UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 33-42498
SUN NETWORK GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-024624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 CORAL RIDGE DRIVE, # 140
CORAL SPRINGS, FL 330771
(954) 360-4080
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
(Former name, former address and former fiscal year,
if changed since last report)
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 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK - 21,848,487 shares outstanding as of June 30, 2002.
EXPLANATORY NOTE
The purpose of this amendment to the company's quarterly report on Form 10-Q is
to reflect changes and provide information related to the restatement described
below.
The accompanying consolidated financial statements for the six-month periods
ended June 30, 2002, has been restated to reflect the recently discovered fact
that the prior March 31, 2002 and December 31, 2001 consolidated financial
statements did not include an aggregate $106,250 of accrued compensation expense
pursuant to a July 16, 2001 employment agreement with the Company's chief
executive officer. $119,100 of consulting costs treated as a deferred debt
issuance cost should have been expensed, $5,000 of legal fees expensed should
have been capitalized as deferred debt issuance cost, and the deferred debt
issuance costs should have been classified as current. The inclusion of these
items in the revised June 30, 2002 consolidated financial statements has the
effect of decreasing assets by $114,400, increasing current liabilities by
$106,250, and increasing accumulated deficit by $220,350.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, the company has amended and
restated in its entirety each item of the 2002 Second Quarter Form 10-Q that has
been affected by the restatement. In order to preserve the nature and character
of the disclosures as of August 13, 2002, the date on which the Form 10-Q for
the interim period ended June 30, 2002 was originally filed, no attempt has been
made in this Form-10Q/A to modify or update such disclosures except as required
to reflect the effects of the restatement.
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
Restated Financial Statements for the quarter ending June 30, 2002 are attached
hereto following the Signatures page.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company acquired all of the assets of RadioTV Network, Inc ("RTV") on July
16, 2001 in a transaction treated as a recapitilization of RTV. RTV has been
developing and operating, for the past few years, a new television network that
produces and distributes TV adaptations of top rated radio programs.
On June 27, 2002 the Company entered into agreement with four (4) institutional
investors to provide the Company $750,000 in capital through a Secured
Convertible Debenture Offering ("Debenture"). The Company has filed a SB-2
Registration Statement in connection with the Debenture and anticipates
receiving the full funding from the Debenture by the 4th Quarter 2002. As of
June 30, 2002 the Company had received $250,000 of the Debenture financing.
On June 28, 2002 the Company entered into an Option Agreement and Plan of Merger
("Agreement") to acquire all of the assets of Live Media Enterprises, Inc
("Live"), a west coast based independent producer of consumer lifestyle events.
The Company has agreed to loan Live $50,000, pending the completion of the
acquisition and, as currently contemplated in the Agreement, the Company will
issue 8,000,000 shares of its common stock to acquire Live in a transaction
expected to close by the 4th Quarter 2002.
The Company intends to use the net proceeds from the Debenture to develop,
operate and expand the businesses of RTV and Live and to continue to seek other
opportunities for the Company. The Company believes that if it successfully
completes the Debenture, on a timely basis, it will have sufficient capital to
operate in the near-term. The Company will, however, continue to seek additional
capital to fund further development, expansion and operation of its businesses.
The Debenture and acquisition of Live will result in significant shareholder
dilution upon the completion of the acquisition and conversion of the Debenture.
The Company had no revenues in the 2nd Quarter as it continued to focus on
raising capital. The Company had a net loss of $195,363 in the Quarter compared
with $38,805 in the prior Quarter. The increase is principally due to a reserve
for accrued compensation under an employment agreement, extraordinary
professional fees of filing the Form SB-2, consulting fees of $119,100 and an
officer's trip to Europe to facilitate the Company's listing on the Frankfort
Stock Exchange.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
3
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its Chief Executive Officer have been named in a lawsuit filed
in the Southern District of Florida captioned Florida Securities Funding
Partnership v. Sun Network Group, Inc et al, case no. 02-80360 in connection
with a stock purchase of Company shares from a third party. The Partnership
alleges that the Company was involved in a conspiracy with an outside
shareholder to sell shares at an unfavorable price to the Partnership. No
damages have been specified or claimed. The Company has filed a motion to
dismiss the claims and believe the lawsuit is without merit and frivolous.
Item 2. Changes in Securities and Use of Proceeds.
On June 27, 2002 the Company entered into agreement with four (4) institutional
investors for $750,000 in Secured Convertible Debentures and 750,000 warrants.
The Company has filed a Form SB-2 Registration Statement with the SEC describing
the details of this transaction, which, upon conversion, will result in
substantial dilution to current Company shareholders. The Company shall use any
proceeds derived from the Debenture or sale of warrants for general operating
purposes.
Item 3. Defaults Upon Senior Securities.
NONE.
Item 4. Submission of Matters to a Vote of Security Holders.
NONE.
Item 5. Other Information.
NONE.
Item 6. Exhibits and Reports on Form 8-K
NONE.
4
SIGNATURES*
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN EXPRESS GROUP, INC.
(Registrant)
Date: November 8, 2002 T. Joseph Coleman
/s/ T. Joseph Coleman
---------------------------
T. Joseph Coleman,
President, Director and Ceo
Date November 8, 2002 William H. Coleman
/s/ William H. Coleman
----------------------
William H. Coleman,
Secretary and Director
Sun Network Group, Inc.
and Subsidiary
Consolidated Financial Statements
June 30, 2002
Sun Network Group, Inc.
and Subsidiary
Contents
Page(s)
-------
Consolidated Balance Sheets .................................................F-1
Consolidated Statements of Operations .......................................F-2
Consolidated Statements of Cash Flows .......................................F-3
Notes to Consolidated Financial Statements ..............................F-4 - 6
Sun Network Group, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
June 30,
2002 December
(Unaudited) 31, 2001
--------- ---------
Restated
(Note7)
---------
Current Assets
Cash ............................................... $ 224,070 $ 5,321
Deferred debt issuance cost ........................ 20,000 -
--------- ---------
Total Current Assets ............................... 244,070 5,321
--------- ---------
Other Assets
Prepaid advertising ................................ 35,200 35,200
--------- ---------
Total Other Assets ................................. 35,200 35,200
--------- ---------
Total Assets ....................................... $ 279,270 $ 40,521
========= =========
Liabilities and Stockholders' Deficiency
Current Liabilities
Accounts payable ................................... $ 11,518 $ 9,937
Accrued compensation, related party ................ 143,750 68,750
Due to stockholders' ............................... 20,442 29,263
--------- ---------
Total Current Liabilities .......................... 175,710 107,950
--------- ---------
Long Term Liabilities
Convertible debenture, net of discount ............. 240,570 -
--------- ---------
Total Liabilities .................................. 416,280 107,950
--------- ---------
Stockholders' Deficiency
Common stock, $0.001 par value,
100,000,000 shares authorized,
21,848,487 and 21,665,399 issued
and outstanding, respectively ................... 21,848 21,665
Common stock issuable (300,000 shares) ............. 300 -
Additional paid-in capital ......................... 662,071 486,734
Accumulated deficit ................................ (821,229) (575,828)
--------- ---------
Total Stockholders' Deficiency ..................... (137,010) (67,429)
--------- ---------
Total Liabilities and Stockholders' Deficiency ..... $ 279,270 $ 40,521
========= =========
See accompanying notes to consolidated financial statements.
F-1
Sun Network Group, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Restated Restated
(Note7) (Note7)
------------ ------------
Revenues ............................. $ - $ - $ - $ 35,200
Operating Expenses
Compensation ......................... 40,655 13,000 81,016 21,000
Consulting ........................... 119,100 - 119,100 33,395
General and administrative ........... 23,534 17,217 31,661 27,299
Professional fees .................... 12,074 8,588 13,624 20,088
------------ ------------ ------------ ------------
Total Operating Expenses ............. 195,363 38,805 245,401 101,782
------------ ------------ ------------ ------------
Loss from Operations ................. (195,363) (38,805) (245,401) (66,582)
Net Loss ............................. $ (195,363) $ (38,805) $ (245,401) $ (66,582)
============ ============ ============ ============
Net Loss Per Share - Basic and Diluted $ (0.01) $ - $ (0.01) $ (0.01)
============ ============ ============ ============
Weighted Average Shares Outstanding -
Basic and Diluted .................. 22,045,190 13,333,333 21,860,456 12,931,602
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-2
Sun Network Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2002 2001
--------- ---------
Restated
(Note7)
---------
Cash Flows from Operating Activities:
Net loss ........................................... $(245,401) $ (66,582)
Adjustments to reconcile net loss to net cash
used in operating activities:
Settlement income .................................. - (35,200)
Stock for services ................................. 84,000 33,395
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ................................ - 300
Increase (decrease) in:
Accounts payable ................................... 1,581 4,283
Accrued compensation, related party ................ 75,000 -
--------- ---------
Net Cash Used in Operating Activities .............. (84,820) (63,804)
--------- ---------
Cash Flows from Financing Activities:
Cash overdraft ..................................... - 716
Proceeds from sale of common stock ................. 82,390 60,000
Loan proceeds from stockholder ..................... 20,442 -
Proceeds from convertible debt ..................... 250,000 -
Deferred debt issuance cost ........................ (20,000) -
Repayment of loans from stockholder ................ (29,263) -
--------- ---------
Net Cash Provided by Financing Activities .......... 303,569 60,716
--------- ---------
Net Increase (Decrease) in Cash .................... 218,749 (3,088)
Cash at Beginning of Period ........................ 5,321 3,088
--------- ---------
Cash at End of Period .............................. $ 224,070 $ -
========= =========
See accompanying notes to consolidated financial statements.
F-3
Sun Network Group, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements of Sun Network
Group, Inc. and Subsidiary (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules and regulations of the United States Securities and Exchange Commission
for interim financial information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
consolidated financial position and results of operations. It is management's
opinion, however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair consolidated
financial statements presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year. For further
information, refer to the audited financial statements and footnotes of RadioTV
Network, LLC for the years ended December 31, 2001, 2000 and 1999 included in
the Current Report on Form 8-K on Sun Express Group, Inc.
Note 2 Convertible Debenture and Warrants
On June 27, 2002, the Company entered into a Securities Purchase Agreement to
issue and sell 12% convertible debentures, in the aggregate amount of $750,000,
convertible into shares of common stock, of the Company. The Company is
permitted to use the proceeds to make one or more loans for a legitimate
business purpose, which such loans, in the aggregate, may not exceed $100,000.
As of June 27, 2002, $250,000 in convertible debentures were issued to various
parties. The holders of this debt have the right to convert all or any amount of
this debenture into fully paid and non-assessable shares of common stock at the
conversion price. The conversion price generally is the lesser of (a) 50% of the
market value of the common stock as defined in the debenture or (b) $0.15.
Interest is payable either quarterly or at the conversion date at the option of
the holder. The convertible debentures mature on June 27, 2003 and are secured
by substantially all present and future assets of the Company.
The Company paid $20,000 of legal fees related to the debenture issuances and
recorded these fees as a deferred debt issuance cost asset to be amortized over
the one-year term of the debentures. In connection with the convertible
debentures issued, warrants to purchase 250,000 common shares were issued to the
holders at an exercise price per share of $0.15. The warrants are exercisable
immediately and through the third anniversary of the date of issuance. These
warrants were treated as a discount on the convertible debenture and valued
under SFAS No. 123 using the Black-Sholes option-pricing model. The discount
will be amortized over the life of the loans starting on July 1, 2002. If the
registration statement relating to the debentures is not declared effective with
in 90 days of June 27, 2002 or loses quotation in the NASD OTCBB the Company is
obligated to pay a fee to the debenture holders equal to 2% per month on the
principal balance outstanding. The convertible debenture liability is as follows
at June 30, 2002:
Convertible debenture $ 250,000
Less: discount on debenture (9,430)
---------
Convertible debenture, net $ 240,570
=========
F-4
Note 3 Commitment and Contingencies
The Company and its Chief Executive Officer have been named in a lawsuit filed
in the Southern District Court of Florida. The Company is defending itself and
has filed a motion to dismiss the matter. The lawsuit alleges the Company and
its chief executive officer conspired to lower the Company's share price after a
third party shareholder of the Company sold a block of his shares to a Florida
securities partnership. The Company is not a party to any other litigation and
management has no knowledge of any other threatening or pending litigation.
During the three months ended June 30, 2002, the Company accrued $37,500 under
an employment agreement.
Note 4 Common Stock Issuances
In March 2002, the Company issued 183,088 common shares at $0.45 per share to an
investor for total proceeds of $82,390.
During April through June 2002, the Company committed to issue 300,000 common
shares in consideration of consulting services performed during that period. The
$84,000 value of these shares was computed based on the trading price of the
common stock on each date the shares were earned.
Note 5 Option Agreement and Plan of Merger
An Option Agreement and Plan of Merger (the "Agreement") between the Company and
Live Media Enterprises ("Live") was entered into as of June 28, 2002. Live
granted the Company the exclusive option to acquire Live and merge Live into the
Company upon executing of a formal Agreement for a six month period commencing
June 28, 2002. The Company shall acquire all capital stock or assets of Live
that will result in a tax-free combination of Live and the Company with Live
being operated as a wholly-owned subsidiary of the Company. In consideration for
the Agreement, the Company shall issue and pay to Live shareholders an aggregate
of 8,000,000 shares of the Company's common stock. Additionally, the Company
will agree to loan Live up to $50,000 to process its business and will be
payable per terms of a promissory note.
In addition, Live shareholders will be granted 4,100,000 warrants for the
Company's common shares exercisable as stipulated at strike prices and terms,
favorable to the Company, to be determined.
Note 6 Going Concern
As reflected in the accompanying consolidated financial statements, the Company
had an accumulated deficit of $821,229 through June 30, 2002, operating losses
for the six months ended June 30, 2002 of $245,401 and cash used in operations
for the six months ended June 30, 2002 of $84,820. The ability of the Company to
continue as a going concern is dependent on the Company's ability to further
implement its business plan and generate revenues. The consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
F-5
As discussed in Notes 2 and 8, the Company received $500,000 in funding and a
commitment for an additional $250,000. Management is currently seeking
additional funding and acquisitions. Management believes that the actions
presently being taken to further implement its business plan and generate
additional revenues provide the opportunity for the Company to continue as a
going concern.
Note 7 Restatement
Subsequent to the filing of the Company's Form 10-QSB for the quarter ended June
30, 2002 management became aware that the prior March 31, 2002 and December 31,
2001 consolidated financial statements did not include an aggregate $106,250 of
accrued compensation expense pursuant to a July 16, 2001 employment agreement
with the Company's chief executive officer, $119,100 of consulting costs treated
as a deferred debt issuance cost should have been expensed, $5,000 of legal fees
expensed should have been capitalized as deferred debt issuance cost, and the
deferred debt issuance costs should have been classified as current. The
inclusion of these items in the revised June 30, 2002 consolidated financial
statements has the effect of decreasing assets by $114,400, increasing current
liabilities by $106,250, and increasing accumulated deficit by $220,350.
Note 8 Subsequent Event
On August 8, 2002, an additional $250,000 of convertible debentures and warrants
to purchase 250,000 common shares were purchased from the Company for $250,000
with the terms similar to that described in Note 2.
F-6