<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON ,D.C. 20549

                                   FORM 10-KSB

      __X__ ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
                    For the fiscal year ended January 31,2000
      _____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
               For the transition period from ___ to ___
               Commission file number 0-13635

                                SFG CORPORATION
                                ---------------

        ( Name of small business issuer in its charter)


     Delaware                          13-3208094
     --------                          ----------
(State or other jurisdiction          (IRS Employer
of incorporation or organization)      Identification Number)

142 Brixton Road                         11530
Garden City,New York
--------------------                    --------------
(Address of Principal executive offices) (Zip Code)

Issuer's telephone number (516) 248-6587
                          --------------

Securities registered under Section 12(b) of the Exchange Act:

  Title of each class   Name of each exchange on which registered
  -------------------   -----------------------------------------
       None                        None

Securities registered under Section 12(g) of the Exchange Act:

 Common Stock (par value $.001 per share)
-----------------------------------------

                      (Title of class)

        Check whether 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______
NO__X__

                              1
<PAGE>   2

Check if there is no disclosure of delinquent filings pursuant to Item 405 of
Regulation S-B contained in this form and no disclosure will 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-KSB or any
amendment to this Form 10-KSB.(X).

Issuer's revenues for its most recent fiscal year: $ 211,535.00
                                                    -------------

The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $100,000 on March 1.2000. The number of shares
outstanding of Registrant's Common Stock as of March 1,2000.
   Common Stock ,par value $.001 per share:
   3,226,856
Transitional Small Business Disclosure Format (Check one)Yes   No X
                                                            ---  ---
                         Part I

Item 1.Description of Business

 SFG Corporation (the "Company") until January 8,1993 known as Stratford
Financial Group ,Ltd.,was incorporated in Delaware on November 9,1983.SFG
Corporation acts as a holding company.Stratford Financial Corp(SFC) is wholly
owned subsidiary of SFG Corporation.Empire Asset Management Corp is a wholly
owned subsidiary of Stratford Financial Corp.

      SFC is an independent third party lessor specializing in computer and
general equipment leasing and other transactions .As an independent lessor,
SFC(through its wholly owned subsidiary ,Empire Asset Management Corp.,("EAMC")
established in June ,1989)generate leasing opportunities through direct bids to
end users ,relationships with equipment manufacturers and the brokerage
community and through purchases from other leasing companies .At this time
EAMC's computer equipment is predominantly IBM computer peripheral equipment
,however EAMC does lease equipment from other manufacturers in those instances
where it can do so at minimal risk. Since EAMC cannot have any assurance that it
will be able to sell any part of its lease and equipment portfolio. EAMC only
acquires that equipment which it is prepared to hold for its own account.

 Computer peripheral equipment consists of printers and communication
controllers used to convey information into and out of the central processing
unit of a computer system. Historically values of peripheral equipment have been
less dramatically affected by changes in technology than values of central
processing units .Peripheral equipment ,nevertheless ,is subject to decline in
value as improved models are developed and made available.
Prior to or upon expiration of initial leases ,EAMC will attempt to extend ,to
remarket or sell the equipment .Notwithstanding the existence of appraisal and
forecasting services ,the value of the equipment cannot be determined with
certainty at the onset of a lease and such value is dependent on various
contingencies such as obsolescence ,market factors, condition of the equipment
and other business and economic considerations ,To the extent efforts are
successful ,such re-leases and sales generate additional revenues to EAMC.

                                       2
<PAGE>   3


  The ability to market equipment through re-lease by EAMC will be dependent in
part upon competitive factors such as pricing and leasing practices of other
equipment manufacturers and leasing companies. Equipment leasing is a very
competitive field and in seeking new leases or sale of its equipment portfolio
,EAMC will be competing with IBM and other equipment manufacturers(with respect
to its computer portfolio) and with banks ,finance companies and leasing
companies, most of which have significantly greater assets than EAMC, as to
other types of equipment.
    EAMC also seeks to earn fees through the brokerage of lease and finance
transactions.
    The Company has no patents, trademarks, licenses, franchises or concessions
The Company had no backlog of orders as of January 31,2000.
    The Company's business is not seasonal.
    The Company employs one person on a full time basis. The Company considers
its relations with its employee to be good. The employee is not represented by a
collective bargaining agreement or other obligations.

Item 2 DESCRIPTION OF PROPERTY

       The Companies offices since July 1,1997 are located in 300 feet of space
in Garden City, New York. This space is available without a lease at nominal
cost to the company.

ITEM 3.Legal Proceedings
       None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
       No matter have been submitted to a vote of security holders during the
fiscal year ending January 31,2000.

                        PART II

Item 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
     The Company's Common Stock has been traded in the over-the- counter market
since January 31,1985.The approximate number of holders of the Company's Common
Stock at March 1,2000 was 405.

The following table reflects the high and low prices for the Companies common
stock for fiscal years 1999 and 2000.

             Fiscal 1999             Fiscal 2000

QTR          High    Low             High    Low
 1           3/8     1/4             5/8     3/8
 2           7/16    1/8             3/8     3/8
 3           1/2     3/8             5/8     7/16
 4           11/16   3/8             7/16    1/16

The stock is listed on the Electronic Bulletin Board.

The Company has not paid a cash dividend on its Common Stock. Registrant does
not contemplate paying any cash dividends on its Common Stock in the near future

                             3
<PAGE>   4


Item 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
FISCAL2000 COMPARED TO FISCAL 1999
    Annual revenues increased 28% to$211,535.00 in fiscal 2000 from $165,435.00
in fiscal 1999.The increase is attributable to the realization of certain
residuals which are booked when received. Lease rental revenues continued to
decline from $$149,073.00 in fiscal 1999 to $121,918.00 in fiscal 2000. There
have been no new leases written in EAMC and leasing revenues can be expected to
decline in the future unless the Company secures funds for financing.

Total expenses increased from $191,747.00 in fiscal 1999 to $$282,271.00.in
fiscal 2000.In fiscal years 1999 and 2000,$10,000 and $100,000 of the total
expenses for the respective years were paid in common stock.

IMPACT OF INFLATION
    Equipment costs are affected by inflation in the leasing business ,Although
inflation has not been a major factor, there can be no assurance that this trend
will continue.

LIQUIDITY AND CAPITAL RESOURCES
 The financial position of the Company remained the same during the fiscal
year,primarily as result of Management's efforts to control costs.
    The Company expects to generate sufficient funds from operations to continue
for the foreseeable future .The Company expects to improve its financial
position by:

     1.Increasing the volume of fee and brokerage revenues
     2.obtaining additional financing or capital, and ultimately;
     3.obtaining profitable operations.
     4.Merging with a more substantial entity.

There can be no assurance that the Company will be able to improve its financial
position even if the above stated objectives are met.

Item 7.FINANCIAL STATEMENTS.

The Financial Statements listed on the accompanying index are filed with and
included as a part of this report.

Item 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

                                      None

                                        4
<PAGE>   5

                         Part III

Item 9. Directors ,Executive Officers ,Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

      The following table sets forth the names and ages of all directors and
executive officers of the Company and the positions in the Company held by them.

      NAME            AGE          POSITION

John A.Dugan           61    Chairman and Chief Executive Officer

Anthony S.Pintauro     72    Director

JOHN A.DUGAN was elected a Director of the Company following the acquisition of
SFC.Mr.Dugan is a marketing and computer portfolio asset manager with more than
30 years in the computer industry.In 1971, Mr Dugan joined DPF Incorporated as a
District Marketing Manager and subsequently served in various marketing
capacities until 1981 when he joined DPF Group.Ltd.Mr.Dugan was promoted to Vice
President Asset Management,with primary responsibility for the remarketing of
the computer asset portfolio and liason with the independent computer brokerage
community.Mr.Dugan left DPF Group, Ltd.to join Stratford Financial Corp,as
Executive Vice President and a Director.He was appointed Chairman and Chief
Executive of SFG Corporation in February 1996.Mr Dugan is a graduate of the
United States Naval Academy

ANTHONY S.PINTAURO was elected a Director of the Company in January 1993.Mr
 .Pintauro served as President of Stratford Financial Corp from June 1986 until
his retirementin 1994.He has over 45 years of experience in the computer and
computer leasing industry .From 1967 until 1981,Mr.Pintauro was employed as an
executive with DPF Incorporated.His last position was that of Senior Vice
President-Marketing In 1981 Mr Pintauro and three other individuals formed DPF
Group,Ltd which purchased all equipment leasing operations from DPF
Incorporated.In August of 1985 Mr.Pintauro sold his interest in DPF Group Ltd
and in June 1986 joined SFG Corporation.Mr.Pintauro graduated from Manhattan
College with a degree in Electrical Engineering.

Directors are elected to serve until the next annual meeting of shareholders,and
until their successors have been elected and qualified.

Item 10. EXECUTIVE COMPENSATION

NAME AND PRINCIPAL POSITION    FOR YEAR   SALARY

John A.Dugan Chairman/CEO      Fiscal 2000   $53,621
                               Fiscal 1999   $64,000

                                        5
<PAGE>   6


 On June 28,1993 the Board of Directors approved the Company's Stock Option Plan
which covers 2,500,000 shares of the Company's Common Stock . No shares have
been exercised under this plan since its inception and no options are
outstanding.

Item 11 .SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table contains information as of March 1,2000 as to the beneficial
ownership of the Company's Common Stock(the only class outstanding) by each
person or entity who was the beneficial owner of more than 5% of the outstanding
shares of that class ,each person who is a director or officer of the Company
and all persons as a group who are officers and directors of the Company and as
to the percentage of outstanding shares held by them at March 1,2000

<TABLE>
<CAPTION>
                                       Percent of
Name and Address of                   Ownership
Beneficial Owner            Shares        (1)

---------------------------------------------------------

<S>                      <C>           <C>
Sol Dorfberger               270,000      8.37%
2323 Quentin Road
Brooklyn NY 11220

I.Martin Goldstein          187,000      5.80%
19665 Waters End Drive
Boca Raton ,FL 33434

John A,Dugan                 291,000      9.02%
142 Brixton Road
Garden City,NY 11530

Anthony S.Pintauro           477,125      14.79%
100 Hilton Avenue
Apt M-22
Garden City, NY 11530

Lawrence D.Levin             253,500      7.86%
9 Fulton Street
Nanuet,NY 10954

Irv J.Fischer                250,000      7.75%
28 Cambria Road
Syosset,NY

All Directors and Officers   768,125      23.84%
as a group (2 persons)
</TABLE>

(1) Shares shown in this table owned are owned of record and/or beneficially.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                                      None

                                        6
<PAGE>   7

Item 13.  EXHIBITS AND REPORTS ON FORM 8-K
(a)                     None

2.Exhibits

  The exhibits listed on the Index to Exhibits following the Signature Page
herein are filed as part of this annual report.

(b) No reports on Form 8-K were filed by the Registrant.

                                        7
<PAGE>   8

                        SIGNATURES

      In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized,

                                    SFG CORPORATION

                               By /s/ JOHN A. DUGAN
                                  ---------------------------
                                  John A .Dugan
                              Chairman and Chief Executive Officer

Dated : 3/31/2000

      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of registrant and in the capacities and on the
dates indicated.

                               By: /s/ JOHN A. DUGAN
                                  ---------------------------
                                  John A .Dugan
                              Chairman and Chief Executive Officer

                               By: /s/ ANTHONY S. PINTAURO
                                  ---------------------------
                                  Anthony S. Pintauro
                                       Director

                                        8
<PAGE>   9

                       INDEX TO EXHIBITS

                          DESCRIPTION

The following exhibit from the independent auditor is incorporated by reference.

7.01 Financial Statements for the Fiscal years ending January 31,1999 and
January 31,2000.

                                        9
<PAGE>   10
                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
SFG Corporation and Subsidiaries
Garden City, New York

        We have audited the accompanying consolidated balance sheets of SFG
Corporation and Subsidiaries as of January 31, 2000 and 1999, and the related
consolidated statements of operations, shareholders' deficiency, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

        We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SFG Corporation and
Subsidiaries as of January 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

        The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note #7 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note #7. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Woodbridge, Connecticut
March 8, 2000


<PAGE>   11

                        SFG CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

<S>                                                                                 <C>
Independent Auditors' Report                                                          Page   2

Financial Statements:

    Consolidated Balance Sheets                                                              3

    Consolidated Statements of Operations                                                    4

    Consolidated Statements of Shareholders' Deficiency                                      5

    Consolidated Statements of Cash Flows                                                    6

Notes to Consolidated Financial Statements                                               7 - 9
</TABLE>


<PAGE>   12


                        SFG CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              January 31,
                                                                         2000            1999
                                                                     ------------    -------------
ASSETS:
-------
<S>                                                                  <C>             <C>
  Cash...............................................................$     41,173    $       9,233
  Due from officers..................................................           0              560
  Equipment under operating leases, net of accumulated depreciation..           0                0
  Furniture and equipment, net of accumulated depreciation...........           0                0
                                                                     ------------    -------------
      Total..........................................................$     41,173    $       9,793
                                                                     ============    =============


LIABILITIES AND SHAREHOLDERS' DEFICIENCY:
-----------------------------------------
Liabilities:
------------
  Note payable.......................................................$          0    $     271,151
  Accounts payable and accrued expenses..............................     111,791           97,246
  Advance rentals....................................................           0            9,174
  Due to officers....................................................       2,711            2,987
  Sales tax payable..................................................     221,943          222,006
                                                                     ------------    -------------
      Total liabilities..............................................     336,445          602,564

Shareholders' Deficiency:
-------------------------
  Common stock - $.001 par value, 100,000,000 shares authorized;
    3,226,856 and 2,855,856 shares issued and outstanding at
    January 31, 2000 and 1999, respectively..........................       3,227            2,856
  Capital in excess of par...........................................   2,062,167        1,693,450
  Accumulated deficit................................................  (2,360,666)      (2,289,077)
                                                                     ------------    -------------
    Total shareholders' deficiency...................................    (295,272)        (592,771)
                                                                     ------------    -------------

      Total..........................................................$     41,173    $       9,793
                                                                     ============    =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                       3.
<PAGE>   13

                        SFG CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              Years Ended
                                                                              January 31,
                                                                         2000            1999
                                                                     ------------    -------------
Revenues:
---------
<S>                                                                  <C>             <C>
  Rental income......................................................$    121,918    $     149,073
  Residual income....................................................      75,423
  Sale of equipment and other income.................................      14,194           16,392
                                                                     ------------    -------------
    Total revenues...................................................     211,535          165,465

Expenses:
---------
  Professional fees..................................................     136,930           45,856
  Administrative expenses............................................      57,380           37,846
  Salaries...........................................................      53,621           64,000
  Interest...........................................................      25,806           25,993
  Leasing expense....................................................       6,584            8,302
  Rent...............................................................       1,950            9,750
                                                                     ------------    -------------
    Total expenses...................................................     282,271          191,747
                                                                     ------------    -------------

Loss Before Income Taxes.............................................     (70,736)         (26,282)
------------------------

Provision for Income Taxes...........................................         853
--------------------------                                           ------------    -------------

Net Loss.............................................................$    (71,589)   $     (26,282)
--------                                                             ============    =============


Net Loss Per Common Share............................................$      (0.02)   $       (0.01)
-------------------------                                            ============    =============

Weighted Average Number of Common Shares Outstanding.................   2,942,899        2,792,158
----------------------------------------------------                 ============    =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                       4.
<PAGE>   14

                        SFG CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY

                      YEARS ENDED JANUARY 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                        Capital
                                             Common Stock              In Excess      Accumulated
                                        Shares          Amount          of Par          Deficit
                                    -------------    ------------    ------------    -------------

<S>                                 <C>          <C>             <C>             <C>
Balance February 1, 1998............    2,605,856    $      2,606    $  1,568,700    $  (2,262,795)
------------------------

  Shares issued for services........      250,000             250         124,750
  Net loss..........................                                                       (26,282)
                                    -------------    ------------    ------------    -------------

Balance January 31, 1999............    2,855,856           2,856       1,693,450       (2,289,077)
------------------------

  Shares issued for services........      100,000             100          99,900
  Shares issued to retire debt......      271,000             271         268,817
  Net loss..........................                                                       (71,589)
                                    -------------    ------------    ------------    -------------

Balance January 31, 2000............    3,226,856    $      3,227    $  2,062,167    $  (2,360,666)
------------------------            =============    ============    ============    =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                       5.
<PAGE>   15

                        SFG CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Years Ended
                                                                              January 31,
                                                                         2000            1999
                                                                     ------------    -------------
Cash Flows From Operating Activities:
-------------------------------------
<S>                                                                  <C>             <C>
  Net loss...........................................................$    (71,589)   $     (26,282)
  Adjustments to reconcile net loss to net cash provided by (used in)
    operating activities:
      Gain on sale of assets.........................................     (13,399)         (16,392)
      Common stock issued for services...............................     100,000           10,000
      Changes in assets and liabilities:
      (Increase) decrease in assets:
        Accounts receivable..........................................                        1,000
        Due from officers............................................         560              490
      Increase (decrease) in liabilities:
        Accounts payable and accrued expenses........................      14,545              210
        Advance rentals..............................................      (9,174)           9,174
        Due to officers..............................................        (276)           3,487
        Sales tax payable............................................         (63)          (1,430)
                                                                     ------------    -------------
  Total adjustments..................................................      92,193            6,539
                                                                     ------------    -------------
      Net cash provided by (used in) operating activities............      20,604          (19,743)

Cash Flows Provided By Investing Activities:
--------------------------------------------
  Proceeds from sale of operating lease equipment....................      13,399           16,392

Cash Flows Used In Financing Activities:
----------------------------------------
  Payments on long term debt.........................................      (2,063)          (1,875)
                                                                     ------------    -------------

Net Increase (Decrease) in Cash......................................      31,940           (5,226)
-------------------------------

Cash - February 1....................................................       9,233           14,459
-----------------                                                    ------------    -------------

Cash - January 31....................................................$     41,173    $       9,233
-----------------                                                    ============    =============


Supplemental Disclosure of Cash Flows Information:
--------------------------------------------------
  Cash paid during the year for:
    Interest.........................................................$     25,806    $      25,993
                                                                     ============    =============
    Income taxes.....................................................$        853
                                                                     ============

Supplemental Schedule of Noncash Financing Activities:
------------------------------------------------------
  Common stock issued services.......................................$    100,000    $     125,000
                                                                     ============    =============
  Common stock issued to retire debt.................................$    269,088
                                                                     ============
</TABLE>


The accompanying notes are an integral part of the financial statements.

                                       6.
<PAGE>   16

                        SFG CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            JANUARY 31, 2000 AND 1999

Note #1 - Organization and Significant Accounting Policies.

   Summary of Accounting Policies.

        This summary of accounting policies of SFG Corporation and Subsidiaries
(the Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for the integrity and objectivity of the
financial statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.

    Basis of Consolidation.

        The consolidated financial statements include the accounts of SFG
Corporation and its wholly owned subsidiaries. All significant inter company
accounts and transactions have been eliminated in consolidation.

    Leasing Arrangements.

        The Company's leasing operations consist of operating leases of
computers and peripheral equipment. The Company recognizes rental income, as
earned, over the lives of the leases.

    Asset Sales and Remarketing Agreements.

        In prior years, the Company acquired equipment and the related leases
thereon and immediately or shortly after acquisition, sold them for their tax
benefits to third-party investors. Concurrent with the sales, the Company
entered into remarketing agreements with the investors whereby it agreed to use
its best efforts to remarket the equipment on behalf of the investors at the end
of the original lease terms. As payment for these services, the Company receives
a portion of the future amounts received from the remarketing of the equipment.
These revenues are recorded as residual income when collected.

    Equipment Under Operating Leases and Furniture and Equipment.

        Equipment under operating leases and furniture and equipment are stated
at cost. Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.

<TABLE>
<CAPTION>
                                                         January 31,
                                                    2000            1999
                                               -------------   -------------
<S>                                            <C>             <C>
        Equipment under operating leases       $     335,907   $     445,057
        Furniture and equipment                        1,655           1,655
                                               -------------   -------------
                                                     337,562         446,712
        Accumulated depreciation                    (337,562)       (446,712)
                                               -------------   -------------
           Net                                 $           0   $           0
                                               =============   =============
</TABLE>

                                       7.
<PAGE>   17

                        SFG CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            JANUARY 31, 2000 and 1999

Note #1 - Organization and Significant Accounting Policies.   (continued)

    Net Income (Loss) Per Common Share.

        Net income (loss) per common share is computed using the weighted
average number of common shares outstanding during each period.

    Cash and Cash Equivalents.

        For purposes of reporting the statements of cash flows, cash and cash
equivalents include money market accounts and all highly liquid debt instruments
purchased with a maturity of three months or less.

    Income Taxes.

        Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist primarily of taxes currently due.

    Use of Estimates.

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

Note #2 - Note Payable.

        Note payable beneficially to a director and shareholder at January 31,
1999 was $271,151. The note was dated October 29, 1996 in the original amount of
$275,000 with 9.55% interest payable in 360 monthly installments of principal
and interest of $2,322. On January 31, 2000, the note was paid in full in
exchange for 271,000 shares of common stock. The balance of the note prior to
the exchange for common stock was $269,088.

Note #3 - Related Party Transactions.

    Lease.

        The Company leases office space on a month-to-month basis from an
officer of the Company. Rent expense was $1,950 and $9,750 for the years ended
January 31, 2000 and 1999, respectively.

    Consulting Agreements.

        The Company paid $134,400 and $47,180 during the years ended January 31,
2000 and 1999, respectively, to material interest parties, officers, directors
or advisors to the officers and directors for consulting and other fees.

                                       8.
<PAGE>   18

                        SFG CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            JANUARY 31, 2000 AND 1999

Note #3 - Related Party Transactions.   (continued)

    Note Payable.

        As discussed in Note #2 a director and shareholder loaned $275,000 to
the Company in 1996. This note was paid by an exchange of stock on January 31,
2000. Interest expense incurred on this note was $25,806 and $25,993 for the
years ended January 31, 2000 and 1999, respectively.

    Due From/To Officers.

        Balances represent non-interest bearing advances to/from officers and
directors that have no specific repayment terms.

Note #4 - Major Customers.

        The Company is currently leasing to one customer. The leases expire in
calendar 2000. Minimum future lease payments under the operating lease
agreements are $10,505.

Note #5 - Income Taxes.

        The Company files a consolidated tax return. Tax expense is allocated to
the subsidiaries based on their portion of taxable income to consolidated
taxable income.

        At January 31, 2000, the Company had net operating loss carryforwards of
approximately $2,650,000 that expire January 31, 2009 through 2020.

Note #6 - Stock Based Compensation.

        The Company has a stock option plan for employees and others who render
services to the Company or its subsidiaries. Under the Plan the Company may
grant options for up to 2,500,000 shares of common stock. The exercise price of
each option will be fixed by the Board of Directors but shall not be less than
the fair market value per share for the Company's stock on the date of the
grant. The board shall determine the term of the options; however, options to
10% or more shareholders shall not be exercisable more than five years after the
date of granting the option.

        As of January 31, 2000 and 1999 there were no options granted.

Note #7 - Going Concern.

        These financial statements are presented on the basis that the Company
is a going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The accompanying financial statements show recurring losses from
operations and that liabilities exceed assets by $295,272 and $592,771 at
January 31, 2000 and 1999, respectively. The operating leases of the Company
will terminate in 2000. The Company has elected to implement a business plan
that has allowed it to continue operations while identifying a merger partner.
There can be no assurance that a merger will be completed.

                                       9.