma Alpha Group, Ltd. and its 80% owned subsidiary, Global Telecom-
munications of Delaware, Inc. (together, the "Company"), are pursuing a busi-
ness strategy of bringing new technology and new business ideas to less
developed countries. During the six months ended January 31, 1997, the Company
conducted activities directed toward the production and sale of the Company's
Stock Information Receiver ("SIR") in China and research and development of a
Voice Information Pager ("VIP"), also sometimes referred to as a Digital Voice
Pager. The Company received orders for a total of 41,000 SIR's from four
radio stations in China, of which 12,430 were shipped during the six months
ended January 31, 1997. Total revenue from sales of all 41,000 units is
expected to be approximately $1,335,000.
Funding of the Company's operations was significantly improved during the six
months ended January 31, 1997 with the sale of 2,500,000 shares of common
stock for $4,490,000, net of commissions. Management believes that these funds
will provide working capital for the Company's current operations, enable the
Company to market its SIR's in China, make improvements and refinements of its
products, and further develop the Company's digital voice pager system.
Management is aware, however, that there can be no assurances that the SIR and
VIP will be developed into commercially viable products, or as to whether the
Company can successfully market the SIR and VIP products.
Six Months Ended January 31, 1997
vs. Six Months Ended January 31, 1996
____________________________________
Results of Operations
For the six months ended January 31, 1997, the Company incurred a net loss of
$1,211,000 on revenues of $348,000 compared to a net loss of $1,401,000 on no
revenues for the six months ended January 31, 1996. The $190,000 reduction in
net loss is primarily due to a $157,000 reduction in operating expenses and the
the recognition of sales and related gross profit of $34,000 in the six months
ended January 31, 1997.
Gross profit for the six months ended January 31, 1997 was $34,000 and
may increase for future sales, as the Company gave the first radio station an
introduction price of $28 per unit applicable to the first 10,000 SIR units.
Future orders from this radio station are expected to be priced higher than $28
per SIR unit, and sales to subsequent radio stations are expected to be priced
at $35 per SIR unit. In addition, the Company is continuing to negotiate for
better pricing arrangements with vendors that supply components of the SIR's.
14
<PAGE>
Operating expenses for the six months ended Janaury 31, 1997 were
$1,277,000 compared to $1,434,000 for the six months ended January 31, 1996, a
$157,000 decrease. The decrease is primarily due to a $304,000 decrease in
research and development expenses and a $151,000 decrease in other expenses,
partially offset by a $279,000 increase in officers' compensation.
The variances are attributed to the following components. Research and
development costs decreased $304,000 because the Company chose to focus tem-
porarily on production of the SIR in lieu of further research and development
on the VIP. Other expenses declined $151,000 due to lower directors' fees,
resulting from the issuance of 200,000 common shares to directors during the
six months ended January 31, 1996. Officers' compensation increased $279,000
due to the issuance of 1,250,000 shares of common stock to the Chairman valued
at $188,000 on August 27, 1996, a 15% increase in the Chairman's salary effec-
tive July 22, 1996, and other normal officer salary increases.
Interest expense was $0 for the six months ended January 31, 1997 compared
to $20,000 for the six months ended January 31, 1996. This was a result of
having to pay interest in order to settle debt during the six months ended
January 31, 1996.
Three Months Ended Janaury 31, 1997
vs. Three Months Ended January 31, 1996
_______________________________________
Results of Operations
For the three months ended January 31, 1997, the Company incurred a net
loss of $502,000 on revenues of $129,000. This compares to a net loss of
$751,000 on no revenues for the three months ended January 31, 1996. The
$249,000 decrease in the net loss for the three month period is attributed to
a decrease in operating expenses of $234,000 and the recognition of sales and
related gross profit of $27,000 in the six months ended January 31, 1997.
Gross profit for the three months ending January 31, 1997 was $27,000 and
may increase for future sales, as the Company gave the first radio station an
introduction price of $28 per unit applicable to the first 10,000 SIR units.
Future orders from this radio station are expected to be priced higher than $28
per SIR unit, and sales to subsequent radio stations are expected to be priced
at $35 per SIR unit. In addition, the Company is continuing to negotiate for
better pricing arrangements with vendors that supply components of the SIR's.
Operating expenses for the three months ended January 31, 1997 were
$543,000 compared to $777,000 for the three months ended April 30, 1995, a
$234,000 decrease. The difference can be attributed to a decrease in other
expenses of $158,000, a decrease in research and development costs of $101,000,
and a decrease in professional fees of $40,000, partially offset by an increase
in officers' compensation of $68,000. The variances are attributed to the
following components. The decrease in other expenses of $158,000 is due to
lower directors fees resulting from the issuance of 200,000 common shares to
directors during the three months ended January 31, 1996. Research and
15
<PAGE>
development costs declined $101,000 because the Company chose to focus
temporarily on production of the SIR in lieu of further research and develop-
ment on the VIP. Professional fees decreased $40,000 due to lower legal fees
related to registration statement activity in the three months ended January
31, 1996. The $68,000 increase in officers' compensation resulted from a 15%
increase in the Chairman's salary effective July 22, 1996 and other normal
officer salary increases.
Liquidity and Capital Resources
At January 31, 1997, the Company had working capital of $3,901,000 comp-
pared to $924,000 at July 31, 1996. The increase of $2,977,000 largely
reflects the sale of 2,500,000 shares of common stock for proceeds of
$4,490,000, net of commissions, during the six months ended January 31, 1997.
As of February 14, 1997, the entire amount of the stock subscription had been
collected in full by the Company, including $3,110,000 that was reflected as a
subscription receivable in the January 31, 1997 balance sheet.
Management believes that these funds will provide working capital for the
Company's operations, enable the company to market its SIR's in China, make
improvements and refinements of its products, and further develop the Company's
digital voice pager system. Management is aware, however, that there can be no
assurances that the SIR and VIP will be developed into commercially viable
products, or as to whether the Company can successfully market the SIR and VIP
products.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Registrant's Annual Report on
Form 10-KSB for the year ended July 31, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Events
None
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K:
(a) The Company filed a Form 8-K on November 4, 1996.
The report disclosed in Item 5, agreements entered
with radio stations in China pursuant to which the
radio station agreed to purchase 16,000 SCA Radios.
(b) The Company filed a Form 8-K on December 18, 1996.
The report disclosed in Item 5, the Company entered
into a corporate financing agreement with Pennsyl-
vania Merchant Group, Ltd. ("PMG") under which PMG
will provide strategic advisory and corporate finance
services to the Company for a minimum of one year.
Exhibit - 27. Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 28, 1997
SIGMA ALPHA GROUP, LTD.
(REGISTRANT)
By:s/James M. Boyd, Jr.
James M. Boyd, Jr.
Duly Authorized Officer
and Chief Accounting Officer
(Principal Financial and
Accounting Officer)
18
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jul-31-1997
<PERIOD-START> Aug-01-1996
<PERIOD-END> Jan-31-1997
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