U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995.
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR
THE TRANSITION PERIOD FROM ____________ TO _____________.
Commission file number 0-3851
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SUNGROUP, INC.
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(Exact name of small business issuer as specified in its charter)
Tennessee 62-0790469
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9102 North Meridian Street, Suite 545,
Indianapolis, Indiana 46260
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(Address of principal executive offices)
(317) 844-7425
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes _____ No ______ N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, No Par Value 6,442,099 Common Shares
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(Title of class) (Shares outstanding as of June 30, 1995)
Transitional Small Business Disclosure Format (check one): Yes No X
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Page 1 of 12
SUNGROUP, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements 3
Consolidated Balance Sheet 3
June 30, 1995
Consolidated Statements of Operations 4
Three Months Ended June 30, 1995 and 1994
Consolidated Statements of Operations 5
Six Months Ended June 30, 1995 and 1994
Consolidated Statements of Cash Flow 6
Six Months Ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 11
Item 3. Defaults Upon Senior Securities
Signatures 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1995
(unaudited)
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(In Thousands)
Current Assets
Cash $ 280
Accounts Receivable (net) 1,406
Prepaid and Other 65
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Total Current Assets 1,751
Property And Equipment (Net) 1,781
Other Assets
Intangible Assets (net) 7,646
Other Assets 18
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Total Other Assets 7,664
Total Assets $ 11,196
========
Current Liabilities
Accounts Payable & Accrued
Expenses 478
Accrued Interest 3,139
Current Maturates of LT Debt 9,382
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Total Current Liabilities 12,999
Long Term Debt 10,422
Deferred Income Taxes 78
Stockholders' Equity
Common Stock - $1 par value,
authorized $10 million 3,771
Additional Paid in Capital 5,969
Accumulated Deficit (22,043)
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Total Stockholders' Equity (12,303)
Total Liability &
Stockholders' Equity $ 11,196
========
See "Notes to Consolidated Financial Statements"
3
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
1995 1994
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(In Thousands*)
Gross Revenue $2,426 $2,488
Agency Commission (193) (212)
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Net Revenue 2,223 2,276
Expenses
Technical & Programming 575 623
Selling and G & A 1,452 1,460
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2,027 2,083
Income From Operations 206 193
Other Income (Expense)
Interest Expense (156) (194)
Gain (Loss) on Disposal of Assets (5) (1)
Other 1 1
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(160) (194)
Income (Loss) Before Income Taxes and Extraordinary Item 46 (1)
Income Taxes 32 0
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Loss Before Extraordinary Item 14 (1)
Extraordinary Gain From Debt Extinguishment 0 0
Net Income (Loss) 14 (1)
Income (Loss) Per Common Share
Loss Before Extraordinary Item 0 0
Extraordinary Item 0 0
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Income (Loss) Per Share 0 0
Weighted Average Number Of
Common Shares Outstanding 6,442 6,442
Dividends Per Share 0 0
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" amounts
4
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30,
1995 1994
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(In Thousands*)
Gross Revenue $4,403 $4,242
Agency Commission (396) (359)
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Net Revenue 4,007 3,883
Expenses
Technical & Programming 1,031 1,047
Selling and G & A 2,785 2,757
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3,816 3,804
Income From Operations 191 79
Other Income (Expense)
Interest Expense (305) (375)
Loss on Disposal of Assets (4) (4)
Other 3 2
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(306) (377)
Loss Before Income Taxes and Extraordinary Item (115) (298)
Income Taxes 32 0
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Loss Before Extraordinary Item (147) (298)
Extraordinary Gain From Debt Extinguishment 180 52
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Net Income (Loss) 33 (246)
Income (Loss) Per Common Share
Loss Before Extraordinary Item (0.02) (0.05)
Extraordinary Item 0.03 0.01
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Income (Loss) Per Share 0.01 (0.04)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,442 6,442
DIVIDENDS PER SHARE 0 0
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" amounts
5
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
Six Months Ended
June 30,
1995 1994
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(In Thousands)
Operating Activities
Net Income (Loss) $ 33 ($246)
Reconciliation Of Net Income (Loss)
To Net Cash Provided By Operating Activities
Depreciation And Amortization 369 481
(Gain) Loss On Disposal Of Assets 4 4
Net Income Loss From Barter Transactions 43 16
Extraordinary Gain From Debt Extinguishment (180) (52)
Changes In:
Accounts Receivable (224) (257)
Prepaid Expenses And Other Current Assets 103 72
Accounts Payable And Accrued Expense 58 37
Interest Payable 176 240
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Net Cash Provided by Operating Activities 382 295
INVESTMENT ACTIVITIES
Purchase of Property and Equipment (26) (78)
Proceeds from Sale of Equipment 1 0
Received on Notes Receivable 0 40
Other (2) 5
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Net Cash Provided (used) by Investing Activities (27) (33)
FINANCING ACTIVITIES:
Repayments of Long-term Debt (438) (392)
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Net Cash Used by Financing Activities (438) (392)
INCREASE IN CASH (83) (130)
Cash, Beginning Of Year 363 302
Cash, End Of Quarter 280 172
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest Paid 123 130
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 21 21
Accrued Interest Added to New Notes in Restructuring 6 5
See "Notes to Consolidated Financial Statements"
6
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1995
(1) Consolidated Condensed Financial Statements. The accompanying unaudited
financial statements have been prepared in accordance with the instructions
to Form 10-QSB and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair presentation have
been included. While management believes that the disclosures presented
are adequate to make the information not misleading, it is suggested that
these financial statements be read in conjunction with the financial
statements and the related notes included in the Corporation's latest
report on Form 10-KSB. Operating results for the interim period are not
necessarily indicative of the results to be expected for the entire year.
(2) Income Taxes. Income taxes in the consolidated statement of operations
include deferred income tax provisions for all significant temporary
differences in recognizing income and expenses for financial reporting and
income tax purposes. The Corporation files consolidated income tax
returns.
At June 30, 1995, the Corporation had approximately $12 million of net
operating loss carry forwards, which expire in years 2002 through 2009.
At June 30, 1994, the Corporation had a cumulative net deferred tax asset.
This asset has been offset by an evaluation allowance since management
believes it is more likely than not that, except for the reversals of
taxable temporary differences, the Corporation will not generate income to
utilize all of the net operating loss carry forwards. In addition, the
Corporation had deferred state income tax expense of $78,000.
(3) Net Loss Per Common Share. Net loss per common share is determined on the
average number of common shares outstanding during the period. The
inclusion of stock warrants and stock options in the computation per common
share would be anti-dilutive since the Corporation incurred a net loss for
the three and six months ended June 30, 1995 and had nominal net income for
the three and six months ended June 30, 1995, and accordingly was not
considered in the calculation.
7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
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For the quarter and six months ended June 30, 1995 and 1994, the
Corporation operated the same properties.
Gross revenues for the quarter were down 2.5% or $26,000. This decrease is
attributable to a decrease in sales related to barter transactions. In
addition, the Corporation had a significant decline in revenues at its Bryan,
Texas property as a result of poor ratings and increased market competition.
Gross revenues for the six months were up $161,000 or 3.8%. The bulk of this
increase came with increased national advertising dollars during the first
quarter of 1995.
Agency commissions as a percentage of gross sales for the quarter ended
June 30, 1995, was approximately 8% in 1995 vs. 8.5% in 1994. This decline is a
result of the Corporation's stations in Pensacola, Florida and Bryan, Texas
having significantly less agency business in 1995 as a result of poor ratings.
Agency commissions as a percentage of gross sales for the six months ended June
30 was approximately 9% in 1995 and 8.5% in 1994. This increase is related to
the increase in national business at the Corporation's properties in 1995.
Technical and programming expenses were down $48,000 or 7.7% for the
quarter ended June 30, 1995, and down $16,000 or 1.5% for the six months ended
June 30. These decreases are a result of the Corporation having fewer barter
expenses associated with the promotion of the Corporation's stations during its
spring rating period. As discussed above, barter revenues were also
significantly down during the quarter and six months year to date.
Selling and general administrative expenses were down $8,000 or less than
1% for the quarter ended June 30, 1995, and up $28,000 or 1% for the six months
ended June 30, 1995. The increase for the year is a result of higher
compensation costs to the Corporation's general managers. Because of increased
operating profits during the first quarter of 1995 bonus compensation to station
general managers was higher.
Interest expense was down $38,000 or 19.5% for the quarter ended June 30,
1995, and down $75,000 or 18.7% for the six months ended June 30, 1995. This is
a result of the Corporation ceasing to accrue interest on a total of $2.9
million in debt in 1995 vs. 1994. The Corporation has had no contact with the
holders of this debt in over six years. Management believes that the likelihood
of the Corporation eventually being required to pay this interest is minimal
(see financial condition). The Corporation's overall interest expense compared
to the debt level continues to remain low as a result of a substantial amount of
the debt being restructured with an effective interest rate of 0% for book
purposes.
Changes in the loss on disposal of assets and other income was negligible
for the quarter and six months ended June 30, 1995.
8
The Corporation had no extraordinary items for the quarter ended June 30,
1995 or 1994. For the six month period ended June 30, 1995 and 1994, the
Corporation had one extraordinary item during each period. In February 1995,
the Corporation canceled a note issued in December 1989 with unpaid principal
and unpaid interest in excess of $180,000. This note has been treated as
canceled because it has been in default for more than four years and the
Corporation has been advised by counsel that the statute of limitations for
collection of this note is four years.
Financial Condition
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The Corporation's principal source of funds is cash flow provided by the
operation of the radio stations. Its primary needs include working capital,
capital expenditures to maintain property, plant, and equipment, and repayment
of debt. During the first six months of 1995, the Corporation was able to meet
its primary cash need of debt service ($561,000) with its station operating cash
flow of approximately $600,000.
The Corporation has operated with a working capital deficiency for several
years. At June 30, 1995, the deficit was approximately $11,248,000. This
deficit compares to a deficit of approximately $11,178,000 at December 31, 1994.
During the last several years, the Corporation has not generated sufficient
funds for working capital, debt repayment schedules as they currently exist, and
capital expenditures. The Corporation is currently in default on $6,418,000 in
debt and has scheduled debt repayments of $2,964,000 over the next 12 months.
As described in Part II, Item 3, "Defaults Upon Senior Security", the
Corporation continues to be in violation of certain provisions of its long-term
borrowings. The total principal value of all notes on which the Corporation is
currently in default is approximately $6,418,000. These notes have
approximately $3 million in unpaid accrued interest. The Corporation is in
default on this debt primarily because of non-payment of principal and interest.
Some lenders have received no payments from the Corporation for over six years
and several of the notes have either matured in full or have had substantial
principal payments due since 1991. Under applicable state law, scheduled debt
payments which are not made after a specified period of time (statute of
limitations) are not collectible by the creditor.
In February 1995, the Corporation treated as canceled a note issued in
December, 1989, with unpaid principal of $128,749 and unpaid interest of
$51,535. This note has been treated as canceled because it has been in default
for more than four years, and the Corporation has been advised by counsel that
the applicable statute of limitations for collection of this note is four years.
Also, at June 30, 1995, the Corporation had ceased accruing interest on
$2,200,000 of its notes and on $750,000 of its notes. The holders of these
notes have not made an effort to collect on them for more than six years.
The Corporation plans to deal with its weak financial condition by
continuing to develop a strong profit base with its current stations and
focusing on the restructuring of secured and unsecured debts. The Corporation
continues to negotiate with some of its secured lenders in
9
order to restructure its debt obligations in such a way they can be paid out of
the net cash now being generated by the Corporation's broadcast properties.
The Corporation has had success in the past in renegotiating with creditors
on extended payment pay-outs. However, the Corporation was not successful in
renegotiating any notes in 1994 or the first half of 1995, and there is no
certainty that additional creditors with whom the Corporation is now in default
will accept renegotiated terms in the future. Failure to renegotiate
successfully with these lenders will severely hamper the Corporation's ability
to continue as a going concern. The Corporation will not generate sufficient
funds in 1995 to service its current operating expenses, capital needs, and debt
obligations as they are currently structured.
10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
There have been no changes in legal proceedings since the Corporation's
last filing.
Item 3. Defaults Upon Senior Securities
Below is a table of the Corporation's debt instruments which were in
default at June 30, 1995, each of which is an amount greater than 5% of the
Corporation's total assets.
REASON FOR PRINCIPAL IN INTEREST IN
HOLDER DEFAULT DEFAULT DEFAULT
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Note Payable Non-payment
Individual principal and interest $ 525,000 $ 293,000
Default Since 01/01/90
Note Payable Bank Note was due
(RTC Receivership) in full on April 28, 1990 $2,162,820 $1,263,000
Default Since 05/01/88
Note Payable Bank Non-payment of
(FDIC Receivership) principal and interest $3,500,000 $1,480,000
Default Since 06/30/90
11
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SUNGROUP, INC.
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(Registrant)
August 10, 1995 /S/ John W. Biddinger
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Date John W. Biddinger
Principal Operating Officer
August 10, 1995 /S/ John E. Southwood, Jr.
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Date John E. Southwood, Jr.
Principal Financial Officer
12