-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MBkL9HGfUDfJ25z3kwOg34kShdJ2WEBPqHFSStZ8kRliB9ZIqlw3/PedwUCuNB01 NBgN/HREoiLGAclWdKbNMA== 0001137760-01-500025.txt : 20010615 0001137760-01-500025.hdr.sgml : 20010615 ACCESSION NUMBER: 0001137760-01-500025 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDONLINE INTERNATIONAL INC CENTRAL INDEX KEY: 0001106836 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 731344983 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-29671 FILM NUMBER: 1660707 BUSINESS ADDRESS: STREET 1: 7633 E. 63RD PLACE STREET 2: SUITE 220 CITY: TULSA STATE: OK ZIP: 74133 BUSINESS PHONE: 9184599689 MAIL ADDRESS: STREET 1: 7633 E 63RD PLACE STREET 2: SUITE 220 CITY: TULSA STATE: OK ZIP: 74133 FORMER COMPANY: FORMER CONFORMED NAME: BENTON VENTURES INC DATE OF NAME CHANGE: 20000214 10QSB 1 sgd.txt SGD 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: April 30, 2001 Commission File Number: 0-29671 SGD HOLDINGS, LTD. (Exact name of small business issuer as specified in its charter) Delaware 13-3986493 (State of Incorporation) (IRS Employer ID No) 111 Rhodes Street, Conroe, TX 77301 (Address of principal executive office) (936) 756-6888 (Issuer's telephone number) 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 [ ]. The number of shares outstanding of registrant's common stock, par value $.0001 per share, as of April 30, 2001 was 96,084,408. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]. SGD HOLDINGS, LTD. AND SUBSIDIARIES Index Page No. Part I. Financial Information (unaudited) Item 1. Condensed Consolidated: 3 Balance Sheet - April 30, 2001 Statements of Operations - 4 Three and Nine Months Ended April 30, 2001 and 2000 Statement of Stockholders' Equity - 5 Nine Months Ended April 30, 2001 Statements of Cash Flows - 6-7 Nine Months Ended April 30, 2001 and 2000 Notes to Financial Statements - 8-13 Nine Months Ended April 30, 2001 and 2000 Item 2. Managements Discussion and Analysis of Financial Condition 14-15 and Results of Operations Part II. Other Information 16
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SGD Holdings, Ltd. and Subsidiaries Condensed Consolidated Balance Sheet April 30, 2001 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 2,754,039 Trade accounts receivable 1,353,845 Marketable equity securities 785,900 Note receivable 500,000 Inventory 6,154,606 Prepaid expenses and other assets 199,340 ------------- 11,747,730 Property and equipment, net 465,691 Goodwill, net of amortization of $158,506 3,684,837 Other assets 28,438 ------------- $ 15,926,696 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current installments of long-term debt and notes payable 4,741,931 Accounts payable 543,855 Accrued expenses 54,183 Income taxes payable 72,800 Deferred income taxes payable 123,700 Deferred revenue 52,145 Due to shareholder 3,635 ------------- 5,592,249 Deferred income taxes 5,800 Long-term debt less current installments 1,324,275 Stockholders' equity Common stock, $.0001 par value, 200,000,000 shares authorized, 9,608 96,084,408 shares issued and outstanding Additional paid-in capital 8,581,336 Retained earnings 413,428 ------------- 9,004,372 ------------- $ 15,926,696 ============= See accompanying notes to condensed consolidated financial statements.
3 SGD HOLDINGS, LTD. AND SUBSIDIARIES Condensed Consolidated Statements of Operations Three and Nine Months Ended April 30, 2001 and 2000 (Unaudited)
Three Months Ended Nine Months Ended April 30, April 30, 2001 2000 2001 2000 Sales and revenues $ 2,515,386 $ 332,844 $9,718,300 $1,243,805 Cost of sales 1,554,437 201,472 6,343,943 755,842 ------------------- ----------------- ----------------------------------- Gross profit 960,949 131,372 3,374,357 487,963 Selling, general and administrative expense 1,043,727 227,446 2,926,808 608,914 ------------------- ----------------- ----------------------------------- Earnings (loss) from operations (82,778) (96,074) 447,549 (120,951) Other income (expense): Unrealized gain on marketable securities (281,522) - 368,873 - Interest expense (99,291) (8,106) (240,897) (19,860) Interest and other income 48,185 4,062 192,174 4,062 ------------------- ----------------- ----------------------------------- (332,628) (4,044) 320,150 (15,798) ------------------- ----------------- ----------------------------------- Net earnings (loss) before income taxes (415,406) (100,118) 767,699 (136,749) Income tax expense (benefit) (117,423) 5,103 231,777 (7,352) ------------------- ----------------- ----------------------------------- Net earnings (loss) $ (297,983) $ (105,221) $ 535,922 $ (129,397) =================== ================= =================================== Net earnings (loss) per share, basic and diluted $ (0.003) $ (0.001) $ 0.006 $ (0.001) =================== ================= =================================== See accompanying notes to condensed consolidated financial statements.
4 SGD HOLDINGS, LTD. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Equity Nine Months Ended April 30, 2001 (Unaudited)
Common Stock Paid-in Retained Shares Par Value Capital Earnings Total Balance, August 1, 2000 94,984,408 $ 9,498 $7,013,946 $ (122,494) $6,900,950 Sale of common stock for cash 1,100,000 110 1,567,390 - 1,567,500 Net earnings - - - 535,922 535,922 ----------------------------------------------------------------------------------- Balance, April 30, 2001 96,084,408 $ 9,608 $8,581,336 $ 413,428 $9,004,372 =================================================================================== See accompanying notes to condensed consolidated financial statements.
5 SGD HOLDINGS, LTD. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows Nine Months Ended April 30, 2001 and 2000 (Unaudited)
2001 2000 Cash flows from operating activities Net earnings (loss) $ 535,923 $(129,397) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 204,467 34,351 Deferred income taxes 231,777 (7,352) Purchase of marketable equity securities (333,587) - Common stock issued for services - 18,125 Provision for bad debts - 24,413 Unrealized gain on marketable equity securities (368,873) - Gain on sale of assets (7,054) - Realization of deferred revenue (31,295) - Refund from net operating loss carryback 18,623 - Changes in assets and liabilities: Accounts receivable 228,841 (95,371) Inventory (770,772) (198,682) Other assets (155,452) - Accounts payable and accrued expenses (828,859) (12,534) ------------------ ---------------- Net cash provided by operating activities (1,276,261) (366,447) ------------------ ---------------- Cash flows provided by investing activities Capital expenditures (112,526) (23,628) Acquisition of HMS, net of cash acquired (2,817,872) - Acquisition of assets at wholesale location (105,000) - ------------------ ---------------- Net cash provided by investing activities (3,035,398) (23,628) ------------------ ---------------- See accompanying notes to condensed consolidated financial statements. Continued
6 SGD HOLDINGS, LTD. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows, Continued Nine Months Ended April 30, 2001 and 2000 (Unaudited) (Continued)
2001 2000 Cash flows provided by financing activities Proceeds from sales of common stock 1,567,500 841,700 Loans made (500,000) - Loan proceeds 216,268 50,000 Repayment of notes payable and long-term debt (188,449) (62,674) Increase (decrease) in amount due stockholder 1,178 (3,365) ----------------- ----------------- Net cash provided by financing activities 1,096,497 825,661 ----------------- ----------------- Net increase in cash and cash equivalents (3,215,162) 435,586 Cash and cash equivalents, beginning of period 5,969,201 34,426 ----------------- ----------------- Cash and cash equivalents, end of period $2,754,039 $ 470,012 ================= ================= Supplemental Disclosures of Cash Flow Information Interest paid $ 240,897 $ 19,860 ========== ======== Income taxes paid $ - $ 5,384 ==== ======= Supplemental Schedule of Noncash Investing and Financing Activities Convertible promissory notes issued in acquisition of HMS $2,500,000 $ - Acquisition of transportation equipment with long-term debt $ 62,376 $ 19,462 Financed insurance $ 26,138 $ - See accompanying notes to condensed consolidated financial statements.
7 SGD HOLDINGS, LTD. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Nine Months Ended April 30, 2001 and 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization Effective January 24, 2001, Goldonline International, Inc. ("Registrant") changed its name to SGD Holdings, LTD. ("SGD" or the "Company") pursuant to Section 253 of the General Corporation Law of Delaware. The consolidated financial statements include the accounts of SGD (formerly Transun International Airways, Inc.) and its wholly owned subsidiaries HMS Jewelry Company, Inc. ("HMS"), CON-TEX Silver Imports, Inc. ("SILVER") and Jewelry Solutions & Commerce, Inc. ("Jewelry") (formerly known as Gold Online.com, Inc.) (collectively referred to as the "Company"). All material intercompany accounts and transactions have been eliminated. SGD was incorporated May 22, 1996 in Delaware and until June 1999 was a development stage company with plans to establish itself as an air transport company providing non-scheduled air service (charter flights) for tour operators, charter brokers, cruise line casinos, theme parks and theme attractions. SILVER was incorporated September 12, 1994 in Texas. Jewelry was incorporated on February 3, 1999 in Delaware. HMS was incorporated on October 12, 2000 in Texas. Effective October 1, 2000, the Company acquired HMS in a transaction treated as a purchase for accounting purposes. The results of operations of HMS will be included in the consolidated financial statements commencing October 1, 2000. (b) Nature of Business SGD is now a holding company principally engaged in acquiring and developing jewelry related businesses. SILVER is a company involved in both the wholesale and retail fulfillment jewelry business, principally silver, with retail locations in the Houston area. The wholesale operation of SILVER consists of both sales directly from its headquarters in Conroe, Texas, a satellite location in Dallas, Texas and from jewelry shows at locations throughout the south central United States. Jewelry established an Internet jewelry presence in the fall of 1999, when Jewelry began selling gold, silver and diamond jewelry through e-commerce sites, located at http://www.GoldOnline.com, which has now been licensed to a third party. Jewelry now operates as an e-commerce solutions provider to the Company's clients by offering web hosting services and has begun offering back office jewelry fulfillment services to the Company's customers. HMS is a national jewelry wholesaler, specializing in 18K, 14K and 10K gold and platinum jewelry, with headquarters in Dallas, Texas. HMS markets its products to a network of over 30,000 retail jewelers; through a catalog and telephone ordering system and through its B2B online catalog http://www.HMSgold.com. (c) General The financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited. 8 Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report for the period ended July 31, 2000, which is included in the Company's Form 10-KSB, which was filed November 8, 2000 and the Company's 8-K dated October 26, 2000 that reported the acquisition of HMS and included the audited financial statements of HMS. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year. Certain reclassifications of the amounts presented for the comparative period have been made to conform to the current presentation. 2. ACQUISITION OF HMS JEWELRY COMPANY, INC. Effective October 1, 2000, the Company acquired, pursuant to an Agreement and Plan of Merger the operations and business of HMS, in exchange for $4,500,000 in cash and convertible promissory notes in the amount of $2,500,000. The purchase also included $47,500 in legal and professional costs. The transaction resulted in the merger of the business and operations of HMS Jewelry Co., Ltd., a Texas limited partnership and HMS Operating Company, a Texas corporation into a newly formed subsidiary of the Company, HMS Jewelry Company, Inc. HMS is a national jewelry wholesaler, specializing in 18K, 14K and 10K gold and platinum jewelry, with headquarters in Dallas, Texas. HMS markets its products to a network of over 30,000 retail jewelers, through a catalog and telephone ordering system and through its B2B online catalog http://www.HMSgold.com. The acquisition was accounted for by the purchase method of accounting and, accordingly, the statements of consolidated income include the results of HMS beginning October 1, 2000. The assets acquired and the liabilities assumed were recorded at estimated fair values as determined by the Company's management based on information currently available and on current assumptions as to future operations. The purchase price allocation is a preliminary estimate and the actual amounts could differ from this estimate. A summary of the assets acquired and liabilities assumed in the acquisition follows: Estimated fair values: Assets acquired $ 7,758,635 Liabilities assumed (4,428,077) Goodwill (amortized by the straight-line method over fifteen years) 3,716,942 ------------- Purchase price 7,047,500 Less cash acquired (1,729,628) Less convertible promissory notes (2,500,000) ------------- Net cash paid $ 2,817,872 ============= 9 Unaudited pro froma results of operations for the nine months ended April 30, 2001 and 2000, as if the Company and HMS had been combined as of the beginning of the periods, follow. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future.
Pro forma Nine months ended April 30, (Thousands except for per share data) 2001 2000 Net sales $ 11,534 $ 12,559 Net income $ 581 $ 864 Net income per common share Assuming dilution $ .006 $ .010 Basic $ .006 $ .010
3. RELATED PARTY TRANSACTIONS SILVER leases its corporate headquarters from the principal shareholder of the Company at the rate of $2,200 per month. This amounted to $19,800 during each of the nine-month periods ended April 30, 2001 and 2000. The Company had received loans from its principal shareholder. The balance owed to the shareholder was $3,635 at April 30, 2001. HMS leases its facility from HMS Leasing Company, LLC, at the rate of $8,075 per month pursuant to a lease agreement that expires on October 31, 2010. This amounted to $56,525 during the nine-month period ended April 30, 2001, which includes the seven months during which HMS was owned by the Company. HMS Leasing Company, LLC is owned by the president of HMS. 4. MARKETABLE EQUITY SECURITIES FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities," requires that all applicable investments be classified as trading securities, available-for-sale securities or held-to-maturity securities. The Company has classified its investment in marketable equity securities as trading securities, which are reported at fair value. Fair value is defined to be the last closing price for the listed securities. The unrealized gains and losses, which the Company recognizes from its trading securities, are included in earnings. As of April 30, 2001, substantially all of the Company's investment in marketable equity securities was in stock of one company. Due to the size of the investment and its limited trading volume, there can be no assurance that the Company will realize the value that is required to be used by FAS No. 115. The following summarizes the Company's investments at April 30, 2001: Trading securities: Cost $ 417,027 Unrealized gain 368,873 ----------- Recorded value $ 785,900 =========== The Company recognized an unrealized gain from trading securities during the nine months ended April 30, 2001 in the amount of $368,873. 10 5. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt and notes payable at April 30, 2000 consist of the following: Note payable to bank with interest at 10% payable on demand or July 1, 2001 if no demand is made; accrued interest payable monthly; collateralized by all assets of SILVER and guaranteed by the principal shareholder of the Company $ 128,736 Line of credit and gold consignment facility with accrued interest payable monthly; collateralized by all assets of HMS 3,194,006 Note payable to the mother of the president of HMS; due on February 15, 2002 55,153 Notes payable to the president of HMS Jewelry Company, Inc., due $1,250,000 on October 15,2001 and $1,250,000 on October 15, 2002, with interest payable monthly at 8%, collateralized by the stock of HMS Jewelry Company, Inc. 2,500,000 Note payable to the brother of the principal share- holder of the Company due on demand with interest at 8%, unsecured, convertible into common stock of the Company at $.01 per share 50,000 Note payable to company for financed insurance payable in monthly installments of $3,030 through October 2001 17,646 Notes payable to companies in monthly installments aggregating $2,892, including interest at 9.8% to 11.6% ; collateralized by transportation equipment 120,665 ------------ 6,066,206 Current installments of long-term debt and notes payable 4,741,931 ------------ Long-term debt less current installments $ 1,324,275 ============
11 6. INCOME TAXES Federal income tax expense (benefit) for the nine months ended April 30,2001 and 2000 consists of: 2001 2000 Federal income taxes 72,800 $ - Deferred income tax expense (benefit) 158,977 (7,352) ----------- ------------ $ 231,777 $ (7,352) =========== ============
For the nine months ended April 30, 2001 and 2000, actual income tax expense (benefit) applicable to earnings (loss) before income taxes is reconciled with the "normally expected" federal income tax expense (benefit) as follows:
2001 2000 "Normally expected" income tax expense (benefit) $ 261,000 $ (46,495) Change in valuation allowance (54,000) 39,143 Surtax exemption 18,400 - Other 6,377 - ----------- ----------- $ 231,777 $ (7,352) =========== ============ The deferred income tax assets and liabilities at April 30, 2001 are comprised of the following: Current Noncurrent Allowance for bad debts $ 1,700 $ - Asset basis - (5,800) Unrealized gain on trading securities (125,400) - ----------- ----------- Net deferred income tax liabilities $ 123,700 $ 5,800 =========== ===========
12 7. STOCK OPTIONS On September 1, 1999, the Company established a stock option plan, which reserved 10,000,000 shares of the Company's common stock for issue to certain employees, directors and consultants. The Plan provides that options may be granted for no less than fair market value at the date of the option grant. The following is a summary of option activity for the nine months ended April 30, 2001.
Options Options Outstanding Available Weighted Average For Grant Options Exercise Price Balance, July 31, 2000 9,892,000 0 $ 0.00 --------- ----------- ------------ Granted (400,000) 400,000 1.00 Exercised - - - Cancelled - - - -------- -------- ------------ Balance, March 31, 2001 9,492,000 400,000 $ 1.00 ========= ======= ============
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"), requires the Company to disclose pro forma information regarding option grants made to its employees. SFAS 123 specifies certain valuation techniques that produce estimated compensation charges that are included in the pro forma results below. These amounts have not been reflected in the Company's Statement of Operations, because Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," specifies that no compensation charge arises when the price of the employees' stock options equal the market value of the underlying stock at the grant date, as in the case of options granted to the Company's employees and consultants. Stock options are anti-dilutive at April 30, 2001 and accordingly are not included in the earnings per share calculation. SFAS No. 123 pro forma numbers are as follows for the nine-months ended April 30, 2001 and 2000: 2001 2000 Actual net earnings (loss) $ 535,922 $ (129,397) ============== =============== Pro forma net loss $ 505,572 $ (129,397) ============== =============== Pro forma basic and diluted net earnings (loss) per share $ .006 $ (.001) ============= ============== Under SFAS 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. At April 30, 2001, the following weighted average assumptions were used: risk-free interest rate of 6.0%, no expected dividends, a volatility factor of 98.89%, and a weighted average expected life of the options of one year. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of the Company's options. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS From time to time, the Company may publish forward-looking statements relative to such matters as anticipated financial performance, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. All statements other than statements of historical fact included in this section or elsewhere in this report are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include: 1. General economic factors including, but not limited to, changes in interest rates, trends in disposable income; 2. Information and technological advances; 3. Cost of products sold; 4. Competition; and 5. Success of marketing, advertising and promotional campaigns. The Company has historically sold jewelry, principally silver, in its own retail outlets and wholesale to other jewelry stores. Jewelry established an Internet jewelry presence in the fall of 1999, when Jewelry began selling gold, silver and diamond jewelry through e-commerce sites, located at http://www.GoldOnline.com, which has now been licensed to a third party. Jewelry now operates as an e-commerce solutions provider to the Company's clients by offering web hosting services and has begun offering back office jewelry fulfillment services to the Company's customers. Effective October 1, 2000, the Company acquired, pursuant to an Agreement and Plan of Merger the operations and business of HMS, in exchange for $4,547,500 in cash (including $47,500 in legal and professional costs) and convertible promissory notes in the amount of $2,500,000. The transaction resulted in the merger of the business and operations of HMS Jewelry Co., Ltd., a Texas limited partnership and HMS Operating Company, a Texas corporation into a newly formed subsidiary of the Company, HMS Jewelry Company, Inc. HMS is a national jewelry wholesaler, specializing in 18K, 14K and 10K gold and platinum jewelry, with headquarters in Dallas, Texas. HMS markets its products to a network of over 30,000 retail jewelers, through a catalog and telephone ordering system and through its B2B online catalog http://www.HMSgold.com. A. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased from $6,657,979 at July 31, 2000 to $6,155,481 at April 30, 2001. The decline in working capital is primarily the result of the purchase of HMS during the quarter ended October 31, 2000. HMS provided $3,557,881 in working capital at April 30, 2001, whereas the Company used $5,797,500 ($4,547,500 in cash and $1,250,000 in current notes payable) in working capital to complete the acquisition. The Company also received net proceeds from the sale of common stock in the amount of $1,567,500 and recognized an unrealized gain from marketable equity securities in the amount of $368,873. B. RESULTS OF OPERATIONS SALES AND COST OF SALES - During the nine months ended April 30, 2001 sales increased $8,474,495 from $1,243,805 to $9,718,300 from the same year earlier period. The sales increase includes $7,784,623 from HMS during the seven-month period ended April 30, 2001 and $689,872 from the operations of SILVER. SILVER had retail sales increases of $330,009 (87%) and increases of $359,863 (48%) from wholesale sales. Wholesale sales increases are primarily the result of increased marketing efforts and an expanded inventory of products available. Retail sales increases are primarily due to opening two new locations, with new locations accounting for $274,091 of the increase and same store sales accounting for $55,918 of the increase. 14 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - During the nine months ended April 30, 2001, selling, general and administrative expense increased $2,317,894 (381%) to $2,926,608 from $608,914 during the same year earlier period. The increase includes the selling, general and administrative expense of HMS for the seven-month period ended April 30, 2001 in the amount of $1,562,690, which was not included in the year earlier period, and an increase of $755,204 from other operations, principally SILVER. The major components of the increase in SILVER's costs include payroll and commissions of $375,479, advertising of $53,574, rent of $82,032, travel costs of $41,705 and delivery costs of $30,700. INTEREST EXPENSE - Interest expense increased $221,037 from $19,860 to $240,897 during the nine-month period ended April 30, 2001, as compared to the same year earlier period. The increase includes $96,836 from HMS, $116,669 from the HMS acquisition debt, $3,595 in insurance financing and $3,936 from SILVER. INTEREST AND OTHER INCOME - Interest and other income of the Company increased during the nine-month period ended April 30, 2001 from the same year earlier period to $185,120. The increase is attributed to the higher cash balances during the nine-month period ended April 30, 2001, which were primarily due to the sale of common stock through exercise of stock options and warrants and to the interest earned on the note receivable. UNREALIZED GAIN ON MARKETABLE SECURITIES - The Company recognized an unrealized gain in the amount of $368,873 during the nine months ended April 30, 2001, from its investment in marketable equity securities that have been classified as trading securities. The Company did not have an investment in marketable equity securities during the year ended July 31, 2000. INCOME TAXES - The Company recorded income tax expense in the amount of $231,777 during the nine-month period ended April 30, 2001, and recorded a benefit of $7,352 during the year earlier period. The current year expense was $54,000 less than the expected tax would have been as a result of the Company reversing the valuation allowance, which it had previously recorded. 15 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Not applicable. (b) Reports on Form 8-K - None. SIGNATURE 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. SGD HOLDINGS, LTD. Date: June 14, 2001 By: /s/ James G. Gordon ------------------------- James G. Gordon, President and Principal Accounting Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----