SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
Commission File No. 333-100137
SGC HOLDINGS, INC.
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(Name of small business issuer in its charter)
Nevada 86-1047317
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(State of other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
15911 East Sunburst Drive, Fountain Hills, AZ 85268
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (480) 837-6029
Securities issued pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Act") during the preceding
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). [ ]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average
bid and asked price of such common equity, as of the last
business day of the registrant's most recently completed second
fiscal quarter: None
State the number of shares outstanding of each of the issuer's
class of common equity, as of the latest practicable date:
2,720,000 (as of 3/11/04)
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2)
Any proxy or information statement; and (3) Any prospectus filed
pursuant to Rule 424(b) or (c) under the Securities Act of 1933.
None.
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PART 1
Item 1. Description of Business
A. Business Development and Summary
Headquartered in Fountain Hills, Arizona, SGC
Holdings, Inc. ("the Company") was organized by the filing
of articles of incorporation with the Secretary of State of
the State of Nevada on December 5, 2001. SGC Holdings, Inc.
plans to: (1) open a concept restaurant under the name "St.
George Clipper" and (2) expand the "St. George Clipper"
concept into a restaurant chain. Christos E. Loukas, SGC
Holdings, Inc.'s founder and President, previously owned
and operated a diner named "St. George Clipper" in Staten
Island, New York. The original St. George Clipper, which
Mr. Loukas sold in 1994 after 25 years of owning and
operating it, now serves as the prototype for SGC Holdings,
Inc.'s restaurant concept.
SGC Holdings, Inc.'s business activities have been
limited to date. SGC Holdings, Inc. was formed on December
5th, 2001 for the purpose of raising capital and opening
St. George Clipper restaurants. SGC Holdings, Inc. wanted
to raise capital but was unable to find investors until
July 2002. SGC Holdings, Inc. closed a private offering of
common stock in August 2002. In the offering, SGC Holdings,
Inc. issued 720,000 shares of its $0.001 par value common
stock for cash at $0.05 per share to 36 shareholders for
total consideration of $36,000.00. The intended uses of
proceeds include a feasibility and demographics study;
kitchen and architectural plans; manuals, handbooks and
recipes; and working capital.
On October 20, 2003, the Company's Board of Directors
authorized the formation of a wholly owned subsidiary to be
named "St. George Clipper One, Inc." (the "Subsidiary").
The Subsidiary was incorporated under the laws of the State
of Nevada on October 27, 2003. Christos E. Loukas is
President, Secretary, Treasurer and sole Director of the
Subsidiary. The purpose of the Subsidiary is to serve as
the vehicle to fund and open the first restaurant for the
Company.
St. George Clipper One, Inc., a wholly owned
subsidiary, is currently in the process of locating a space
to lease, hiring an architect for kitchen and restaurant
design concepts, and procuring recipes and equipment.
As of the date of this Annual Report, SGC Holdings,
Inc. is a company without revenue or substantive
operations, with minimal assets, and its primary source of
capital to date has been the sale of its own securities.
B. Business of Issuer
(1) Principal Services and Principal Markets
Principal Services
The concept of a St. George Clipper restaurant focuses
primarily on a nautical theme expressed in a design
reminiscent of a sailing ship. SGC Holdings, Inc. also
believes that long operating hours from breakfast to dinner
and signature offerings, such as Western ribs, may augment
the concept and brand image.
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St. George Clipper will be a sit-down restaurant with
table service. It will have a salad bar and a dessert bar.
The salad bar will include both hot and cold items and have
dual usage for special events or holidays.
SGC Holdings, Inc. plans to provide a unique
combination of excellent food at value prices with a fun
and entertaining atmosphere. In a highly competitive casual-
dining market, SGC Holdings, Inc. plans to differentiate
its restaurants by offering a diverse menu including
Italian, Greek, Mexican, and American dishes. Menu items
will include Western beef baby-back ribs, chicken, seafood,
appetizers, salads, sandwiches, burgers, eggs and omelets,
pancakes, French toast, a menu for children age 12 and
under, and specialty drinks. SGC Holdings, Inc.'s primary
goal is to serve nothing but the highest quality food at
low prices in a clean, fun environment.
The following is a list of features that, in SGC
Holdings, Inc.'s view, will distinguish its concept from
other casual dining restaurants:
* 1/3-lb. Clipper Specialty Beefburger Lunch. This
special treat will greet weekday lunch guests from 11:00
a.m. until 2:30 p.m. The Clipper Specialty Beefburgers will
be ground fresh daily and seasoned with a custom blend of
spices designed to enhance the taste. To complement the
sandwiches, SGC Holdings, Inc. will have a "sandwich
fixings" bar with sliced tomatoes, onions, chopped lettuce,
pickles, relish, and other sandwich condiments.
* Breakfast. Depending upon location, SGC Holdings, Inc.
will serve a full breakfast, including fresh fruits in-
season, cold juices, hot breakfast items, and cook-to-order
omelets from a display grill.
* Guided Tours. SGC Holdings, Inc. will offer every new
guest a guided tour explaining the restaurant's concept.
SGC Holdings, Inc. believes that by doing this it can
exceed the guest's perception of service.
* Dinner All Day on Saturdays and Sundays. SGC Holdings,
Inc. will feature the dinner menu all day on Saturday and
Sunday. Since both days are busy all day long, SGC
Holdings, Inc. restaurants will not shut down at midday.
* Reduced Dinner Pricing. On Monday through Thursday the
dinner price will be slightly lower than on Friday through
Sunday. On weekends, SGC Holdings, Inc. will add more
expensive items to the menu, including fried shrimp and
steaks.
* Competitive Lunch Pricing. SGC Holdings, Inc. plans to
keep lunch prices as low as possible to compete with fast-
food restaurants. At lunch, SGC Holdings, Inc. will offer
its customers "packaged" menu items, including a
traditional sandwich with fries and a drink, but also with
a salad, a dessert and a selection of hot food items.
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Planned Facilities
SGC Holdings, Inc. restaurants will range in size from
7,000-10,000 square feet and will seat from 300 to 400
guests each. SGC Holdings, Inc. will equip the restaurants
with state-of-the- art sound systems connected to old-
fashioned jukeboxes, which the customers will be able to
use for free to select their favorite Country and Western
songs. Every restaurant will be built-out to SGC Holdings,
Inc.'s general prototype specifications of such modules as
the bar area, salad bar, dessert bar, etc.
SGC Holdings, Inc. will base the site and building
selection on the following criteria:
* Minimum community size of 40,000 people within five miles
* High visibility
* Easy access to parking lot with a minimum of 120 parking spaces
* Mid - to low-cost land not to exceed a total of $600,000
* Heavy blue-collar worker makeup in the community
* No overabundance of competition in the trade area
SGC Holdings, Inc. is currently reviewing several
locations, which it is considering for a lease. Until the
first location is identified, it is extremely difficult to
delineate the time frame it will take to open the first
restaurant and begin operations. SGC Holdings, Inc.
believes, once the location is identified and additional
capital is raised, it will take four to five months to
complete the build-out and begin operations. The first
location is expected to be in Fountain Hills, Scottsdale,
or Phoenix in Maricopa County, Arizona. Once SGC Holdings,
Inc. identifies a suitable building for lease, it will seek
a contractor and an architect to design and build out the
space. No arrangements with a contractor or an architect
are in place as of March 11, 2004.
SGC Holdings, Inc. considers the restaurant site
selection process critical to its long-term success and
plans to devote significant efforts to the investigation of
new locations utilizing a variety of techniques. The site
selection process will include the evaluation of trade area
demographics, such as target population density and
household income levels; physical site characteristics,
such as visibility, accessibility and traffic volume;
relative proximity to activity centers, such as shopping
centers, hotel and motel complexes and office buildings;
and supply and demand trends, such as proposed
infrastructure improvements, new developments, and
potential competition.
(2) Distribution Methods of the Products or Services
Marketing and Advertising
SGC Holdings, Inc. believes that the best form of
advertising is "word-of-mouth." In addition to word-of-
mouth advertising, SGC Holdings, Inc. plans to employ a
combination of local media and local store marketing
programs at each location. In particular, SGC Holdings,
Inc. will rely on the following (in order of decreasing
feasibility):
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1. Visual Media, including:
* Grand opening advertising blitz involving banner and
road-sign advertising on site;
* Direct mail flyers (SGC Holdings, Inc. envisions a
stand-alone folded piece measuring 6" by 7.5" in size,
produced in full color on heavy-weight paper) containing
pictures of the interior of the restaurant, prices, hours
of operation, theme night announcements, and a locator map;
* Table toppers explaining the concept, announcing theme
nights, advertising gift certificates, announcing job
openings, and possibly mentioning franchise opportunities;
* Brochures and handouts listing special features and
advertising service options for large parties, banquets, or
buses;
* Wall posters; and
* Outdoor marquee message changed weekly.
2. Promotional Events, including:
* In-store tours offered to every new customer;
* VIP parties, including a VIP lunch and a VIP dinner,
which will serve as a way to introduce SGC Holdings, Inc.
to the community just prior to the grand opening at each
location (SGC Holdings, Inc. will run the lunch on a
Monday, followed by the dinner on a Tuesday, with the Grand
Opening on a Wednesday);
* Yearly birthday parties for loyal customers;
* Customer raffles for Western apparel or SGC Holdings,
Inc. artifacts; and
* Line dance contest with nominal prizes such as St.
George Clipper T-shirts.
3. Local Mass Media, including:
* Radio campaigns, which may include: (a) short and
catchy radio ads; (b) live remotes on restaurant parking
lots; (c) sponsored radio call-in contests with free meal
coupons as the prize; (d) live "on-the-air" presentations
of food products to disk jockeys;
* Newspaper campaigns; and
* Local cable TV.
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Community Support
To enhance local awareness and promote a positive
community image of SGC Holdings, Inc., the Company will run
periodic Local Store Marketing (LSM) community
campaigns. These low-budget campaigns will promote
community support and awareness of its facilities.
SGC Holdings, Inc. plans to run approximately two or three
LSM campaigns per marketing quarter. Examples of possible
LSM campaigns include a charity car wash (free car wash
while you dine) and a school program (perfect attendance or
honor roll students would receive a free meal).
SGC Holdings, Inc. will also consider running its VIP
parties as local charity events. The Company may choose a
local charity to be the beneficiary of the VIP parties, at
which the guests will eat for a small contribution to the
hosting charity.
Pricing Strategy
SGC Holdings, Inc. plans to offer a moderately priced
menu. While SGC Holdings, Inc. is not striving to be the
lowest priced restaurant around, the Company is aiming to
be the value leader. Presently, SGC Holdings, Inc. has no
plans for coupon/discounting wars nor the birthday or
frequent buyer clubs.
(3) Status of Any Announced New Product or Service
None.
(4) Competitive Business Conditions
SGC Holdings, Inc. plans to enter the casual dining
market. The restaurant business in general and the casual
dining segment in particular are highly competitive with
respect to price, service, restaurant location and food
quality, and are often affected by changes in consumer
tastes, economic conditions, population and traffic
patterns. SGC Holdings, Inc. will compete within each
market with locally owned restaurants as well as national
and regional restaurant chains. Examples of major
competitors include such national restaurant chain
operators as Applebee's, Darden Restaurants, and Brinker
International.
Although SGC Holdings, Inc. will compete mainly
against casual dining restaurants and family value
restaurants, large fast-food chains, such as Burger King,
McDonald's, and Taco Bell, may also present a competitive
challenge.
SGC Holdings, Inc. plans to capture and retain its
target customer groups by offering an attractive
value/price relationship.
(5) Sources and Availability of Raw Materials
The ability of SGC Holdings, Inc. to ensure a
consistent supply of high-quality food and supplies at
competitive prices to its restaurants will depend upon
procurement from reliable sources. Given a large number of
competitive suppliers for the industry, SGC Holdings, Inc.
does not expect that it will disproportionately depend on
one or a group of suppliers. SGC Holdings, Inc. believes
that most food products are available, or can be made
available upon short notice, from a variety of qualified
suppliers. Because of the relatively rapid turnover of
perishable food products, inventories in the restaurants
have a modest aggregate dollar value in relation to
revenue.
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SGC Holdings, Inc. does not anticipate a significant
overall impact from inflation. As operating expenses
increase, the Company plans, to the extent permitted by
competition, to recover increased costs by increasing menu
prices, by reviewing, then implementing, alternative
products or processes, or by implementing other cost-
reduction procedures. There can be no assurance, however,
that SGC Holdings, Inc. will be able to recover increases
in operating expenses due to inflation in this manner.
As of the date of this Annual Report, SGC Holdings,
Inc. has not entered into any agreements with suppliers of
food products or other materials.
(6) Customers
SGC Holdings, Inc. believes that, with more money in
their pockets than time on their hands, a growing number of
working adults today are dining at their favorite casual
restaurants. For most clients, eating out at family/casual
dining restaurants appears to be primarily a matter of
convenience: fewer and fewer households have the time to
cook at home. That phenomenon makes it critical for
restaurants to offer a wide range of menu options. In fact,
menu choices, along with management and
cleanliness/hygiene, are among the most vital issues in
this category, meaning they are the issues most likely to
be discussed among consumers.
SGC Holdings, Inc. intends to capitalize on the
perceived demand for casual restaurants with a widely
diversified menu. SGC Holdings, Inc. plans to be the first
mover in the "Italian, Greek, Mexican and American" concept
with the goal of eventually becoming a national player.
SGC Holdings, Inc. has defined its target market
segments by the following factors:
* Demographics
* Income
* Occupation
Depending on the demographic, income, and occupation
profile of a selected location, SGC Holdings, Inc. will
structure its menu, operating hours, and marketing efforts
to maximize its appeal in a particular area.
As of the date of this Annual Report, SGC Holdings,
Inc. has not conducted any marketing studies. However, on
April 1, 2003, SGC Holdings, Inc. contracted GEC
Consultants, an independent consulting firm, to perform a
feasibility study, which will include demographics. The
main part of the study addressing financial requirements,
break-even analysis, and projections was completed in June
2003. As SGC Holdings, Inc. has not yet selected its first
location, no specific demographic studies are ready as of
the date of this Annual Report. SGC Holdings, Inc. is
currently reviewing a few locations and is trying to
identify acceptable lease terms.
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Intellectual Property
SGC Holdings, Inc. enters a highly competitive market
with low barriers to entry. To a large extent the success
of SGC Holdings, Inc. will depend on the Company's ability
to build a strong brand based on the "St. George Clipper"
name. Presently, the "St. George Clipper" name is not
protected by a trademark or a similar legal right.
(7) Need for Government Approval
Each restaurant will be subject to regulation by
federal agencies and to licensing and regulation by state
and local health, sanitation, safety, fire, alcoholic
control boards and other departments. Difficulties or
failures in obtaining any required licensing or approval
could result in delays or cancellations in the opening of
new restaurants.
SGC Holdings, Inc. will also be subject to the Fair
Labor Standards Act and various state laws governing such
matters as minimum wages, overtime and other working
conditions. A significant number of SGC Holdings, Inc.'s
employees will be paid at rates related to the federal and
state minimum wage and increases in the minimum wage will
increase SGC Holdings, Inc.'s labor costs.
In addition, various proposals which would require
employers to provide health insurance for all of their
employees are being considered from time to time in the
U.S. Congress and various states. The imposition of any
such requirement would have a material adverse impact on
the planned operations of SGC Holdings, Inc. and the
financial condition of the fast-food restaurant industry.
SGC Holdings, Inc. will be subject to certain
guidelines under the Americans with Disabilities Act of
1990 (ADA), and various state codes and regulations, which
require restaurants to provide full and equal access to
persons with physical disabilities. SGC Holdings, Inc. will
also be subject to various evolving federal, state and
local environmental laws governing, among other things,
emissions to the air, discharge to waters and the
generation, handling, storage, transportation, treatment
and disposal of hazardous and non-hazardous substances and
wastes.
(8) Effect of Existing or Probable Government Regulations
Each of SGC Holdings, Inc.'s restaurants will be
subject to licensing and regulation by alcoholic beverage
control, health, environmental, labor relations,
sanitation, building, zoning, safety, fire and other
agencies in the state and/or municipality in which the
restaurant is located. Although SGC Holdings, Inc. does not
anticipate to encounter any difficulties or failures in
obtaining the required licenses or approvals that could
delay or prevent the opening of a new restaurant, there can
be no assurance that SGC Holdings, Inc. will not experience
material difficulties or failures that could delay the
opening of restaurants in the future.
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Expenditures on Research and Development
None.
(9) Environmental Issues
Not applicable.
(10) Employees
SGC Holdings, Inc. presently has no employees. The
management may add five to 35 employees over the next
twelve (12) months period.
C. Reports to Security Holders
(1) SGC Holdings, Inc. will furnish its shareholders with
annual financial reports certified by SGC Holdings, Inc.'s
independent accountants, and may, in SGC Holdings, Inc.'s
discretion, furnish unaudited quarterly financial reports.
(2) SGC Holdings, Inc. will file periodic and current
reports with the Securities and Exchange Commission as
required to maintain the fully reporting status.
(3) The public may read and copy any materials SGC
Holdings, Inc. files with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, D.C.
20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-
SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and
other information regarding issuers that file
electronically with the SEC. The address of that site
(http://www.sec.gov).
Risk Factors
1. Auditors Expressed Substantial Doubt About SGC
Holdings, Inc.'s Ability to Continue as a Going Concern.
SGC Holdings, Inc. has yet to commence planned
operations. As of the date of this Annual Report, SGC
Holdings, Inc. has had only limited start-up operations and
generated no revenue. Taking these facts into account, the
independent auditors of SGC Holdings, Inc. have expressed
substantial doubt about SGC Holdings, Inc.'s ability to
continue as a going concern.
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2. SGC Holdings, Inc. Will Not Be Able to Continue in
Business Without Additional Funding, Which May Be
Unavailable.
SGC Holdings, Inc. has limited capital resources. SGC
Holdings, Inc. needs $2 million to finance its first
restaurant but, as of yet, has no funding sources available
for the $2 million. As part of its funding efforts, the
Company has prepared a Private Placement Memorandum dated
November 26, 2003 under the terms of which the Company
intends to offer, on a "best-efforts" basis (the
"Offering"), a minimum of $1,250,000 and a maximum of
$1,750,000 of the Company's 7% Convertible Debentures due
February 1, 2009 ("Convertible Debentures") in
denominations of $1,000 with a minimum investment of
$25,000. In addition, on December 3, 2003, the Company
executed an Escrow Agreement under the terms of which the
Company engaged an Escrow Agent to hold any funds received
through the Offering along with the underlying offered
securities until such time as all prerequisites and
conditions to the final disbursements have occurred and to
then facilitate the final disbursements to the Company and
the Offering investors. The Company has not secured
commitments to purchase the securities, and there is no
assurance that all or any of the securities when offered
will be sold.
SGC Holdings, Inc. currently does not have enough cash
to satisfy the opening of its first restaurant. The
intention is to raise additional money and open a
restaurant. If such funding is not secured, the Company
will not be able to conduct business operations. In the
event SGC Holdings, Inc. is unable to raise sufficient
funds, it will go out of business and will be forced to
liquidate. A possibility of such outcome presents a risk of
complete loss of investment in SGC Holdings, Inc.'s common
stock.
3. SGC Holdings, Inc.'s Restaurant Might Not Prove Profitable.
As the restaurant business is highly risky, yielding a
historically high failure rate, SGC Holdings, Inc.'s
restaurant might not prove profitable.
4. Control by Current Management May Impede the Ability of
Minority Shareholders to Exercise Control over SGC Holdings, Inc.
The current President and CEO beneficially owns
approximately 74% of the outstanding common stock. As a
result, by virtue of his control of a majority of the
voting shares, this stockholder has a controlling influence
over all matters requiring stockholder approval, including,
among other things, the election of Directors, the ability
to amend the Company's Certificate of Incorporation and By-
Laws, and the approval of fundamental corporate
transactions involving the Company. This concentration of
ownership may have the effect of delaying or preventing a
change in control of SGC Holdings, Inc.
5. Potential Conflicts of Interest May Jeopardize the
Business of SGC Holdings, Inc.
The implementation of the business plan of SGC
Holdings, Inc. depends substantially on the ideas, skills,
and experience of Christos Loukas. Without an employment
contract, SGC Holdings, Inc. may lose Mr. Loukas to other
pursuits without a sufficient warning and, consequently, go
out of business. Mr. Loukas is involved in other business
activities and may, in the future, become involved in other
business opportunities. If a specific business opportunity
becomes available, Mr. Loukas may face a conflict in
selecting between SGC Holdings, Inc. and his other business
interests. SGC Holdings, Inc. has not and, at this time,
does not anticipate that it will formulate a policy for the
resolution of such conflicts.
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6. Christos Loukas Will Not Work Full-Time for SGC
Holdings, Inc. Until Such Time as SGC Holdings, Inc. Has
Secured Funding Necessary for Its First Restaurant.
Mr. Loukas is a bartender at Fire Rock Golf & Country
Club in Fountain Hills, Arizona. Mr. Loukas will continue
to work at Fire Rock Golf & Country Club as a bartender
until such time as SGC Holdings, Inc. has secured funding
necessary for its first restaurant. Mr. Loukas will
dedicate 20 hours a week towards that goal. Once funding is
secured, Mr. Loukas will work full time for SGC Holdings,
Inc. and quit his job at Fire Rock Golf & Country Club.
7. Should a Public Trading Market in the Stock of SGC
Holdings, Inc. Fail to Develop or Be Sustained,
Investors May Lose Their Entire Investment.
As of this date of this Annual Report, no public
market for SGC Holdings, Inc.'s Common Stock has yet been
established. The Company has been approved for listing on
the OTC Bulletin Board effective March 8, 2004. There can
be no assurance that a meaningful trading market will
subsequently develop. Should a viable public trading market
in the stock of SGC Holdings, Inc. fail to develop,
investors in SGC Holdings, Inc.'s common stock may lose
their entire investment. In addition, in the event that a
viable public trading market for SGC Holdings, Inc.'s
common stock does develop, such trading, if and when
transacted, may be subject to the low-priced security or so-
called "penny stock" rules that impose additional sales
practice requirements on broker-dealers who sell such
securities. For any transaction involving a penny stock,
the rules require, among other things, the delivery, prior
to the transaction, of a disclosure schedule required by
the SEC relating to the penny stock market. The broker-
dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative and
current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information
for the penny stocks held in the customer's account. As a
result, characterization as a "penny stock" can adversely
affect the market liquidity for the securities.
Furthermore, the market price of the Company's common
stock, if and when traded, may be subject to significant
fluctuations, and such fluctuations, as well as economic
conditions generally, may adversely affect the market price
of our securities.
8. Our Success Depends on the Efforts of Our Founder.
Our founder, Christos E. Loukas, continues to serve as
President, Chief Executive Officer, and Principal Financial
Officer of the Company. We believe that our success is
highly dependent on the continuing efforts of Mr. Loukas,
as well as the
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Company's ability to attract and retain other skilled
managers and personnel as and when required. Mr. Loukas is
not subject to an employment contract. The loss of the
services of Mr. Loukas could have a material adverse effect
on the Company.
9. Failure to Comply with Governmental Permit and Licensing
Requirements Could Result in Our Inability to Obtain
Such Permits and Licenses, and Changes in These
Requirements Could Adversely Affect Us.
Our intended operations are subject to various state,
local, and federal regulations that in many instances
require permits and licenses. Our failure to obtain such
required permits or licenses, or, once obtained, to comply
with applicable regulations, could result in our inability
to implement our initial business plan, or, once in
operation, in fines or revocation of our operating
authorities.
10. Our Stock Price Is Subject to Volatility.
Effective March 8, 2004, the Company's common stock
has been approved for listing on the OTC Bulletin Board. If
and when a public market for the Company's common stock
actually develops, the market price of our common stock may
be subject to significant fluctuations. Such fluctuations,
as well as economic conditions generally, may adversely
affect the market price of our securities.
11. We Have No History of Paying Dividends.
SGC Holdings, Inc. has never declared or paid any cash
dividends on its common stock. For the foreseeable future,
SGC Holdings, Inc. intends to retain any earnings to
finance the development and expansion of its business, and
it does not anticipate paying any cash dividends on its
common stock. Any future determination to pay dividends
will be at the discretion of the Board of Directors and
will be dependent upon then existing conditions, including
SGC Holdings, Inc.'s financial condition and results of
operations, capital requirements, contractual restrictions,
business prospects, and other factors that the Board of
Directors considers relevant.
12. Substantial Leverage and Debt Service Obligations
Resulting from the Company's Plan to Offer 7%
Convertible Debentures May Adversely Affect SGC's Cash
Flow.
The Company's planned Offering of 7% Convertible
Debentures, if successfully completed, will result in
substantial amounts of outstanding indebtedness. There is
the possibility that SGC may be unable to generate cash
sufficient to pay the principal of, interest on, and other
amounts due in respect to SGC's debt when due. The sale of
the Maximum Offering would result in indebtedness of
approximately $2 million.
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Such leverage could have significant negative
consequences, including:
* Increasing SGC's vulnerability to general adverse
economic and industry conditions;
* Limiting SGC's ability to obtain additional financing;
* Requiring the dedication of a substantial portion of SGC's
expected cash flow from operations to service the
indebtedness, thereby reducing the amount of SGC's
expected cash flow available for other purposes,
including capital expenditures;
* Limiting SGC's flexibility in planning for, or
reacting to, changes in SGC's business and the industry in
which the Company competes; and
* Placing SGC at a possible competitive disadvantage
compared to less leveraged competitors and competitors that
have better access to capital resources.
Item 2. Properties
SGC Holdings, Inc. does not lease or rent any
property. Mr. Loukas, President, provides office space and
services at 15911 East Sunburst Drive, Fountain Hills,
Arizona, 85268, without charge.
Item 3. Legal Proceedings
No Director, officer, significant employee, or
consultant of SGC Holdings, Inc. has been convicted in a
criminal proceeding, exclusive of traffic violations.
No Director, officer, significant employee, or
consultant of SGC Holdings, Inc. has been permanently or
temporarily enjoined, barred, suspended, or otherwise
limited from involvement in any type of business,
securities or banking activities.
No Director, officer, significant employee, or
consultant of SGC Holdings, Inc. has been convicted of
violating a federal or state securities or commodities law.
SGC Holdings, Inc. is not a party to any pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There was no submission of matters to a vote of
security holders during the Company's fiscal year ended
December 31, 2003.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters Market Information for Common Stock
Effective March 8, 2004, the Company has been approved
for listing on the OTC Bulletin Board under the symbol
"SGCG". As of March 11, 2004, no public market in SGC
Holdings, Inc.'s common stock has yet developed and there
can be no assurance that a meaningful trading market will
subsequently develop. SGC Holdings, Inc. makes no
representation about the value of its common stock.
-14-
As of March 11, 2004:
* There are no outstanding options or warrants to
purchase, or other instruments convertible into, common
equity of SGC Holdings, Inc.;
* There is no stock that SGC Holdings, Inc. agreed to
register for sale; after December 2002, all of the
Company's 2,720,000 shares of common stock currently
issued and outstanding are eligible for sale, some
shares of which may remain subject to certain
restrictions of Rule 144 under the Securities Act; and
* There is no stock that has been proposed to be
publicly offered resulting in dilution to current
shareholders.
As of December 31, 2003, SGC Holdings, Inc. has
approximately 2,720,000 shares of $0.001 par value common
stock issued and outstanding held by approximately 37
shareholders of record. SGC Holdings, Inc.'s Transfer Agent
is: Holladay Stock Transfer, Inc., 2939 N. 67th Place,
Suite C, Scottsdale, AZ 85251, phone: (480) 481-3940, fax:
(480) 481-3941.
SGC Holdings, Inc. has never declared or paid any cash
dividends on its common stock. For the foreseeable future,
SGC Holdings, Inc. intends to retain any earnings to
finance the development and expansion of its business, and
it does not anticipate paying any cash dividends on its
common stock. Any future determination to pay dividends
will be at the discretion of the Board of Directors and
will be dependent upon then existing conditions, including
SGC Holdings, Inc.'s financial condition and results of
operations, capital requirements, contractual restrictions,
business prospects, and other factors that the Board of
Directors considers relevant.
Planned Sale of Convertible Debentures
The Company has prepared a Private Placement
Memorandum dated November 26, 2003 under the terms of which
the Company intends to offer, on a best-efforts basis (the
"Offering"), a minimum of $1,250,000 and a maximum of
$1,750,000 of the Company's 7% Convertible Debentures due
February 1, 2009 ("Convertible Debentures") in
denominations of $1,000 with a minimum investment of
$25,000. The holders of the Convertible Debentures would
be able to convert the Convertible Debentures into shares
of the Company's common stock par value $0.001 per share
(the "common stock") at any time in the event that the
shares of the Company trade above $2 for 30 calendar days
at a conversion rate of 500 shares of common stock per
$1,000 principal amount of the Convertible Debentures.
Interest on the Convertible Debentures would be payable on
February 15 and August 15 of each year, commencing on
August 15, 2004. The Company would not be able to redeem
the Convertible Debentures, unless the specific conditions
described in the "Description of Securities" section of the
Confidential Private Placement Memorandum are met.
The proceeds of the Offering will be applied primarily
to financing the establishment of the Company's first
restaurant.
-15-
Item 6. Selected Financial Data
For the year For the year For the year December 5,
ended ended ended 2001
December 31, December 31, December 31, (Inception) to
2003 2002 2001 December 31,
2003
---------------------------------------------------------
Revenue $ -- $ -- $ -- $ --
Total expenses $ 15,059 $ 8,264 $ 1,782 $ 25,105
Net (Loss) $(15,059) $ (8,264) $ (1,782) $(25,105)
Net (Loss) per common share $ (0.01) $ (0.00) $ (0.00)
Total assets $ 12,931 $ 28,458 $ 218
Liabilities $ 36 $ 504 $ --
Stockholders' equity $ 12,895 $ 27,954 $ 218
Item 7. Management's Discussion and Plan of Operation
A. Management's Discussion
Forward-Looking Statements
The statements contained in all parts of this document
that are not historical facts 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
Securities Exchange Act of 1934. Such forward-looking
statements include, but are not limited to, those relating
to the following: the Company's ability to secure necessary
financing; plans for opening one or more restaurant units
(including the scope, timing, impact and effects thereof);
expected growth; future operating expenses; future margins;
fluctuations in interest rates; ability to continue growth
and implement growth and regarding future growth, cash
needs, operations, business plans and financial results and
any other statements that are not historical facts.
When used in this document, the words "anticipate,"
"estimate," "expect," "may," "plans," "project," and
similar expressions are intended to be among the statements
that identify forward-looking statements. SGC Holdings,
Inc.'s results may differ significantly from the results
discussed in the forward-looking statements. Such
statements involve risks and uncertainties, including, but
not limited to, those relating to costs, delays and
difficulties related to the Company's dependence on its
ability to attract and retain skilled managers and other
personnel; the intense competition within the restaurant
industry; the uncertainty of the Company's ability to
manage and continue its growth and implement its business
strategy; its vulnerability to general economic conditions;
accuracy of accounting and other estimates; the Company's
future financial and operating results, cash needs and
demand for its services; and the Company's ability to
maintain and comply with permits and licenses; as well as
other risk factors described in this Annual Report. Should
one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual
outcomes may vary materially from those projected.
-16-
Overview
SGC Holdings, Inc. was incorporated in the State of
Nevada on December 5, 2001. To date, SGC Holdings, Inc.
has:
* Secured initial capitalization through equity
offerings;
* Developed a business plan;
* Completed a financial feasibility study;
* Incorporated a wholly owned subsidiary to obtain
funding and operate the Company's first restaurant;
* Prepared a Private Placement Memorandum to offer up
to a maximum of $1,750,000 of the Company's 7% Convertible
Debentures, and
* Executed an Escrow Agreement to hold any funds
received through the Offering along with the underlying
offered securities and to facilitate the final
disbursements to the Company and the Offering investors if,
as and when such time as all prerequisites and conditions
have occurred, and
* Been approved for listing of its common stock for
trading on the OTC Bulletin Board under the symbol "SGCG"
effective March 8, 2004.
In the initial approximately 25-month operating period
from December 5, 2001 (inception) to December 31, 2003, SGC
Holdings, Inc. generated no revenue and incurred $25,105 in
total general and administrative expenses. The resulting
cumulative net loss for the period from December 5, 2001
(inception) to December 31, 2003 was $(25,105), or
approximately $(0.01) per share. That loss is attributable
primarily to the costs of start-up operations.
SGC Holdings, Inc. financed its initial operations by
issuing common stock in exchange for cash and services.
B. Plan of Operation
SGC Holdings, Inc.'s start-up plan includes
feasibility and demographic studies aimed at selecting the
location for the new St. George Clipper restaurant.
Depending on the results of such studies, SGC Holdings,
Inc. plans to develop specific kitchen/architectural plans
and take steps towards opening the new St. George Clipper.
Such steps may include the purchase or lease of an existing
structure. To finance these steps, SGC Holdings, Inc. will
seek additional financing. SGC Holdings, Inc. needs $2
million to finance its first restaurant but as of yet has
no funding sources available for the $2 million. SGC
Holdings, Inc. currently does not have enough cash to
satisfy the opening of its first restaurant. The intention
is to raise additional money and open a restaurant. If such
funding is not secured, the Company will not be able to
conduct business operations. In the event SGC Holdings,
Inc. is unable to raise sufficient funds, it will go out of
business and will be forced to liquidate.
-17-
SGC Holdings, Inc. has no current material
commitments. SGC Holdings, Inc. depends upon capital to be
derived from future financing activities such as subsequent
offerings of its stock or debt. There can be no assurance
that SGC Holdings, Inc. will be successful in raising the
capital it requires. SGC Holdings, Inc. does not expect to
achieve liquidity or profitability within the first 12
months of operation.
SGC Holdings, Inc. does not expect the purchase or
sale of plant or any significant equipment, except for the
initial purchase of restaurant equipment for the prototype,
and it does anticipate hiring at least 24 minimum wage
employees and three full-time managers to run the prototype
restaurant.
On April 1, 2003, SGC Holdings, Inc. contracted GEC
Consultants, an independent consulting firm, to perform a
feasibility study. The main part of the study addressing
financial requirements, break-even analysis, and
projections was completed in June 2003. The cost of the
study was $4,000.
The preliminary estimates indicate that SGC Holdings,
Inc. will need approximately $2,000,000 to satisfy its cash
requirements to open the first restaurant of approximately
10,000 square feet in the next 12 months. With this amount
of capital, SGC Holdings, Inc. intends to establish its
first prototype restaurant, using the SGC Holdings, Inc.
theme. The following table presents a summary breakdown of
this cash requirement:
Professional development $ 300,145
Location site realty 600,000
Fixtures, equipment, and furnishings 397,900
Buildout & improvements 489,269
Working capital 212,686
-------------
Total Facilities Cost $ 2,000,000
=============
The specific steps required to open the first
restaurant are (time frames are included in parentheses):
1) Feasibility study (already complete).
2) Additional capital raise (the next three to six months).
3) Determination of a location in Fountain Hills,
Scottsdale, or Phoenix in Maricopa County, Arizona (three
to six months after funding).
4) Demographic study of location selected (to be
completed once location is found).
5) Development of kitchen/architectural plans (to be completed
once location and demographic study are completed).
6) Construction (four to twelve months after completion
of step 5).
-18-
The feasibility study concluded that a loan package of
$1,750,000 at 7% interest for a period of 240 months
together with equity from shareholders of $250,000 should
permit the project to proceed. If the dining rooms can
maintain at least a 60% customer capacity for every meal
period, the restaurant should provide a positive cash flow
for the first full year's operation and for the next two
years thereafter. The break-even proforma, using the
smallest cash flow as the break-even determinant, shows
that at about 45% customer capacity the restaurant should
break-even.
SGC Holdings, Inc.'s long-term objective is to expand
its St. George Clipper restaurant concept by opening
Company-operated units in strategically desirable markets.
SGC Holdings, Inc. intends to concentrate on the
development of certain identified markets to achieve
penetration levels deemed desirable by SGC Holdings, Inc.,
thereby improving the SGC Holdings, Inc.'s competitive
position, marketing potential, and profitability.
As of December 31, 2003, SGC Holdings, Inc. had
$12,931 in current assets (consisting entirely of cash) and
$36 in current liabilities. Thus, the working capital as of
December 31, 2003 was equal to $12,895. SGC Holdings, Inc.
believes that its current working capital will be
sufficient to continue as a going concern for the next 12
months. However, the independent auditors of SGC Holdings,
Inc. have issued a going concern opinion despite SGC
Holdings, Inc.'s positive working capital position.
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data
required by this Item 8 are included in the Company's
Consolidated Financial Statements listed in Item 15(a) of
this Annual Report.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
Not applicable.
-19-
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Act, within the
90 days prior to the filing date of this report, the
Company carried out an evaluation of the effectiveness of
the design and operation of the Company's disclosure
controls and procedures. This evaluation was carried out
under the supervision and with the participation of the
Company's President, Chief Executive Officer and Principal
Financial Officer. Based upon that evaluation, the
Company's President, Chief Executive Officer, and Principal
Financial Officer has concluded that the Company's
disclosure controls and procedures are effective in timely
alerting him to material information relating to the
Company required to be included in the Company's periodic
SEC filings.
Disclosure controls and procedures are controls and
other procedures that are designed to ensure that
information required to be disclosed in Company reports
filed or submitted under the Act is recorded, processed,
summarized and reported, within the time periods specified
in the SEC rules and forms. Disclosure controls and
procedures include, without limitation, controls and
procedures designed to ensure that information required to
be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to the Company's Chief
Executive Officer and Principal Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosures.
Changes in Internal Controls.
There have been no changes in internal controls or in
other factors that could significantly affect these
controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10. Directors and Executive Officers of the
Registrant
Each of SGC Holdings, Inc.'s Directors is elected by
the stockholders to a term of one (1) year and serves until
his or her successor is elected and qualified. Each of the
officers is appointed by the Board of Directors to a term
of one (1) year and serves until his or her successor is
duly elected and qualified, or until he or she is removed
from office. The Board of Directors has no nominating,
auditing, or compensation committees.
The following table sets forth certain information
regarding the Chief Executive Officer and Director of SGC
Holdings, Inc.:
Name Age Position
-----------------------------------------------------------------
Christos E. Loukas 61 President, Chief Executive
Officer, Principal Financial
Officer and Director
-20-
Christos E. Loukas has held his office/position since
inception, and is expected to hold his office/position
until the next annual meeting of SGC Holdings, Inc.'s
stockholders.
Christos E. Loukas, President and Chief Executive
Officer, Director, brought his Greek heritage to the United
States when he moved there in 1969. In the same year, Mr.
Loukas purchased the Bay Street Diner & Bar, renamed "St.
George Clipper," located in Staten Island, New York. After
25 years of running St. George Clipper, Mr. Loukas sold the
restaurant in 1994. From January 1998 to July 1999, Mr.
Loukas was a bartender at Desert Forest Golf & Country Club
in Scottsdale, Arizona. From July 1999 to present, Mr.
Loukas has been a bartender at Fire Rock Golf & Country
Club in Fountain Hills, Arizona.
Mr. Loukas will continue to work at Fire Rock Golf &
Country Club as a bartender until such time as SGC
Holdings, Inc. has secured funding necessary to open its
first restaurant. Mr. Loukas will dedicate 20 hours a week
towards that goal. Once funding is secured, Mr. Loukas will
work full time for SGC Holdings, Inc. and quit his job at
Fire Rock Golf & Country Club.
SGC Holdings, Inc.'s Board of Directors does not yet
include any "independent" Directors, and the Company does
not have a separate Audit Committee or a Compensation
Committee.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth, for the fiscal years
ended December 31, 2003, 2002 and 2001, the cash
compensation paid by the Company, as well as certain other
compensation paid with respect to those years and months,
to the Chief Executive Officer and, to the extent
applicable, each of the three other most highly compensated
executive officers of the Company in all capacities in
which they served:
Awards,
Name and Other Annual Restricted
Principal Year Salary Bonus Compensation Stock Awards
Position ($) ($) ($) ($)
--------------------------------------------------------------
Christos E. 2001 0 0 0 1,500
Loukas, 2002 0 0 0 0
President 2003 0 0 0 0
and Chief
Executive
Officer,
Director
-21-
Employment Agreements
SGC Holdings, Inc. does not have employment agreements
with its President and Chief Executive Officer.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matter
The following table sets forth certain information
regarding shares of common stock beneficially owned as of
December 29, 2003, by (i) each person, known to the
Company, who beneficially owns more than 5% of the common
stock, (ii) each of the Company's Directors and (iii) all
officers and Directors as a group:
Name and Address of Shares Beneficially Owned Percentage of Stock
Beneficial Owner Outstanding (1)
------------------------------------------------------------------------
Christos E. Loukas 2,000,000 73.53%
15911 East Sunburst
Drive Fountain
Hills, AZ 85268
All Officers and 2,000,000 73.53%
Directors as a Group
(1 person)
----------------------
(1) All of these shares are owned of record.
Common Stock
SGC Holdings, Inc., a Nevada corporation, is
authorized to issue 25,000,000 shares of common stock,
$0.001 par value. The Company's principal officer, Christos
E. Loukas, individually owns 2,000,000 common shares,
equivalent to 73.53% of the issued and outstanding common
stock. The holders of common stock (i) have equal rights
to dividends from funds legally available therefore,
ratably when, as and if declared by the Board of Directors
of SGC Holdings, Inc.; (ii) are entitled to share ratably
in all assets of SGC Holdings, Inc. available for
distribution to holders of common stock upon liquidation,
dissolution, or winding up of the affairs of SGC Holdings,
Inc.; (iii) do not have preemptive, subscription or
conversion rights and there are no redemption or sinking
fund provisions applicable thereto; (iv) are entitled to
one non-cumulative vote per share of common stock, on all
matters which stockholders may vote on at all meetings of
shareholders; and (v) the holders of common stock have no
conversion, preemptive or other subscription rights. There
is no cumulative voting for the election of Directors.
-22-
Transfer Agent
The Company's current Transfer Agent is: Holladay
Stock Transfer, Inc., 2939 N. 67th Place, Suite C,
Scottsdale, AZ 85251, phone: (480) 481-3940, fax: (480) 481-
3941
Item 13. Certain Relationships and Related Transactions
In December 2001, SGC Holdings, Inc. issued 500,000
shares of its $0.001 par value common stock as founder's
shares to Christos E. Loukas, an officer and Director of
SGC Holdings, Inc., for total cash in the amount of $500.
In December 2001, SGC Holdings, Inc. issued 1,500,000
shares of its $0.001 par value common stock as founder's
shares to Christos E. Loukas, an officer and Director of
SGC Holdings, Inc., in exchange for services valued at
$1,500.
In August 2002, SGC Holdings, Inc. issued 60,000
shares of its $0.001 par value common stock to three
children of the President of SGC Holdings, Inc. for total
cash of $3,000 in a private placement.
SGC Holdings, Inc. does not lease or rent any
property. Mr. Loukas, President, provides office space and
services at 15911 East Sunburst Drive, Fountain Hills,
Arizona, 85268, without charge.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed by Beckstead and Watts, LLP for
the annual audit were $2,000 and $1,500 for the fiscal
years ended December 31, 2003 and 2002, respectively, and
their fees for review of the interim financial statements
were $1,800 and $0 for the fiscal years ended December 31,
2003 and 2002, respectively.
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 10-K.
(a) Financial Statements.
Independent Auditors' Report
Consolidated Balance Sheets as at December
31, 2003 and 2002
Consolidated Statements of Operations for
the Years Ended December 31, 2003 and 2002
and for the period of December 5, 2001 (Date
of Inception) through December 31, 2003
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 2003 and 2002 and for the
period of December 5, 2001 (Date of
Inception) through December 31, 2003
Consolidated Statements of Cash Flows for
the Years Ended December 31, 2003 and 2002
and for the period of December 5, 2001 (Date
of Inception) through December 31, 2003
Notes to Consolidated Financial Statements
-23-
(b) Reports on Form 8-K.
SGC Holdings, Inc. filed a Form 8-K report
on November 6, 2003.
(c) Exhibits.
23.1 Consent of Beckstead and Watts, LLP
31 Rule 13(a)-14(a)/15(d)-14(a) Certifications
32 Certification pursuant to 18 U.S.C. 1350
(d) Financial Statement Schedules.
Schedules are omitted because they are not
applicable, are not required or because the
information is included in the Company's
Consolidated Financial Statements or notes
thereto.
-24-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 11, 2004
SGC HOLDINGS, INC.
By: /s/ Christos E. Loukas President, Chief Executive Officer
---------------------- and Principal Financial Officer
Christos E. Loukas,
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report been signed below by the
following person on behalf of the Registrant and in the
capacities and on the date indicated.
/s/ Christos E. Loukas President, Chief Executive March 11, 2004
---------------------- Officer and Director
Christos E. Loukas
-25-
Financial Statements.
Beckstead and Watts, LLP
----------------------------
Certified Public Accountants
3340 Wynn Road, Suite B
Las Vegas, NV 89102
702.257.1984
702.362.0540 (fax)
INDEPENDENT AUDITORS' REPORT
Board of Directors
SGC Holdings, Inc. and Subsidiary
We have audited the Consolidated Balance Sheets of SGC
Holdings, Inc. and Subsidiary (the "Company") (A
Development Stage Company), as of December 31, 2003 and
2002, and the related Consolidated Statements of
Operations, Stockholders' Equity, and Cash Flows for the
years then ended and for the period December 5, 2001 (Date
of Inception) to December 31, 2003. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards in the United States of
America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statement presentation. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of SGC Holdings, Inc. and Subsidiary
(A Development Stage Company) as of December 31, 2003 and
2002, and the results of its operations and cash flows for
the years then ended and for the period December 5, 2001
(Date of Inception) to December 31, 2003, in conformity
with generally accepted accounting principles in the United
States of America.
The accompanying consolidated financial statements have
been prepared assuming the Company will continue as a going
concern. As discussed in Note 3 to the financial
statements, the Company has had limited operations and have
not commenced planned principal operations. This raises
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are
also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome
of this uncertainty.
March 4, 2004
-F1-
SGC Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
as of
December 31, 2003 and 2002
and
Consolidated Statements of Operations,
Stockholders' Equity, and
Cash Flows
for the years ended
December 31, 2003 and 2002,
and
for the period of
December 5, 2001 (Date of Inception)
through
December 31, 2003
-F2-
SGC Holdings, Inc. and Subsidiary
(a Development Stage Company)
Consolidated Balance Sheets
December 31,
2003 2002
Assets --------- --------
Current assets:
Cash $ 12,931 $ 28,458
--------- --------
Total current assets 12,931 28,458
--------- --------
$ 12,931 $ 28,458
========= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 36 $ 504
--------- --------
Total current liabilities 36 504
--------- --------
Stockholders' equity:
Common stock, $0.001 par value, 25,000,000 shares
authorized, 2,720,000 and 2,720,000 shares issued and 2,720 2,720
outstanding as of 12/31/03 and 12/31/02, respectively
Additional paid-in capital 35,280 35,280
(Deficit) accumulated during development stage (25,105) (10,046)
--------- --------
12,895 27,954
--------- --------
$ 12,931 $ 28,458
========= ========
The accompanying notes are an integral part of these financial
statements.
-F3-
SGC Holdings, Inc. and Subsidiary
(a Development Stage Company)
Consolidated Statements of Operations
December 5, 2001
For the years ended (Inception) to
December 31, December 31,
2003 2002 2003
----------- ----------- --------------
Revenue $ - $ - $ -
----------- ----------- --------------
Expenses:
General & administrative expenses 15,059 8,264 23,605
General & administrative expenses - - - 1,500
related party
----------- ----------- --------------
Total expenses 15,059 8,264 25,105
----------- ----------- --------------
Net (loss) $ (15,059) $ (8,264) $ (25,105)
=========== =========== ==============
Weighted average number of common
shares outstanding - basic
and fully diluted 2,720,000 2,242,630
=========== ===========
Net (loss) per share - $ (0.01) $ (0.00)
basic and fully diluted =========== ===========
The accompanying notes are an integral part of these financial
statements.
-F4-
SGC Holdings, Inc. and Subsidiary
(a Development Stage Company)
Consolidated Statement of Stockholders' Equity
(Deficit)
Additional Accumulated Total
Common Stock Paid-in During Stockholers'
Shares Amount Capital Develpment Equity
Stage
----------------------------------------------------------
December 2001
Founder shares
issued for cash 500,000 $ 500 $ - $ - $ 500
December 2001
Founder shares
issued for services 1,500,000 1,500 - 1,500
Net (loss)
December 5, 2001
(inception) to
December 31, 2001 (1,782) (1,782)
----------------------------------------------------------
Balance, December
31, 2001 2,000,000 2,000 - (1,782) 218
August 2002
506 offering
issued for cash 720,000 720 35,280 36,000
Net (loss)
For the year ended
December 31, 2002 (8,264) (8,264)
----------------------------------------------------------
Balance, December 31, 2,720,000 2,720 35,280 (10,046) 27,954
2002
Net (loss)
For the year ended
December 31, 2003
(15,059) (15,059)
----------------------------------------------------------
Balance, December 31, 2,720,000 $ 2,720 $ 35,280 $ (25,105) $ 12,895
2003 ==========================================================
The accompanying notes are an integral part of these financial
statements.
-F5-
SGC Holdings, Inc. and Subsidiary
(a Development Stage Company)
Consolidated Statements of Cash Flows
December 5, 2001
For the years ended (Inception) to
December 31, December 31,
2003 2002 2003
----------- ---------- ----------------
Cash flows from operating
activities
Net (loss) $ (15,059) $ (8,264) $ (25,105)
Shares issued for services - - 1,500
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Increase (decrease) in accounts payable (468) 504 36
----------- ---------- ----------------
Net cash (used) by operating activities (15,527) (7,760) (23,569)
----------- ---------- ----------------
Cash flows from financing activities
Issuances of common stock - 36,000 36,500
----------- ---------- ----------------
Net cash provided by financing activities - 36,000 36,500
Net increase (decrease) in cash ----------- ---------- ----------------
(15,527) 28,240 12,931
Cash - beginning 28,458 218 -
----------- ---------- ----------------
Cash - ending $ 12,931 $ 28,458 $ 12,931
=========== ========== ================
Supplemental disclosures:
Interest paid $ - $ - $ -
=========== ========== ================
Income taxes paid $ 57 $ - $ 57
Non-cash transactions: =========== ========== ================
Shares issued for services provided $ - $ - $ 1,500
=========== ========== ================
Number of shares issued for services - - 1,500,000
=========== ========== ================
The accompanying notes are an integral part of these financial
statements.
-F6-
SGC Holdings, Inc. and Subsidiary
(a Development Stage Company)
Notes to Consolidated Financial Statements
Note 1 - History and organization of the company
The Company was organized December 5, 2001 (Date of Inception)
under the laws of the State of Nevada, as SGC Holdings, Inc. The
Company has no operations and in accordance with SFAS #7, the
Company is considered a development stage company. The Company
is authorized to issue 25,000,000 shares of its $0.001 par value
common stock.
On October 27, 2003, the Company formed a wholly owned
subsidiary, St. George Clipper One, Inc., whose plan of operation
is to open restaurants.
Note 2 - Accounting policies and procedures
Cash and cash equivalents
The Company maintains a cash balance in a non-interest-bearing
account that currently does not exceed federally insured limits.
For the purpose of the statements of cash flows, all highly
liquid investments with an original maturity of three months or
less are considered to be cash equivalents. There were no cash
equivalents as of December 31, 2003 and 2002.
Impairment of long-lived assets
Long-lived assets held and used by the Company are reviewed for
possible impairment whenever events or circumstances indicate the
carrying amount of an asset may not be recoverable or is
impaired. No such impairments have been identified by management
at December 31, 2003 and 2002.
Revenue recognition
The Company reports revenue as invoiced on an accrued basis.
Costs of sales are recorded as items are sold and are comprised
of product purchases and shipping costs. The Company will
reserve 10% of revenue and will assess its return policy on an
ongoing basis and reserve for charge backs and returns based on
historical percentages. As of December 31, 2003 and 2002 no
reserve has been made.
Advertising costs
The Company expenses all costs of advertising as incurred. There
were no advertising costs included in selling, general and
administrative expenses in 2003 or 2002.
Loss per share
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS #128) "Earnings Per
Share". Basic loss per share is computed by dividing losses
available to common stockholders by the weighted average number
of common shares outstanding during the period. The Company had
no dilutive common stock equivalents, such as stock options or
warrants as of December 31, 2003 and 2002.
Reporting on the costs of start-up activities
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial
reporting of start-up costs and organizational costs, requires
most costs of start-up activities and organizational costs to be
expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. With the adoption of SOP 98-
5, there has been little or no effect on the Company's financial
statements.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
-F7-
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain
market assumptions and pertinent information available to
management as of December 31, 2003 and 2002. The respective
carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments
include cash and accounts payable. Fair values were assumed to
approximate carrying values for cash and payables because they
are short term in nature and their carrying amounts approximate
fair values or they are payable on demand.
Income Taxes
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable on the periods in which the differences are expected
to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Segment reporting
The Company follows Statement of Financial Accounting Standards
No. 130, "Disclosures About Segments of an Enterprise and Related
Information". The Company operates as a single segment and will
evaluate additional segment disclosure requirements as it expands
its operations.
Dividends
The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid or declared since
inception.
Recent pronouncements
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses
financial accounting and reporting for costs associated with exit
or disposal activities and supersedes EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF No. 94-3, a liability
for an exit cost was recognized at the date of an entity's
commitment to an exit plan. SFAS No. 146 also establishes that
the liability should initially be measured and recorded at fair
value. The provisions of SFAS No. 146 will be adopted for exit or
disposal activities that are initiated after December 31, 2003
and 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment
of SFAS No. 123." This Statement amends SFAS No. 123, "Accounting
for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition,
this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-
based employee compensation and the effect of the method used on
reported results. The adoption of SFAS No. 148 is not expected to
have a material impact on the company's financial position or
results of operations.
In November 2002, the FASB issued FASB Interpretation ("FIN") No.
45, "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of
Others", an interpretation of FIN No. 5, 57 and 107, and
rescission of FIN No. 34, "Disclosure of Indirect Guarantees of
Indebtedness of Others". FIN 45 elaborates on the disclosures to
be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it
has issued. It also requires that a guarantor recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or
modified after December 31, 2003 and 2002; while, the provisions
of the disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15,
2002. The company believes that the adoption of such
interpretation will not have a material impact on its financial
position or results of operations and will adopt such
interpretation during fiscal year 2003, as required.
-F8-
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51. FIN No. 46 requires that variable
interest entities be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority
of the entity's residual returns or both. FIN No. 46 also
requires disclosures about variable interest entities that
companies are not required to consolidate but in which a company
has a significant variable interest. The consolidation
requirements of FIN No. 46 will apply immediately to variable
interest entities created after January 31, 2003. The
consolidation requirements will apply to entities established
prior to January 31, 2003 in the first fiscal year or interim
period beginning after June 15, 2003. The disclosure requirements
will apply in all financial statements issued after January 31,
2003. The company will begin to adopt the provisions of FIN No.
46 during the first quarter of fiscal 2003.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." SFAS No. 150 changes the classification
in the statement of financial position of certain common
financial instruments from either equity or mezzanine
presentation to liabilities and requires an issuer of those
financial statements to recognize changes in fair value or
redemption amount, as applicable, in earnings. SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and with one exception, is effective at the
beginning of the first interim period beginning after June 15,
2003. The effect of adopting SFAS No. 150 will be recognized as a
cumulative effect of an accounting change as of the beginning of
the period of adoption. Restatement of prior periods is not
permitted. SFAS No. 150 did not have any impact on the Company's
financial position or results of operations.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations and has adopted the disclosure-only alternative
of SFAS No. 123, "Accounting for Stock-Based Compensation."
Options granted to consultants, independent representatives and
other non-employees are accounted for using the fair value method
as prescribed by SFAS No. 123.
Year end
The Company has adopted December 31 as its fiscal year end.
Note 3 - Going concern
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company has incurred a net
loss of $25,105 for the period from December 5, 2001 (inception)
to December 31, 2003, and has no sales. The future of the
Company is dependent upon its ability to obtain financing and
upon future profitable operations from the development of its new
business opportunities. Management plans to raise additional
funds via an offering of convertible debentures. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. These financial
statements do not include any adjustments that might arise from
this uncertainty.
Note 4 - Income taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), which requires use of the liability
method. SFAS No. 109 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as temporary
differences. Deferred tax assets and liabilities at the end of
each period are determined using the currently enacted tax rates
applied to taxable income in the periods in which the deferred
tax assets and liabilities are expected to be settled or
realized.
-F9-
The provision for income taxes differs from the amount computed
by applying the statutory federal income tax rate to income
before provision for income taxes. The sources and tax effects
of the differences are as follows:
U.S federal statutory rate (34.0%)
Valuation reserve 34.0%
----------
Total -%
==========
As of December 31, 2003, the Company has a net operating loss
carry forward as follows:
Year Amount Expiration
---- -------- ----------
2001 $ 1,782 2021
2002 $ 8,264 2022
2003 $ 15,059 2023
During the year ended December 31, 2003, the Company paid $57 in
Arizona state income taxes.
Note 5 - Stockholders' equity
The Company is authorized to issue 25,000,000 shares of its
$0.001 par value common stock.
In December 2001, the Company issued 500,000 shares of its $0.001
par value common stock as founders' shares to an officer and
director in exchange for total cash in the amount of $500.
In December 2001, the Company issued 1,500,000 shares of its
$0.001 par value common stock as founders' shares to an officer
and director for total services rendered in the amount of $1,500.
In August 2002, the Company issued 720,000 shares of its $0.001
par value common stock for total cash of $36,000 in a private
placement pursuant to Regulation D, Rule 506, of the Securities
Act of 1933, as amended. (See Note 7)
As of December 31, 2003, there have been no other issuances of
common stock.
Note 6 - Warrants and options
As of December 31, 2003 and 2002, there were no warrants or
options outstanding to acquire any additional shares of common
stock.
Note 7 - Related party transactions
In August 2002, the Company issued 60,000 shares of its $0.001
par value common stock to three children of the president of the
Company for total cash of $3,000 in a private placement pursuant
to Regulation D, Rule 506, of the Securities Act of 1933, as
amended. (See Note 5)
The Company does not lease or rent any property. Office space
and services are provided without charge by a director and
shareholder. Such costs are immaterial to the financial
statements and, accordingly, have not been reflected therein.
The officers and directors of the Company are involved in other
business activities and may, in the future, become involved in
other business opportunities. If a specific business opportunity
becomes available, such persons may face a conflict in selecting
between the Company and their other business interests. The
Company has not formulated a policy for the resolution of such
conflicts.
-F10-