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: October 31, 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 October 31, 2001 was 97,899,408.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
1
SGD HOLDINGS, LTD. AND SUBSIDIARIES
Index
Page
No.
Part I. Financial Information
Item 1. Condensed Consolidated Balance Sheet - 3
October 31, 2001
Condensed Consolidated Statements of Operations - 4
Three Months Ended October 31, 2001 and 2000
Condensed Consolidated Statement of Stockholders' Equity - 5
Three Months Ended October 31, 2001
Condensed Consolidated Statements of Cash Flows - 6
Three Months Ended October 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements - 7-13
Three Months Ended October 31, 2001 and 2000
Item 2. Managements Discussion and Analysis of Financial Condition 14-16
and Results of Operations
Part II. Other Information 17
2
SGD HOLDINGS, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
October 31, 2001
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,303,104
Trade accounts receivable 2,293,311
Marketable equity securities 290,500
Inventory 3,963,843
Note receivable 500,000
Due from related party 27,408
Prepaid expenses and other assets 247,857
Deferred income taxes 186,400
--------------------
8,812,423
Property and equipment, net 478,609
Intangible assets 4,047,926
Deferred income taxes 58,400
Marketable equity securities 230,750
Other assets 45,339
--------------------
$ 13,673,447
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt 35,569
Notes payable 128,525
Notes payable due related parties 2,755,153
Accounts payable 1,707,352
Accrued expenses 143,176
Due to shareholder 2,656
--------------------
4,772,431
Long-term debt less current installments
18,898
Stockholders' equity
Common stock, $.0001 par value, 200,000,000 shares authorized,
97,899,408 shares issued and outstanding 9,790
Additional paid-in capital 9,258,204
Retained earnings (deficit) (254,676)
Accumulated other comprehensive income (loss) (131,200)
--------------------
8,882,118
--------------------
$ 13,673,447
====================
See accompanying notes to consolidated financial statements.
3
SGD Holdings, Ltd. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended October 31, 2001 and 2000
(Unaudited)
2001 2000
Sales and revenues $ 3,675,858 $ 2,056,293
Cost of sales 2,499,351 1,337,705
------------------ -----------------
Gross profit 1,176,507 718,588
Selling, general and administrative expense 1,117,906 623,791
------------------ -----------------
Earnings from operations 58,601 94,797
Other income (expense):
Unrealized gain (loss) on marketable securities (366,500) 540,000
Interest expense (5,501) (8,812)
Interest expense - related parties (50,547) (18,992)
Gold consignment fee (32,443) (12,034)
Interest and other income 23,008 132,946
------------------ -----------------
(431,983) 633,108
------------------ -----------------
Net earnings (loss) before income taxes (373,382) 727,905
Income tax expense (benefit) (123,300) 194,300
------------------ -----------------
Net earnings (loss) $ (250,082) $ 533,605
================== =================
Net earnings (loss) per share $ (0.003) $ 0.006
================== =================
Weighted average shares outstanding, in thousands 96,249.6 95,151.8
================== =================
See accompanying notes to consolidated financial statements.
4
SGD Holdings, Ltd. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
Three Months Ended October 31, 2001
(Unaudited)
Accumulated
Other
Common Stock Paid-in Retained Comprehensive
Shares Par Value Capital Earnings Income Total
Balance, August 1, 2001 97,099,408 $ 9,710 $9,098,284 $ (4,594) $ - $9,103,400
Common shares issued as part of
of purchase of Tandori, Inc. 800,000 80 159,920 - 160,000
Comprehensive income:
Unrealized loss on available-for-sale
securities, net - - - - (131,200) (131,200)
Net earnings (loss) - - - (250,082) - (250,082)
---------------------------------------------------------------------------------------------
Balance, October 31, 2001 97,899,408 $ 9,790 $9,258,204 $ (254,676) $ (131,200) $8,882,118
=============================================================================================
See accompanying notes to consolidated financial statements.
5
SGD HOLDINGS, LTD. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
Three Months Ended October 31, 2001 and 2000
(Unaudited)
2001 2000
Cash flows used in operating activities
Net earnings (loss) $ (250,082) $ 533,605
Adjustments to reconcile net earnings to net cash used
in operating activities:
Depreciation and amortization 28,488 36,352
Deferred income taxes (123,300) 194,300
Purchase of marketable equity securities - (300,000)
Unrealized loss (gain) on marketable equity securities 366,500 (540,000)
Deferred revenue realized (20,850) -
Changes in assets and liabilities:
Accounts receivable (1,130,799) (749,391)
Inventory (927,765) (1,476,954)
Other assets (45,145) (138,586)
Accounts payable and accrued expenses 1,236,576 908,969
----------------------- ---------------------
Net cash provided by operating activities (866,377) (1,531,705)
----------------------- ---------------------
Cash flows used in investing activities
Capital expenditures (67,812) (7,855)
Acquisitions, net of cash acquired (299,650) (2,922,872)
----------------------- ---------------------
Net cash used in investing activities (367,462) (2,930,727)
----------------------- ---------------------
Cash flows provided by financing activities
Proceeds from sales of common stock - 1,567,500
Loan proceeds - 478,898
Repayment of notes payable and long-term debt (12,225) (4,439)
Loan proceeds - related party 775,000 -
Payment of related party notes (625,000) -
Increase (decrease) in amount due stockholder (730) 1,806
----------------------- ---------------------
Net cash provided by financing activities 137,045 2,043,765
----------------------- ---------------------
Net decrease in cash and cash equivalents (1,096,794) (2,418,667)
Cash and cash equivalents, beginning of period 2,399,898 5,969,201
----------------------- ---------------------
Cash and cash equivalents, end of period $1,303,104 $ 3,550,534
======================= =====================
See accompanying notes to consolidated financial statements.
6
SGD HOLDINGS, LTD.
Notes to Condensed Consolidated Financial Statements
Three Months Ended October 31, 2001 and 2000
1. Organization and Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts
of SGD Holdings, Ltd. ("SGD") and its wholly owned
subsidiaries HMS Jewelry Company, Inc. ("HMS"), Con-Tex Silver
Imports, Inc. ("Silver"), Jewelry Solutions & Commerce, Inc.
("Jewelry") and Tandori, Inc. ("Tandori") (collectively
referred to as the "Company"). All material intercompany
accounts and transactions have been eliminated.
(b) Organization
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.
Goldonline International, Inc. (formerly Transun International
Airways, Inc.) changed its name to SGD Holdings, Ltd. on January
24, 2001.
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. Tandori was incorporated on November
9, 1998 in Nevada.
On June 10, 1999, SGD acquired all of the issued and outstanding
common stock of Silver and Jewelry. For accounting purposes, the
acquisitions were treated as the acquisition of Silver and Jewelry
by SGD with Silver as the acquiror (reverse acquisition). The
historical financial statements prior to June 10, 1999 are those
of Silver.
Effective October 1, 2000, the Company acquired HMS in a
transaction treated as a purchase for accounting purposes. The
results of operations of HMS are included in the consolidated
financial statements commencing October 1, 2000.
Effective September 1, 2001, the Company acquired Tandori in a
transaction treated as a purchase for accounting purposes. The
results of operations of Tandori are included in the consolidated
financial statements commencing September 1, 2001.
(c) 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 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, satellite locations in Dallas,
Texas and from jewelry shows at locations throughout the south
central United States. Jewelry now operates as an e-commerce
solutions provider to the Company's clients by offering web
hosting services and back office jewelry fulfillment services.
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.
7
Tandori installs and sells equipment under the LifeStyle
Technologies(TM) name in both commercial and residential buildings
for security, audio, video, lighting, and other current technology
applications.
(d) 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.
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, 2001, which
is included in the Company's Form 10-KSB dated July 31, 2001 and
filed November 13, 2001. 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.
(e) Recent accounting pronouncements - goodwill
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141 (SFAS No. 141)
"Business Combinations," and Statement of Financial Accounting
Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets." SFAS No. 141 addresses financial accounting and
reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and FASB Statement No. 38,
"Accounting for Preacquisition Contingencies of Purchased
Enterprises." All business combinations in the scope of SFAS No.
141 are to be accounted for using one method, the purchase
method. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001 or for which the date
of acquisition is July 1, 2001, or later. The Company adopted
this Statement on August 1, 2001 with no effect on the results of
operations or financial position.
SFAS No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supercedes APB
Opinion No. 17, "Intangible Assets." It addresses how intangible
assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition.
This Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. The provisions of this
Statement are required to be applied starting with fiscal years
beginning after December 15, 2001. Early application is permitted
for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not
previously been issued. This Statement is required to be applied
at the beginning of an entity's fiscal year and to be applied to
all goodwill and other intangible assets recognized in its
financial statements at that date. Impairment losses for goodwill
and indefinite-lived intangible assets that arise due to the
initial application of this Statement (resulting from a
transitional impairment test) are to be reported as resulting from
a change in accounting principle. The Company has elected to adopt
this Statement effective August 1, 2001. The Company did not
record an impairment loss as a result of the initial application
of this Statement. Goodwill amortization expense during the three
months ended October 31, 2000, would have been $22,353 less had
the Statement been in effect during that period.
8
2. Acquisition of Tandori, Inc.
Effective September 1, 2001, the Company acquired the LifeStyle
Technologies(TM) franchise for Raleigh, North Carolina, Houston, Texas,
Wilmington, North Carolina and Greensboro, North Carolina, in exchange
for $300,000 in cash to be paid to the franchisor. In addition, the
Company issued 800,000 shares of its common stock, valued at $160,000,
based upon the quoted price on the date of the transfer, to certain
principals of the new operation.
The acquisition was accounted for using the purchase method of
accounting and, accordingly, the statements of consolidated income
include the results of Tandori beginning September 1, 2001. 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.
A summary of the assets acquired and liabilities assumed in the
acquisition follows:
Estimated fair values:
Assets acquired $ 163,743
Liabilities assumed (150,718)
Franchise 446,975
-------------
Purchase price 460,000
Less cash acquired (350)
Less common stock issued (160,000)
-------------
Net cash paid $ 299,650
=============
The franchise located at Raleigh, North Carolina had been operated by
the franchisor since its inception in January 2001. During the eight
months ended August 31, 2001, this location had unaudited sales of
$411,600 and an operating loss of $200,800.
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 $6,600
during each of the three-month periods ended October 31, 2001 and 2000.
The Company had received loans from its principal shareholder. The
balance owed was $2,656 at October 31, 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 $24,225 during the three-month period ended
October 31, 2001 and $8,075 during the three-month period ended October
31, 2000 (owned by the Company for only one month during prior year
quarter). HMS Leasing Company, LLC is owned by the president of HMS.
HMS had advances to its president and companies controlled by him at
October 31, 2001 in the amount of $27,408.
Related party interest expense amounted to $50,547 and $18,992 for the
three-month periods ended October 31, 2001 and 2000, respectively. See
Note 8 for notes payable due related parties.
9
4. Marketable Equity Securities
The following summarizes the Company's investments in securities at
October 31, 2001:
Trading securities:
Cost $ 417,027
Unrealized gain (loss) (126,527)
------------
Fair value $ 290,500
===========
Available-for-sale securities:
Cost $ 429,550
Unrealized gain (loss) (198,800)
------------
Fair value $ 230,750
===========
The Company recognized an unrealized loss from trading securities in
the amount of $366,500 during the three months ended October 31, 2001
and recognized an unrealized gain from trading securities during the
three months ended October 31, 2000 in the amount of $540,000.
Unrealized losses from available-for-sale securities included as a
component of equity for the three months ended October 31, 2001 were as
follows:
Unrealized losses $ (198,800)
Deferred income taxes 67,600
-------------
Accumulated other comprehensive income (loss) $ (131,200)
==============
5. Inventories and gold consignment agreement
Inventories at October 31, 2001 consist of:
Gold jewelry $ 4,623,031
Silver and other jewelry 2,068,065
Electronic equipment and supplies 32,651
-------------
6,723,747
Less consigned gold (2,759,904)
--------------
Net inventories $ 3,963,843
=============
HMS has a gold consignment agreement with a gold lender. Under the
terms of the agreement, HMS is entitled to lease the lesser of an
aggregate amount of 13,200 ounces, or an aggregate consigned gold
value not to exceed $3,450,000. Title to such consigned gold remains
with the gold lender until HMS purchases the gold. However, during the
period of consignment, the entire risk of loss, damage or destruction
of the gold is borne by HMS. The purchase price per ounce is based on
the daily Second London Gold Fix. HMS pays the gold consignor a
consignment fee based upon the dollar value of gold ounces
outstanding, as defined in the agreement. At July 31, 2001, HMS had
9,901 ounces of gold on consignment with a market value of $2,759,904.
The consignment agreement contains certain restrictive covenants
relating to maximum usage, net worth, working capital, and other
financial ratios, and the agreement requires HMS to own a specific
amount of gold at all times. At October 31, 2001, HMS was in
compliance with all of the covenants in the consignment agreement.
Consigned gold is not included in inventory, and there is no related
liability recorded. As a result of these consignment
10
arrangements, HMS is able to shift a substantial portion of the risk
of market fluctuations in the price of gold to the gold lender, since
HMS does not purchase gold from the gold lender until receipt of a
purchase order from, or shipment of jewelry to, its customers.
The gold lender has also provided a line of credit to HMS in the
amount of $1,500,000 that is due on demand, including interest at the
lender's prime rate plus 3/4%. HMS does not have any advances on this
line of credit at October 31, 2001.
6. Long-term debt and notes payable
Notes payable at October 31, 2001 consists of the following:
Note payable to bank with interest at 9% payable on
demand or January 1, 2002 if no demand is made; accrued
interest payable monthly; collateralized by all assets of
Silver and guaranteed by the principal shareholder of the
Company $ 128,525
=========
7. Long-term debt
Long-term debt at October 31, 2001 consists of the following:
Notes payable to companies in monthly installments
aggregating $1,605, including interest at 10.46% to 11.6%;
collateralized by transportation equipment $ 54,467
Current installments of long-term debt and notes payable 35,569
-------
Long-term debt less current installments $ 18,898
=========
8. Notes payable due related parties
Notes payable due related parties at October 31, 2001 consist of the
following:
Note payable to the mother of the president of HMS; due on
February 15, 2002 with interest at the Paine Webber margin
interest rate, payable monthly $ 55,153
Notes payable to the president of HMS Jewelry Company, Inc.,
due $625,000 on April 15,2002 and $1,250,000 on October 15,
2002, with interest payable monthly at 8%, collateralized by
the stock of HMS Jewelry Company, Inc.
1,875,000
Notes payable to the brother of the principal share- holder
of the Company due on demand with interest at 12%, unsecured 775,000
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
------------
$ 2,755,153
============
11
9. Income Taxes
Federal income tax expense (benefit) for the three months ended October
31, 2001 and 2000 consists of:
2001 2000
Federal income taxes $ - $ -
Deferred income tax expense (benefit) (123,300) 194,300
--------- -------
$ (123,300) $ 194,300
======== =======
For the three months ended October 31, 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) $ (126,900) $ 247,500
Change in valuation allowance - (54,000)
Other 3,600 800
----------- ----------
$ (123,300) $ 194,300
=========== ==========
The deferred income tax assets and liabilities at October 31, 2001 are
comprised of the following:
Current Noncurrent
Net operating loss carryforwards $ 117,800 $ -
Allowance for bad debts 25,600 -
Asset basis - (9,200)
Unrealized loss (gain) on trading securities 43,000 67,600
-------- -------
Net deferred income tax assets (liabilities) $ 186,400 $ 58,400
======= =========
10. 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 three months ended October 31, 2001.
Options Options Outstanding
Available Weighted Average
For Grant Options Exercise Price
Balance, July 31, 2001 9,492,000 400,000 $ 1.00
--------- ----------- ------------
Granted - - -
Exercised - - -
Cancelled - - -
-------- -------- ------------
Balance, October 31, 2001 9,492,000 400,000 $ 1.00
========= ======= ============
Stock options are anti-dilutive at October 31, 2001 and accordingly are
not included in the earnings per share calculation.
12
11. Segment information
The Company reports segments based upon the management approach, which
designates the internal reporting that is used by management for making
operating decisions and assessing performance. For the three-month
period ended October 31, 2001, the Company operated in the following
segments (amounts in thousands):
Corporate
Gold Silver LifeStyle and other Consolidated
Revenues:
External customers $ 2,887 $ 558 $ 231 $ - $ 3,676
Intersegment $ 80 - - - $ 80
Earnings (loss)
from operations $ 312 $ (183) $ (8) $ (62) $ 59
Unrealized (loss) on
marketable securities - - - (367) (367)
Other, net (56) (5) - (4) (65)
Deferred income tax
(expense) benefit (89) 62 3 147 123
----------- ----------- --------- ---------- -----------
Net earnings (loss) $ 167 $ (126) $ (5) $ (286) $ (250)
========== =========== ========= ========== ===========
Assets $ 8,808 $ 2,770 $ 813 $ 1,292 $ 13,683
========== =========== ========= ========== ===========
The Gold segment represents the wholesale operations of HMS. The Silver
segment represents the wholesale and retail operations of Silver, which
is primarily silver jewelry sales. The LifeStyle segment represents the
operations of Tandori.
Corporate assets consist primarily of marketable securities and notes
receivable.
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.
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.
Effective September 1, 2001, the Company acquired the LifeStyle
Technologies(TM) franchise for Raleigh, North Carolina, Houston, Texas,
Wilmington, North Carolina and Greensboro, North Carolina, in exchange
for $300,000 in cash to be paid to the franchisor. In addition, the
Company issued 800,000 shares of its common stock, valued at $160,000,
based upon the quoted price on the date of the transfer, to certain
principals of the new operation.
A. LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $5,799,546 at July 31,
2001 to $4,039,992 at October 31, 2001. The decline in working capital
of $1,759,554 includes $1,250,000 of debt to related parties which was
non-current at July 31, 2001. The remaining net decline includes the
$300,000 in working capital used in the acquisition of Tandori and the
results of operations for the period.
14
B. RESULTS OF OPERATIONS
SALES AND COST OF SALES - During the three months ended October 31,
2001 sales increased $1,619,565 from $2,056,293 to $3,675,858 from the
same year earlier period. The Company's sales may be summarized as
follows for the three-month periods ended October 31, 2001 and 2000:
2001 2000
Gold $ 2,967,347 $ 1,406,366
Silver:
Wholesale 376,812 484,161
Retail 181,295 149,544
------------- --------------
558,107 633,705
Tandori 230,535 -
Other - 16,222
------------ --------------
3,755,989 2,056,293
Intersegment sales (80,131) -
------------- -------------
$ 3,675,858 $ 2,056,293
============= ==============
Gold sales in the prior year period included the month of October only,
since that was the only month HMS was owned by the Company. On a pro
forma basis, Gold sales during the three-month period ended October 31,
2000 were $3,352,759. Accordingly, Gold sales decreased 11.5% from the
year earlier comparable period. Until September 11, 2001, Gold sales
were ahead of the comparable prior year period. The impact of the
September 11 terrorist attacks resulted in substantially reduced sales
for the remainder of the quarter.
Silver wholesale sales declined $107,349 (22.2%) from the year earlier
period. Total Silver retail sales increased $31,751 (21.2%) from the
year earlier period. However, the increase in Silver retail sales
includes $68,353 in new store sales less a decline in existing store
sales of $36,602 (24.5%).
Gold sales are typically one of the first things to decline when the
economy is going down and one of the last things to improve when the
economy is going back up. Silver sales are generally subject to similar
constraints, although to a lesser degree, since silver jewelry is less
expensive than gold.
The Company started expanded silver jewelry sales at the end of October
2001 through their new catalog, which has added 1,600 new customers as
of December 15, 2001. The Company is trying to broaden its customer
base by developing new catalogues with new product lines in an effort
to improve sales and counteract the impact of the slumping economy.
During the three months ended October 31, 2001, the Company's gross
profit margin decreased to 32% from 34.9% in the year earlier period.
Gold sales represent 80.7% of sales during the three-month period ended
October 31, 2001 as compared to 68.4% during the prior year period.
Gold sales realized a gross profit margin of 27.4% during the
three-month period ended October 31, 2001 while Silver's gross profit
margin was 51.2% and Tandori's 40.3% during the same period.
15
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - During the three months
ended October 31, 2001, selling, general and administrative expense
increased $494,115 (79.2%) from the same year earlier period. The
following table summarizes the Company's selling, general and
administrative expenses for the three-month periods ended October 31,
2001 and 2000:
2001 2000
Gold $ 500,392 $ 244,272
Silver 468,458 371,848
Tandori 100,415 -
Corporate and other 48,641 7,671
------------- --------------
Total $ 1,117,906 $ 623,791
============= ==============
Gold operations are comparing three months in the current year period
to only one month in the prior year period. A comparison of the current
quarter to the three months ended October 31, 2000 results in a
decrease of $162,186 (24.5%) in Gold's selling, general and
administrative expenses. The decline is primarily the result of the
elimination of legal and professional costs from the acquisition in the
prior year of $40,832, a reduction of $78,858 in rent and a net
reduction in other costs of $42,496.
Silver's selling, general and administrative costs increased $96,610 to
$468,458 during the three-month period ended October 31, 2001 as
compared to the year earlier amount of $371,848. The $96,610 increase
includes $29,543 from one retail location which was not open during the
prior year. Total labor costs increased $121,420 during the three-month
period ended October 31, 2001 as compared to the year earlier period,
including $16,607 from the new retail location. The labor cost increase
is due to increases necessary to transition from a principally manual
inventory system to a later version of the same software utilized in
the Gold operations; increases necessary to publish a new catalog and
add a large number of new jewelry to inventory; and increases to set-up
and establish new markets for the Company's products.
INTEREST EXPENSE - Interest expense, related party and other, increased
$28,244 (101.6%) during the three-month period ended October 31, 2001,
as compared to the same year earlier period. The increase is primarily
the result of the new related party debt from the acquisition of HMS in
October 2000.
INTEREST AND OTHER INCOME - Interest and other income of the Company
decreased during the three-month period ended October 31, 2001 from the
same year earlier period to $23,008 from $132,946. The decrease is
attributed to the higher cash balances during the quarter ended October
31, 2000, which were due to the sale of common stock through exercise
of stock options and warrants.
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES - The Company
recognized an unrealized loss in the amount of $366,500 during the
three months ended October 31, 2001, from its investment in marketable
equity securities that have been classified as trading securities.
During the year earlier period, the Company recognized an unrealized
gain in the amount of $540,000.
INCOME TAXES - The Company recorded income tax benefit in the amount of
$123,300 during the three month period ended October 31, 2001 and
income tax expense in the amount of $194,300 during the year earlier
period. The prior 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.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - Not applicable
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: December 21, 2001 By: /s/ James G. Gordon
-------------------------
James G. Gordon, President and
Principal Accounting Officer
17