As filed with the Securities and Exchange Commission on November 8, 2002
Registration No. 333-97295
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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 33071
(954) 360-4080
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
T. JOSEPH COLEMAN, PRESIDENT
1440 Coral Ridge Drive, # 140,
Coral Springs, FL 33071
(954) 360-4080
(Name, address, including zip code, and telephone number
including area code, of agents for service)
____________________________________
Copies to:
Stephen J. Thomas, Esq.
The Thomas Group
416 Main Street, Suite 1112
Peoria, IL 61602
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Amount of
Title of each class of Amount to be Proposed maximum Proposed maximum registration
securities to be registered registered (1) offering price per unit (2) aggregate offering price fee (4)
- --------------------------- ----------------- --------------------------- ------------------------ ------------
Common Stock,
.001 par value 76,351,513 Shares $.015 (2) $1,149,773 $105.78
underlying debentures
Common stock,
.001 par value 1,500,000 Shares $.15 (3) $225,000 $20.70
underlying warrants(3)
Total 78,151,513 Shares 1,374,773 $126.48
=======================================================================================================================
- ----------------------
(1) Includes shares of our common stock, par value $0.001 per share, which may
be offered pursuant to this registration statement, which shares are issuable
upon conversion of secured convertible debentures and upon exercise of related
warrants.
ii
For purposes of estimating the number of shares of common stock to be included
in this registration statement, we calculated 200% of the number of shares of
our common stock issuable upon conversion of the debentures and upon exercise of
the warrants as limited by the number of shares the Company is authorized to
issue under its Certificate of Incorporation. In addition to the shares set
forth in the table, the amount to be registered includes an indeterminate number
of shares issuable upon conversion of or in respect of the debentures and the
warrants, as such number may be adjusted as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416. Should the
conversion price of the secured convertible debentures result in our having
insufficient shares, we will not rely upon Rule 416, but will file a new
registration statement to cover the resale of such additional shares should that
become necessary.
(2) Estimated solely for purposes of calculating the registration fee. The
registration fee is calculated in accordance with Rule 457(c) based upon $.015,
which is the average of the bid and asked prices of our common stock reported on
the OTC Bulletin Board on October 30, 2002.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with rule 456(g). As provided in that Rule, the offering price of the
shares underlying the warrants is deemed to be the exercise price, which is
higher that the fluctuating market price of the underling common stock. (4) A
registration fee of $331.20 was previously paid at the time of the initial
filing of this registration statement.
iii
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
iv
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission becomes effective.
This prospectus is not an offer to sell these securities and it is not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
PROSPECTUS SUBJECT TO COMPLETION; DATED NOVEMBER 5, 2002
78,151,513 SHARES OF COMMON STOCK
OF
SUN NETWORK GROUP, INC.
This prospectus relates to the offer and sale from time to time by the selling
stockholders of up to 78,151,513 shares of our common stock, all of which are
issuable upon the conversion of our 12% secured convertible debentures and the
exercise of warrants. The prices at which the selling stockholders may sell the
shares will be determined by the prevailing market price for the shares or in
negotiated transactions.
We will not receive any of the proceeds from the sales of shares by the selling
stockholders but we may receive funds from the exercise of their warrants. We
have agreed to pay the costs of registering the shares under this prospectus,
including legal and accounting fees.
Our common shares are traded on the Over-The-Counter Bulletin Board under the
symbol "SNNW". The last reported sale price of our common shares on the OTC
Bulletin Board on November 4, 2002 was $0.035 per share.
OUR COMMON STOCK BEING OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8 BEFORE YOU
DECIDE TO PURCHASE ANY COMMON STOCK.
Neither the Securities and Exchange Commission nor any state commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is ______________.
TABLE OF CONTENTS
Prospectus Summary ......................................................... 1
The Offering ............................................................... 2
Selected Financial Data .................................................... 7
Risk Factors ............................................................... 8
Forward-Looking Statements ................................................. 14
Use Of Proceeds ............................................................ 14
Market For Common Equity And Related Stockholders Matters .................. 15
Management's Discussion And Analysis Of Financial Condition And
Results Of Operations ...................................................... 16
The Company ................................................................ 19
Directors, Executive Officers, Promoters And Control Persons ............... 23
Executive Compensation ..................................................... 24
Security Ownership Of Certain Beneficial Owners And Management ............. 25
Certain Relationships And Related Transactions ............................. 26
Selling Stockholders ....................................................... 26
Plan Of Distribution ....................................................... 29
Description Of Securities .................................................. 32
Disclosure Of Commission Position On Indemnification For Securities
Act Liabilities ............................................................ 33
Where You Can Find Additional Information .................................. 34
Legal Matters .............................................................. 34
Experts .................................................................... 34
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THIS
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS
PROSPECTUS, REFERENCES TO THE "COMPANY", "WE", "US" AND "OUR" REFER TO SUN
NETWORK GROUP, INC., A FLORIDA CORPORATION.
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. You should read the following summary together with the more
detailed information regarding our business and our financial statements and the
related notes appearing elsewhere in this prospectus.
OUR COMPANY
We are a Company that is developing new media businesses that we have acquired
or will be attempting to acquire. We operate a wholly owned subsidiary the
RadioTV Network, Inc ("RTV") and WE HAVE ENTERED INTO A PARTNERSHIP AGREEMENT
WITH SPORTS BYLINE USA, L.P. TO CREATE, OWN AND OPERATE A NEW RADIO NETWORK,
RADIO X. RTV HAS NOT PRODUCED OR DISTRIBUTED ANY PROGRAMS FOR OVER A YEAR;
HOWEVER, THE COMPANY INTENDS TO DEVELOP, PRODUCE AND DISTRIBUTE NEW PROGRAMS
DURING THE REMAINDER OF THIS YEAR AND THROUGHOUT FISCAL 2003 AND TO PURSUE
ADDITIONAL STRATEGIC BUSINESS COMBINATIONS AND OTHER POSSIBLE BUSINESS
OPPORTUNITIES DURING THE SAME TIME FRAME.
We were incorporated in June 1991 as Sun Express Group, Inc and owned and
operated Destination Sun Airlines until its principal assets were sold to Air
Tran Holdings in 1994. The Company was inactive until acquiring the assets of
RTV, via merger on July 16, 2001, after which the Company's name was changed to
Sun Network Group, Inc. We also have ENTERED INTO A PARTNERSHIP AGREEMENT DATED
SEPTEMBER 5, 2002 TO OWN AND OPERATE A NEW RADIO NETWORK, RADIO X NETWORK, WITH
SPORTS BYLINE USA, L.P.
The Company has only one full-time employee and has an accumulated deficit of
$575,828 as of year ending December 31, 2001 and a net loss of $131,301 for the
six months ending June 30,2002. The Company does not expect to be profitable
for, at least, another year and the Company's auditors have issued a "going
concern" opinion in connection with the audit of the Company's financial
statements for the fiscal year ended December 31, 2001.
1
We have offices at 1440 Coral Ridge Drive #140, Coral Springs, Florida 33071,
tel no. 954-360-4080 and offices at 5670 Wilshire Blvd., Suite 1300, Los
Angeles, CA. 90036. We maintain an Internet web site at
http://www.sunnetworkgroup.com and rtvnet.com. Information contained on our web
site is for informational purposes only and is not incorporated by reference
into the registration statement of which this prospectus is part.
THE OFFERING
NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING PRIOR
TO THIS OFFERING 22,148,487 shares (1)
COMMON STOCK OFFERED BY
SELLING STOCKHOLDERS up to 76,351,513 shares, includes 200% of
the shares underlying the (i) $750,000 of
convertible debentures based on a conversion
price of $0.01 per share of our common
stock, assuming full conversion of the
convertible debentures and limited by the
number of shares the Company is authorized
to issue under its Certificate of
Incorporation and (ii) warrants to purchase
750,000 shares of our common stock, assuming
full exercise of the warrants.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of common
stock offered by this prospectus; however, we will receive estimated gross
proceeds of up to $112,500 if the selling stockholders exercise warrants to
purchase an aggregate of 750,000 shares of our common stock covered by this
prospectus, based on $.15, the exercise price for the warrants. Of the warrants
to purchase an aggregate of 750,000 shares of our common stock that may be
exercised, warrants to purchase 500,000 shares of our common stock have been
issued and warrants to purchase 250,000 shares of our common stock are to be
issued only after the effectiveness of this registration statement. We currently
intend to use such net proceeds, if any, for working capital and general
corporate purposes.
2
PLAN OF DISTRIBUTION
The offering of our shares of common stock is being made by certain of our
stockholders who wish to sell their shares. Sales of our common stock may be
made by the selling stockholders in the open market or in privately negotiated
transactions and at fixed or negotiated prices.
RISK FACTORS
There are substantial risks involved in investing in our company. For a
discussion of certain factors you should consider before buying shares of our
common stock, see the section entitled "Risk Factors".
OTC BULLETIN BOARD SYMBOL "SNNW"
______________
(1) Such figure does not include shares of our common stock to be issued upon
exercise of outstanding warrants and upon conversion of outstanding convertible
debentures.
OUR SECURITIES PURCHASE AGREEMENT
On June 27, 2002, we entered into a securities purchase agreement with an
investment group to raise up to $750,000 through the sale to the investors of
our 12% secured convertible debentures with warrants to purchase up to 750,000
shares of our common stock. Upon execution of the securities purchase agreement,
the investors purchased $250,000 in principal amount of our 12% secured
convertible debentures with related warrants to purchase 250,000 shares of our
common stock. On August 8, 2002, pursuant to the terms of the securities
purchase agreement, the investors purchased an additional $250,000 of the 12%
convertible debentures and warrants to purchase 250,000 shares of our common
stock in connection with the initial filing of this registration statement with
the Securities and Exchange Commission (SEC). Under the terms of the securities
purchase agreement, the investors are obligated to purchase the remaining
$250,000 of the 12% debentures and warrants to purchase 250,000 shares of our
common stock within ten days of the date this registration statement is declared
effective by the SEC and upon satisfaction of additional conditions by the
Company.
3
The additional conditions that must be satisfied by the Company prior to the
purchase by the investors of the remaining convertible debentures and warrants
consist of the following: (i) the Company's representations and warranties
contained in the securities purchase agreement must be true and correct in all
material respects on the date of purchase; (ii) there is no litigation, statute,
rule, regulation, executive order, decree, ruling or injunction that has been
enacted, entered, promulgated or endorsed by or in any court or government
authority of competent jurisdiction or any self-regulatory organization having
requisite authority which prohibits the transactions contemplated by the
securities purchase agreement; (iii) no event has occurred which could
reasonably be expected to have a material adverse effect on the Company; (iv)
the shares of common stock underlying the convertible debentures and warrants
have been authorized for quotation on the Over-The-Counter Bulletin Board
(OTCBB) and trading in our common stock on the OTCBB has not been suspended by
the SEC or the OTCBB; (v) the Company shall provide a legal opinion to the
investors; and (vi) the Company shall provide certain certificates of its
officers to the investors regarding the Company's capitalization and the
truthfulness and correctness of its representations and warranties in the
securities purchase agreement.
The securities purchase agreement also contains covenants and
representations and warranties of the investors and the Company that are
customary in transactions of this type. In particular, the Company has agreed to
have authorized a sufficient number of shares of our common stock to provide for
the full conversion of the debentures and exercise of the warrants then
outstanding and to have reserved at all times for issuance at least two times
the number of shares that is the actually issuable upon full conversion of the
debentures and full exercise of the warrants. Furthermore, the Company has
agreed not to negotiate or contract, without the prior written consent of a
majority-in-interest of the investors, with any party to obtain additional
equity financing that involves the issuance of common stock at a discount to the
market price of the common stock on the date of issuance or the issuance of
convertible securities that are convertible into an indeterminable number of
shares of common stock or the issuance of warrants during the period beginning
on June 27, 2002 and ending on the later of (i) March 27, 2003 and (ii) one
hundred eighty days (180) from the date the registration statement is declared
effective by the SEC, subject to certain exceptions.
Under the terms of the securities purchase agreement, in the event the
Company breaches one or more of its covenants or representations or warranties,
the Company may be obligated to pay to the investors liquidated damages equal to
three percent (3%) of the outstanding debentures per month ($22,500 per month
based upon $750,000 of debentures outstanding), prorated for partial months, in
cash or unregistered shares of common stock (issued at a price equal to the
conversion price of the debentures determined as of the time of payment), at the
option of the investors, for such time that the breach remains uncured.
If the registration statement is not declared effective, the investors
have no obligation to purchase the remaining 12% secured convertible debentures
or the related warrants.
4
The secured convertible debentures bear interest at 12% per annum and mature
on one year from the date of issuance. The 12% debentures are convertible at any
time at the option of the holder into shares of our common stock, provided at no
time may a holder of our 12% debentures and its affiliates own more than 4.9% of
our outstanding common stock. The conversion price of our common stock used in
calculating the number of shares issuable upon conversion, or in payment of
interest on the 12% debentures, is the lesser of
o fifty percent of the average of the lowest three intra-day
trading prices for our common stock during the twenty trading
day period ending one trading day prior to the date the
conversion notice is sent by the holder to the borrower; and
o a fixed conversion price of $.15.
We are be obligated to pay a penalty of $2,000 per day to the investors if we
fail to deliver the shares of our common stock issuable upon a conversion of the
debentures within two business days following the receipt of the investors'
notice of conversion.
The number of shares of common stock issuable upon conversion of the debentures
is determined by dividing that portion of the principal of the debenture to be
converted by the conversion price. For example, assuming conversion of $750,000
of debentures on November 1, 2002, a conversion price of $0.01 per share, the
number of shares issuable, ignoring the 4.9% limitation discussed above, upon
conversion would be:
$750,000/ $0.01 = 75,000,000 shares
The conversion price of the debentures may be adjusted in certain
circumstances such as if we distribute a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares, or
take such other actions as would otherwise result in dilution of the selling
stockholders' ownership. Also, the debentures contain typical anti-dilution
provisions in connection with our issuance of shares of our common stock or any
rights, options, warrants to purchase shares of our common stock at a price less
than the market price of our shares as quoted on the OTCBB.
The debentures are secured by a security agreement under which we
pledged substantially all of our assets, including our goods, fixtures,
equipment, inventory, contract rights and receivables.
OUR COVENANTS WITH THE 12% DEBENTURE HOLDERS
We may not, without the prior written consent of our 12% debenture holders, do
any of the following:
5
o pay, declare or set apart for payment any dividend or other
distribution on shares of our capital stock other than shares
issued in the form of a stock dividend;
o redeem, repurchase or otherwise acquire any shares of our
capital stock or any warrants, rights or options to purchase
or acquire our shares of capital stock;
o incur any indebtedness, except to trade creditors or financial
institutions incurred in the ordinary course of our business
or to pay the 12% debentures;
o sell, lease or otherwise dispose of any significant portion of
our assets outside of the ordinary course of our business;
o lend money, give credit or make advances to any person or
entity except in the ordinary course of our business (to a
maximum of $100,000); and
DESCRIPTION OF WARRANTS
The warrants purchased by the investors on June 27, 2002 entitle the investors
to purchase 250,000 shares of our common stock at an exercise price equal to
$0.15 per share. THE INVESTORS PURCHASED ADDITIONAL WARRANTS ON AUGUST 8, 2002
THAT ENTITLE THEM TO PURCHASE 250,000 ADDITIONAL SHARES OF OUR COMMON STOCK
UNDER THE SAME TERMS AS THE WARRANTS PURCHASED BY THE INVESTORS ON JUNE 27,
2002. THE INVESTORS ARE OBLIGATED TO PURCHASE ADDITIONAL WARRANTS HAVING THE
SAME TERMS AS THE WARRANTS PREVIOUSLY ISSUED TO PURCHASE 250,000 SHARES OF OUR
COMMON STOCK WITHIN TEN DAYS OF THE DATE THIS REGISTRATION STATEMENT IS DECLARED
EFFECTIVE BY THE SEC AND SATISFACTION OF ADDITIONAL CONDITIONS BY THE COMPANY.
The warrants expire three years from the date of issuance. The warrants are
subject to exercise price adjustments upon the occurrence of certain events
including stock dividends, stock splits, mergers, reclassifications of stock or
our recapitalization. The exercise price of the warrants is also subject to
reduction if we issue shares of our common stock on any rights, options or
warrants to purchase shares of our common stock at a price less than the market
price of our shares as quoted on the OTC Bulletin Board.
REGISTRATION RIGHTS AGREEMENT WITH THE INVESTORS
Simultaneously with the execution of the securities purchase agreement, we
entered into a registration rights agreement with the investors. Under the
registration rights agreement, if the registration statement relating to the
6
securities offered by this prospectus is not declared effective by the SEC on or
before September 25, 2002, we are obligated to pay a registration default fee to
the 12% debenture holders equal to the principal of the debenture outstanding
multiplied by .02 multiplied by the sum of the number of months that the
registration statement is not yet effective (or on a pro rata basis). For
example, if the registration statement becomes effective one (1) month after the
end of such ninety-day period, we would pay $7,500 for each $250,000 debenture
outstanding. If thereafter, sales could not be made pursuant to the registration
statement for an additional period of one (1) month, we would pay an additional
$7,500 for each $250,000 of outstanding debenture principal amount. However, the
investors have not notified us regarding the payment by us of any registration
default fee.
SELECTED FINANCIAL DATA
The following information is taken from our audited financial
statements as of December 31, 2001 and our unaudited statements as of June 30,
2002. The financial information set forth below should be read in conjunction
with the more detailed financial statements and related notes appearing
elsewhere in this prospectus and should be read along with the section entitled
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Six Months Year Ended
Ended June December 31,
30, 2002 2001
---------- ------------
SUMMARY OPERATING DATA
- ---------------------------------
Total Revenues. . . . . . . . . . $0 $ 0
Expenses. . . . . . . . . . . . . $245,401 $200,135
Other Income. . . . . . . . . . . - $35,200
Net Loss. . . . . . . . . . . . . $245,401 $164,935
Net Loss Per Common Share . . . . $0.01 $0.01
BALANCE SHEET DATA
- ---------------------------------
Cash . . . . . . . . . . . . . . $224,070 $5,321
Total Assets. . . . . . . . . . . 279,270 40,521
Total Liabilities . . . . . . . . 416,280 107,950
Shareholders' equity (deficiency) (137,010) 67,429
7
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition and
results of operations and could result in a complete loss of your investment.
ALL OF THE MATERIAL RISKS OF THIS INVESTMENT ARE DESCRIBED HEREIN.
WE HAVE NOT EARNED MEANINGFUL REVENUES AND WE HAVE HAD LOSSES SINCE OUR
INCEPTION. WE EXPECT LOSSES TO CONTINUE IN THE FUTURE AND THERE IS A RISK WE MAY
NEVER BECOME PROFITABLE.
We had a loss of $245,401 for the six months ended June 30, 2002. We incurred
operating losses of $200,135 forthe fiscal year ended December 31, 2001 AND WE
ANTICIPATE INCURRING ADDITIONAL LOSSES IN FISCAL 2002 AND 2003. Because we
increased our program development and acquisition activities, we anticipate that
we will incur AT LEAST $500,000 IN operating expenses in 2002 AND 2003 in
connection with continued development of our proposed programs and acquisitions,
and expect these expenses will result in continuing and, perhaps, significant
operating losses until such time, if ever, that we are able to achieve adequate
revenues. There can be no assurance that future operations will be profitable.
Revenues and profits, if any, will depend upon various factors, including
whether we will be able to develop and distribute our programs, and complete our
acquisitions. We may not achieve our business objectives and the failure to
achieve such goals would have an adverse impact on us. WE ARE NOT CURRENTLY
GENERATING MEANINGFUL REVENUES AND, UNLESS WE RAISE ADDITIONAL CAPITAL, WE MAY
NOT BE ABLE TO CONTINUE OPERATING BEYOND FISCAL 2003.
WE MAY NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE FOR OUR OPERATIONS AND IF WE
ARE UNABLE TO SECURE SUCH FINANCING, WE MAY NOT BE ABLE TO SUPPORT OUR
OPERATIONS.
Future events, including the problems, delays, expenses and difficulties
frequently encountered by companies, may lead to cost increases that could make
our funds, if any, insufficient to support our operations beyond FISCAL 2003. We
may seek additional capital, including an offering of our equity securities, an
offering of debt securities or obtaining financing through a bank or other
entity. We have not established a limit as to the amount of debt we may incur
nor have we adopted a ratio of our equity to a debt allowance. If we need to
obtain additional financing, there is no assurance that financing will be
available from any source, that it will be available on terms acceptable to us,
or that any future offering of securities will be successful. Furthermore, the
Company has agreed not to negotiate or contract, without the prior written
consent of a majority-in-interest of the investors, with any party to obtain
additional equity financing that involves the issuance of common stock at a
8
discount to the market price of the common stock on the date of issuance or the
issuance of convertible securities that are convertible into an indeterminable
number of shares of common stock or the issuance of warrants during the period
beginning on June 27, 2002 and ending on the later of (i) March 27, 2003 and
(ii) one hundred eighty days (180) from the date the registration statement is
declared effective by the SEC, subject to certain exceptions. If additional
funds are raised through the issuance of equity securities, there may be a
significant dilution in the value of our outstanding common stock. Our business,
financial condition and results of operations could suffer adverse consequences
if we are unable to obtain additional capital when needed.
THE LOSS OF OUR KEY EMPLOYEES MAY ADVERSELY AFFECT OUR GROWTH OBJECTIVES.
Our success in achieving our growth objectives depends upon the efforts of our
top management team including the efforts of Mr. Coleman. The loss of the
services of this individual may have a material adverse effect on our business,
financial condition and results of operations. We can give no assurance that we
will be able to maintain and achieve our growth objectives should we LOSE this
individuals' services.
OUR CURRENT AND POTENTIAL COMPETITORS, MANY OF WHOM HAVE GREATER RESOURCES AND
EXPERIENCE THAN WE DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAY CAUSE
DEMAND FOR OUR PROGRAMS AND BUSINESSES TO DECLINE.
The network and syndicated television industry, as well as other businesses we
intend to compete in, is vast, very competitive and dominated by major media
conglomerates and others who have longer operating histories and substantially
greater financial, production and distribution resources than we do. We expect
our competitors to intensify as the industry expands through digital
technologies and as the Internet continues to grow. Existing or future
competitors my develop or offer networks, programs, events and products that are
comparable or superior to ours, which could adversely effect our businesses,
results of operation and financial condition.
In the television and live event business the commercial success of any program
or event is often dependent upon factors beyond the control of the Company
including, but not limited to, market acceptance of the program or event, the
ability of the Company to secure distribution, production or venue facilities,
the continuity of talent and production personnel, adequate production,
promotion and marketing expenditures, the ability to control costs of
production, promotion and distribution, the ability to sell advertising, secure
sponsorships and collect revenues, the ability to continue to develop new
programs and events, general market conditions, capitalization the ability to
secure new distribution, promotion or productions or a lack of acceptance of the
programs or events.
We intend to initially produce our programs and events in a conservative manner
and distribute and develop on a local and regional basis. We do not have any
current contractual agreements for distribution of our programs and there can be
no assurances that we will be able to secure distribution in the future.
WE MAY NOT BE ABLE TO PROTECT OUR PATENTS, TRADEMARKS AND PROPRIETARY AND/OR
NON-PROPRIETARY RIGHTS, AND, WE MAY INFRINGE UPON THE PATENTS, COPYRIGHTS,
TRADEMARKS AND PROPRIETARY RIGHTS OF OTHERS.
9
IF THE COMPANY DOES NOT SECURE LICENSES TO THIRD PARTY MATERIAL FOR ITS
PROGRAMS, there is no assurance that we will be able to prevent competitors from
using the same or similar names, marks, concepts or appearances or that we will
have the financial resources necessary to protect our marks against infringing
use.
Our own licensees in the entertainment industry might also, inadvertently or
intentionally, infringe upon the trademarks or copyrights of others, exposing us
to civil liability.
WE MAY, IN THE FUTURE, ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD
REDUCE INVESTORS PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our certificate of incorporation authorizes the issuance of 100,000,000 shares
of common stock, par value $.001 per share. The future issuance of all or part
of our remaining authorized common stock may result in substantial dilution in
the percentage of our common stock held by our then existing shareholders. We
may value any common stock issued in the future on an arbitrary basis. The
issuance of common stock for future services or acquisitions or other corporate
actions may have the effect of diluting the value of the shares held by our
investors, and might have an adverse effect on any trading market for our common
stock.
SHARES OF OUR TOTAL OUTSTANDING SHARES THAT ARE RESTRICTED FROM IMMEDIATE RESALE
BUT MAY BE SOLD INTO THE MARKET IN THE FUTURE COULD CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
As of November 1, 2002, we had 22,148,487 shares of our common stock issued and
outstanding of which 18,348,267 shares are restricted shares. Rule 144 provides,
in essence, that a person holding "restricted securities" for a period of one
year may sell only an amount every three months equal to the greater of (a) one
percent of a company's issued and outstanding shares, or (b) the average weekly
volume of sales during the four calendar weeks preceding the sale.
The amount of "restricted securities" which a person who is not an affiliate of
our company may sell is not so limited, since non-affiliates may sell without
volume limitation their shares held for two years if there is adequate current
public information available concerning our company. In such an event,
"restricted securities" would be eligible for sale to the public at an earlier
date. The sale in the public market of such shares of Common Stock may adversely
affect prevailing market prices of our Common Stock.
SINCE WE HAVE NOT PAID ANY DIVIDENDS ON OUR COMMON STOCK AND DO NOT INTEND TO DO
SO IN THE FORESEEABLE FUTURE, A PURCHASER OF OUR COMMON STOCK WILL ONLY REALIZE
AN ECONOMIC GAIN ON HIS OR HER INVESTMENT FROM AN APPRECIATION, IF ANY, IN THE
MARKET PRICE OF OUR COMMON STOCK.
We have never paid, and have no intentions in the foreseeable future to pay, any
cash dividends on our common stock. Therefore an investor in our common stock,
in all likelihood, will only realize a profit on his investment if the market
price of our common stock increases in value.
10
THE APPLICATION OF THE "PENNY STOCK REGULATION" COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK
Our securities may be deemed a penny stock. Penny stocks generally are equity
securities with a price of less than $5.00 per share other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
Stock Market, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. Our
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
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 on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell our securities and may have the effect of reducing the level of trading
activity of our common stock in the secondary market. The foregoing required
penny stock restrictions will not apply to our securities if such securities
maintain a market price of $5.00 or greater. We can give no assurance that the
price of our securities will reach or maintain such a level.
THERE IS UNCERTAINTY AS TO OUR CONTINUATION AS A GOING CONCERN.
Our audited financial statements for the fiscal year ended December 31, 2001,
reflect a net loss of $164,935. THE COMPANY HAS AN ACCUMULATED DEFICIT AS OF
DECEMBER 31, 2001 OF $575,828 AND ANTICIPATES ADDITIONAL OPERATING LOSSES
THROUGH FISCAL 2003, WHICH HAS REQUIRED OUR AUDITORS TO ISSUE A GOING CONCERN
OPINION IN CONNECTION WITH THEIR AUDIT OF THE COMPANY'S FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2001. These conditions raise substantial
doubt about our ability to continue as a going concern if sufficient additional
funding is not acquired or alternative sources of capital developed to meet our
working capital needs.
SALES OF OUR COMMON STOCK BY THE HOLDERS OF THE CONVERTIBLE DEBENTURES AND
WARRANTS MAY LOWER THE MARKET PRICE OF OUR COMMON STOCK AND PURCHASERS OF COMMON
STOCK MAY EXPERIENCE SUBSTANTIAL DILUTION.
11
As of November 1, 2002, $500,000 principal amount of secured
convertible debentures were issued and outstanding. The debentures are
convertible into such number of shares of common stock as is determined by
dividing the principal amount thereof by the then current conversion price. If
converted on November 1, 2002, the debentures would have been convertible into
approximately 75,000,000 shares of common stock, but this number of shares could
prove to be significantly greater in the event of a decrease in the trading
price of the common stock. THE DEBENTURES CONVERT AT A DISCOUNT EQUAL TO 50% OF
THE AVERAGE OF THE THREE LOWEST TRADING PRICES IN THE 20 DAYS PRECEDING
CONVERSION. Purchasers of common stock willexperience substantial dilution of
their investment upon conversion by the investors of a material portion of the
debentures. The debentures are not registered and may be sold only if registered
under the Securities Act of 1933, as amended, or sold in accordance with an
applicable exemption from registration, such as Rule 144. The shares of common
stock into which the debentures may be converted are being registered pursuant
to this registration statement.
As of November 1, 2002, warrants to purchase 500,000 shares of common
stock issued to the purchasers of the debentures were outstanding. These
warrants are exercisable over the next three years at an exercise price of $.15
per share which price may be adjusted from time to time under certain
antidilution provisions. The shares of common stock issuable upon exercise of
these warrants are being registered pursuant to this registration statement.
As of November 1, 2002, no shares of common stock were reserved for
issuance upon exercise of our outstanding warrants and options other than those
issued in connection with the debentures, and an additional 76,351,513 shares of
common stock were reserved for issuance upon conversion of the debentures and
exercise of the warrants issued in connection with the debentures. As of
November 1, 2002, there were 22,148,487 shares of common stock outstanding. Of
these outstanding shares, 3,800,220 shares were freely tradeable without
restriction under the Securities Act of 1933, as amended, unless held by
affiliates.
Our 12% convertible debentures are convertible into such number of shares of
common stock as is determined by dividing the principal amount thereof by the
lesser of the (a) then current variable conversion price and (b) $.15 per share.
If converted on November 1, 2002, the $750,000 principal amount of debentures
would have been convertible into 75,000,000 shares of our common stock. If an
aggregate of $750,000 in the principal amount of our debentures and 750,000
warrants were exercised on November 1, 2002, they would have equaled 75,750,000
shares of our common stock. Pursuant to the terms of the transaction, however,
the number of convertible debentures could prove to be significantly greater in
the event of a decrease in the trading price of our common stock. The following
table presents the number of shares of our common stock that we would be
required to issue as of November 1, 2002 and the number of shares we would be
required to issue if our common stock declined by 50% or 75%:
12
As of 50% 75%
November 1, Decline Decline
----------- ----------- -----------
Conversion price per share: $0.01 $0.005 $0.0025
Total warrant and convertible 75,750,000 150,750,000 300,750,000
PERCENTAGE OF TOTAL OUTSTANDING 4.9% 4.9% 4.9%
SHARES (ASSUMING INVESTORS DO
NOT WAIVE THE 4.9% LIMITATION)
PERCENTAGE OF TOTAL OUTSTANDING 77.4% 87.2% 93.1%
SHARES (ASSUMING INVESTORS
WAIVE THE 4.9% LIMITATION)
The 750,000 warrants issued in connection with our 12% convertible debentures
are exercisable any time before the third anniversary date of issuance at an
exercise price per share equal to $.15
A DEFAULT BY US UNDER OUR 12% DEBENTURES WOULD ENABLE THE HOLDERS OF OUR 12%
DEBENTURES TO TAKE CONTROL OF SUBSTANTIALLY ALL OF OUR ASSETS.
Our 12% debentures are secured by a security agreement under which we pledged
substantially all of our assets, including our goods, fixtures, equipment,
inventory, contract rights and receivables. A default by us under the 12%
debentures would enable the holders to take control of substantially all of our
assets. The holders of our 12% debentures have no operating experience in the
industry that could force us to substantially curtail or cease our operations.
THE COMPANY'S FAILURE TO COMPLY WITH THE TERMS OF THE CONVERTIBLE DEBENTURES
COULD LEAD TO AN ASSESSMENT OF LIQUIDATED DAMAGES BY THE HOLDERS OF THE
CONVERTIBLE DEBENTURES AND WARRANTS.
While the Holders of the Convertible Debentures and Warrants have not notified
the Company of a default to date, the Company's failure to make this
registration effective could result in the assessment of liquidated damages in
the amount of $15,000 per month against the Company.
OUR OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AND HAVE INDEMNITY RIGHTS.
Our certificate of incorporation and by-laws provide that we indemnify our
officers and directors against losses sustained or liabilities incurred which
13
arise from any transaction in such officer's or director's respective managerial
capacity unless such officer or director violates a duty of loyalty, did not act
in good faith, engaged in intentional misconduct or knowingly violated the law,
approved an improper dividend, or derived an improper benefit from the
transaction. Our certificate of incorporation and by-laws also provide for the
indemnification by us of our officers and directors against any losses or
liabilities incurred as a result of the manner in which such officers and
directors operate our business or conduct our internal affairs, provided that in
connection with these activities they act in good faith and in a manner which
they reasonably believe to be in, or not opposed to, our best interests, and
their conduct does not constitute gross negligence, misconduct or breach of
fiduciary obligations.
FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends", "may", "will", "continue", "estimate" and
similar expressions to identify these forward-looking statements. Prospective
investors should not place undue reliance on these forward-looking statements,
which apply only as of the date of this prospectus. Our actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks faced by our company described in "Risk
factors" and elsewhere in this prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of common
stock offered by the selling stockholders under this prospectus. We will receive
estimated gross proceeds of up to $112,500 if the selling stockholders exercise
warrants to purchase an aggregate of 750,000 shares of our common stock covered
by this prospectus. IF THE COMPANY RECEIVES NOMINAL (10%) PROCEEDS FROM THE
EXERCISE OF WARRANTS THEY WILL BE APPLIED AND USED FOR WORKING CAPITAL AND
GENERAL CORPORATE PURPOSES. IF THE COMPANY RECEIVES A MID-POINT(50%) OF PROCEEDS
FROM AN EXERCISE OF WARRANTS THEY WILL BE APPLIED AND USED FOR WORKING CAPITAL
AND GENERAL CORPORATE PURPOSES. IF THE COMPANY RECEIVES THE MAXIMUM (100%)
PROCEEDS FROM THE EXERCISE OF WARRANTS THEY SHALL BE APPLIED AND USED FOR
GENERAL CORPORATE PURPOSES.
14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
PRICE RANGE OF OUR COMMON STOCK
On December 26, 2001 our common stock was authorized to trade on the
over-the-counter market with quotations available on the OTC Electronic Bulletin
Board under the symbol "SNNW." No trades occurred until January 3, 2002.
The following table sets forth the range of high and low bid quotations of our
common stock for the periods indicated. The prices represent inter-dealer
quotations, which do not include retail markups, markdowns or commissions, and
may not represent actual transactions.
HIGH LOW
2002 ----- ----
First Quarter $1.55 $.56
Second Quarter $ .67 $.07
Third Quarter $ .27 $.05
Fourth Quarter $ .06 $.015
SECURITY HOLDERS
At November 1, 2002, there were 22,148,487 shares of our common stock
outstanding, which were held of record by approximately 347 stockholders, not
including persons or entities who hold the stock in nominee or "street" name
through various brokerage firms.
DIVIDENDS
We have not paid a dividend since our incorporation. Our Board of Directors may
consider the payment of cash dividends, dependent upon the results of our
operations and financial condition, tax considerations, industry standards,
economic considerations, regulatory restrictions, general business factors and
other conditions.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company acquired all of the assets of RadioTV Network, Inc ("RTV") on July
16, 2001 in a transaction treated as a "recapitalization" 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. The
Company's wholly owned subsidiary RTV has not produced or distributed any
programs for over 1 year as the Company has concentrated its efforts on raising
capital to pursue further development of the network and to acquire compatible
businesses and assets.
On September 5, 2002 the Company entered into a partnership agreement with
Sports Byline USA, L.P. to create, market and distribute a new radio network,
RADIO X NETWORK. Based upon the company's ownership percentage the Company
intends to account for the partnership operations using the consolidation
method. On September 3, 2002 the Company terminated its option agreement and
plan of merger with Live Media Enterprises, Inc.
The Company further intends to develop and expand RTV and is also planning on
acquiring and affiliating with other media related entities, such as Sports
Byline USA, the company requires capital for these purposes and has completed a
private placement in March 2002 and has entered into an agreement with four
private institutional investors for the issuance of secured convertible
debentures as of June 2002. The Company believes that this aggregate financing
will be adequate to fund its business objectives through fiscal 2003. The
Company may require additional capital in order to operate beyond 2003 and there
is no certainty that the Company will be successful in raising any additional
funds.
In late March 2002 the Company completed a private placement with an individual
investor for $82,390 in exchange for the issuance to the investor of 183,088
shares of the Company's common stock. On June 27, 2002 the Company entered into
agreement with four institutional investors for a secured convertible debenture
in the aggregate principal amount of $750,000. As of August 9, 2002 the Company
had received the first two tranches of this funding, totaling $500,000, and the
company anticipates satisfying all requirements necessary to complete the full
financing. The Company expects to incur approximately $28,000 in legal,
accounting and printing fees and costs in connection with the funding.
In April 2002 the Company, via a third party International corporate relations
firm, The Geneva Group, applied for a listing to trade the Company's common
stock on the 3rd Segment of the Frankfort, Germany Stock Exchange. As of the end
of June 2002 the Company's application was still pending.
Also in April 2002, the Company entered into a Consulting Agreement with the
N.I.R. Group, LLC ("NIR") for NIR to advise the Company's management on
business, strategic and commercial matters. The term of the agreement is for
THREE months and the consulting fee to NIR is $11,700 per month plus 100,000
shares of the Company's common stock per month. In July the Company entered into
Agreement with NIR for an additional three month term under the same conditions.
16
In June 2002 the Company agreed to co-release a DVD and Video entitled "A Pair
of Lips Now!" which is a "best of" compilation from the Company's "Mancow TV"
programs. The Company intends to support the marketing of the Video with certain
pre-paid TV media from the Company's inventory.
On June 28, 2002 the Company entered into agreement with Live Media Enterprises,
Inc ("Live"), an independent producer of consumer lifestyle events, to acquire
all of Live's business and assets.
On September 3, 2002 the Company notified live that it was electing not to
proceed with its acquisition of live and that it was terminating its agreement.
The company has made loans to live in the aggregate amount of $56,000. The loans
are secured by all of the principal assets of live and the loans are personally
guaranteed by live's principal officer and shareholder.
On September 5, 2002 the Company entered into a partnership agreement with
Sports Byline Usa, L.P. to create and operate the RADIO X Network, a new
nationally syndicated radio network. Sports Byline Usa is contributing
programming, ad and affiliate sales, studio and office facilities and management
services to the partnership. The company is contributing programming, management
services and $100,000 in cash to the partnership.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
In fiscal year 2001 the Company incurred a net loss of $164,935 compared to a
net loss of $113,483 for the year ending December 31, 2000. In 2001 the
Company's subsidiary, RTV, reduced operational, film and exploitation expenses
as it discontinued the broadcast and syndication of its principal program in
anticipation of changing broadcast outlets and its merger with the Company. The
Company's continuing operations and financial results for the year reflect these
changes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has had no sales or revenues and has had minimal operating expenses
for the past year. Pending completion of it Secured Convertible Debenture, the
Company plans to expand its operations, productions and distribution and
anticipates generating revenues in the 3rd and 4th Quarters of 2002.
17
The Company's ability to develop its operations and expand its business is
dependent upon the Company generating sales and revenues and securing additional
capital financing.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
The Company incurred a net loss of $245,401 for the six months ended June 30,
2002 compared to a net loss of $66,582 for the six months ended June 30, 2001.
The increase in net loss reflects the Company's increase in compensation expense
and increase in consulting expense of which $84,000 relates to the value of
300,000 common shares issued to a consultant. The Company did not generate any
revenues for the six months ended June 30, 2002.
The Company's operating expenses increased to $245,401 for the six months ended
June 30, 2002 from $101,782 for the six months ended June 30, 2001. This
increase reflects the Company's increased compensation under an employment
agreement and consulting expenses discussed above.
The Company is not aware of any material trend, event or capital commitment,
which would potentially adversely affect liquidity. The Company has agreed not
to negotiate or contract, without the prior written consent of a
majority-in-interest of the investors, with any party to obtain additional
equity financing that involves the issuance of common stock at a discount to the
market price of the common stock on the date of issuance or the issuance of
convertible securities that are convertible into an indeterminable number of
shares of common stock or the issuance of warrants during the period beginning
on June 27, 2002 and ending on the later of (i) two hundred seventy days (270)
from the closing date and (ii) one hundred eighty days (180) from the date the
registration statement is declared effective by the SEC, subject to certain
exceptions. Also, if the investors convert a material portion of their
convertible debentures, then the investment of the owners of our common stock
will be substantially diluted. Accordingly, the limitations on obtaining
additional equity financing and the possibility of substantial dilution to
owners of our common stock upon the conversion of a material portions of their
debentures may make obtaining additional equity financing difficult.THE COMPANY
BELIEVES THAT, AS A RESULT OF ITS FINANCINGS IN 2002 AND ANTICIPATED REVENUES,
IT WILL HAVE SUFFICIENT FUNDS TO OPERATE THROUGH FISCAL 2003 ; HOWEVER THERE IS
NO CERTAINTY THAT THE COMPANY WILL BE SUCCESSFUL IN RAISING ANY ADDITIONAL
FUNDS.
18
OTHER
Except for historical information contained in this prospectus, the matters set
forth above are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ from those in the
forward-looking statements. Investors are directed to consider, among other
items, the risks and uncertainties discussed in documents filed by the Company
with the Securities and Exchange Commission.
THE COMPANY
GENERAL
We are a Company that is developing new media businesses that we have acquired
or will be attempting to acquire. We operate a wholly owned subsidiary, the
RadioTV Network, Inc ("RTV"), and we have ENTERED INTO AN AGREEMENT TO CREATE
AND OPERATE THE RADIO X NETWORK ("RADIO X"). RTV is a start-up, new television
network that intends to produce and distributed TV versions of top rated radio
programs. RADIO X IS A NEW, NATIONALLY SYNDICATED RADIO NETWORK THAT WILL
DEVELOP, PRODUCE AND SYNDICATE RADIO PROGRAMS TO A YOUNG MALE DEMOGRAPHIC.
We were incorporated in June 1991 as Sun Express Group, Inc and owned and
operated Destination Sun Airlines until its principal assets were sold to Air
Tran Holdings in 1994. The Company was inactive until acquiring the assets of
RTV, via merger on July 16, 2001, after which the Company's name was changed to
Sun Network Group, Inc. WE ENTERED INTO A PARTNERSHIP AGREEMENT WITH SPORTS
BYLINE USA, L.P. TO FORM RADIO X ON SEPTEMBER 5, 2002.
BUSINESS AND ACQUISTION STRATEGY
The Company plans to acquire wholly owned subsidiary which are late-stage
development companies or established businesses with a focus on media and
communication based companies. The Company plans to expand its subsidiary
portfolio to include a wide range or media and communication related business
that it deems would most effectively maximize shareholder value.
The Company currently owns one subsidiary, RadioTV Network, Inc., and has an
agreement TO OPERATE RADIO X.
The Company is currently negotiating to acquire a nationally syndicated sports
talk radio network and has had exploratory talks with several other businesses.
19
OPERATIONS
RADIOTV NETWORK
A wholly owned subsidiary of the Sun Network Group, Inc., RadioTV Network, Inc.
is a new television network that will exclusively produce and broadcast
television versions of existing, established radio programs.
Rather than focusing on sports, music or Hollywood gossip, RTV will attempt to
carve a new niche in television entertainment programming as the first
television network to exclusively feature popular radio programs.
RTV shows will be initially distributed via local broadcast stations in the
radio shows' originating markets, regionally syndicated in additional markets
(primarily where the radio shows are syndicated or known), via Webcast on the
company's RTVNET.com Internet site and, when sufficient programming is produced,
via a nested launch on an existing digital satellite channel to cable and DBS
(DIRECT BROADCAST SATELLITE) households. RTV expects to broadcast via its own
satellite transponder by 2004. Most of RTV's programs will be produced on a
daily basis (Monday - Friday), in standard half-hour on one-hour formats,
usually within 48 hours of the original radio broadcast. In conducting these
broadcasts, RTV installs fully equipped television studios adjacent to the radio
program booths. These studios are equipped with state-of-the-art robotic cameras
and computerized editing and switching systems, which are operated by full-time
RTV personnel.
In order to most effectively grow the company, management has implemented a
two-phase business plan. Phase One will focus on the production and distribution
of up to eight programs into local and regional broadcast markets, while Phase
Two calls for aggressive expansion of an additional thirty (30) programs and a
full, 24-hour satellite-delivered feed to complement the company's local,
regional and Webcast distribution. PHASE ONE WILL TAKE ABOUT TWO YEARS AND ABOUT
$500,000 NET CASH TO IMPLEMENT. PHASE TWO WILL COMMENCE WHEN RTV'S INITIAL
BUSINESS MODEL IS COMPLETED AND PROVIDING OPERATIONAL CASH FLOW.
RTV has test-marketed two programs. The first of these programs was QUINN IN THE
MORNING...@ NIGHT, which was run from mid 1998 to 1999. Broadcast over WNPA TV
in Pittsburgh, the QUINN was a weekly television version of Pittsburgh's WKKR's
morning political talk show hosted by Jim Quinn. QUINN debuted with a 2 rating,
and remained on our affiliate's UPN station until the station was sold in 1999.
RTV's other inaugural program was MANCOW TV. MANCOW TV was a late-night
television program broadcast on Chicago's WCIU, and produced each day from
20
MANCOW MULLER'S MORNING MADHOUSE radio show on Chicago's Q101. Mancow TV was
launched in April 1999 after RTV constructed a television studio in Q101's
broadcast booth. The program was initially broadcast in the 12:30 a.m. - 1:30
a.m. time slot on WCIU, and consistently generated 1.2 - 2.5 ratings and 6 - 10
shares. MANCOW TV was regularly the highest-rated show on WCIU after 7:00 p.m.
In January 2000, MANCOW TV moved to Saturdays at 10:00 p.m., on WCIU, and became
one of the highest rated programs on the station in all day parts. RTV
anticipates producing MANCOW TV as a prime time weekly strip for a new local or
national cable distribution, and has archived several MANCOW TV episodes, which
are available on an "on demand" basis for viewing at RTVNET.com.
RTV's two-phase business plan focuses strongly on continual expansion. Moving
forward, RTV is planning to complement its entertainment-based programming by
acquiring or forming a joint venture with a nationally-known sports radio
network for television and Webcast applications. The company also anticipates in
the near-term launching of THE KIDD KRADDICK RADIO SHOW in the Dallas market.
RADIO X NETWORK
RADIO X is a new, nationally syndicated radio network the company owns and
operates in partnership with Sports Byline USA, L.P., Which operates Sports
Byline USA Radio Network, a nationally syndicated sports talk radio network that
is distributed and broadcast live 8 hours a day to over 150 affiliate radio
stations in the us, 24 hours a day on the Sirius radio satellite and on the
American Forces Network.
RADIO X intends to develop, produce and distribute a series of radio programs,
both live and taped, that are designed and targeted to young, male audiences
ages 14-35. RADIO X commences operations with three (3) programs; "wrestling
observer live", a 2-hour program for wrestling fans that broadcasts live sunday
evenings from 9-10pm on about 100 affiliated stations; "Video Game Review", a
1-hour program on what's hot in the video game world, broadcast live also on
sunday evenings at 9-10pm on about 100 affiliate stations and "Laughtraxx" a 2-3
hour comedy program currently in development.
RADIO X generates its revenues principally from advertising sales, sponsorship
fees and merchandising. Sports Byline USA is providing ad and affiliate sales
and other corporate infrastructure for RADIO X.
SOURCES OF REVENUES
The Company's wholly owned subsidiary RTV generally produces episodic television
series and generates the majority share of its revenues from the sale of
broadcast licenses and advertising sales. The terms of the licensing arrangement
may vary significantly from contract to contract and may include fixed fees,
variable fees with or without nonrefundable minimum guarantees, or barter
21
arrangements. Additional revenues are gleaned from syndication of the programs
usually at a 50/50 "barter" arrangement plus merchandising for videos,
licensing, and studio rental
s. RADIO X DERIVES REVENUES FROM ADVERTISERS, SPONSORSHIPS, AND MERCHANDISING.
AD RATES ARE PRIMARILY DETERMINED BY DISTRIBUTION AND RATINGS OF THE PROGRAMS.
WCIU TV PARENT, WEIGEL BROADCASTING, PROVIDED 90% OF RTV'S REVENUES IN 2000 AND
90% IN 2001.
COMPETITION
The competition in the entertainment and media industries is considerable and
very fluid. There are "major" television networks, many cable channels and
numerous, start-up "Web Channels". To the best of The Company's knowledge there
does not currently exist any other business that is directly competitive with
its wholly owned subsidiary RTV, BUT NUMEROUS RADIO NETWORKS ARE OPERATING IN
THE US.
The U.S. Television industry, however, is a vast, multi-billion dollar business
consisting of numerous programming networks distributed to analog and digital
receivers in domestic and international markets via an affiliation of local
("over-the-air") Broadcasters, Cable TV Operators, Direct Broadcast Satellite
Operators, Digital Satellite Distributors and others. These various Networks are
supported by advertising sales, operator and subscribers fees, pay per view
revenues, government subsidies or a combination thereof. The Network's
programming ranges from primarily general entertainment channels (NBC, CBS, USA)
to a multiple of niche or theme channels such as MTV, ESPN, SCI FI Channel, and
HGTV. The industry is dominated by a handful of major media conglomerates such
as AOL Time Warner, Viacom, Disney and News Corp.
The U.S. Radio industry consists of thousands of individual stations located in
virtually every US market broadcasting a vast and very diversified mix of
programs. In recent years the industry has consolidated significantly and is
dominated by two major media companies, Clear Channel Communications and
Infinity Broadcasting (Viacom), AND LARGE NETWORKS SUCH AS PREMIER NETWORKS
WESTWOOD ONE, ABC NETWORKS AND SEVERAL OTHERS.
EMPLOYEES
The Company has currently one full-time employee, who has a formal employment
agreement. The employee has deferred the first year compensation due under his
agreement.
DESCRIPTION OF PROPERTY
The Company maintains an office address in Coral Springs, Florida at 1440 Coral
Ridge Drive #140, Coral Springs, FL 33701. The Company's subsidiary, RadioTV
Network Inc., operates out of an office at 5670 Wilshire Blvd., Suite 1300, Los
Angeles, CA 90036, provided by a Company shareholder, Alchemy Media, LLC.
22
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 ET AL, Case No. 02-80360 FILED APRIL 22, 2002.
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 Florida Securities Funding Partnership. THE
PLAINTIFFS ARE SEEKING GENERAL DAMAGES AND COSTS. The Company is vigorously
defending itself and has filed a motion to dismiss the matter, which it
considers frivolous. The Company is not a party to any other litigation and
management has no knowledge of any other threatened or pending litigation.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth certain information with respect to our directions
and executive officers as of July 26, 2002.
Name Age Position
- ------------------- --- ------------------------
Richard Wellman 58 Chairman, Director
T. Joseph Coleman 51 Chief Executive Officer,
President and Director
William H. Coleman 42 Director, Secretary
All directors hold office until the next annual meeting of stockholders and
until their successors are elected. Officers are elected to serve, subject to
the discretion of the Board of Directors, until their successors are appointed.
Directors do not receive cash compensation for their services as directors, but
are reimbursed for expenses actually incurred in connection with attending
meetings of the Board of Directions
Richard Wellman (Chairman) has been a Director of the Company since July 16,
2001. Since 1994 Mr. Wellman has been the President and CEO of Creative Air
Transport, Inc. a US flag cargo carrier for the US Post Office, Federal Express
Company, Lufthansa Airlines and other air cargo customers. From 1986 to 1994 Mr.
Wellman was the CEO of International Airline Support Group, Inc., a major
airline parts business. Prior to IASG, Mr. Wellman served in the US Air Force
and subsequently he was a Flight Engineer and Pilot for several International
airlines.
23
T. Joseph Coleman has been a Director of the Company since July 16, 2001. Mr.
Coleman is President and CEO of the Company. Mr. Coleman was the founder and CEO
of the Atlantic Entertainment Group from its inception in 1974 until its sale in
1989. Atlantic was one of the leading and largest independent
producer/distributors of motion pictures in the world. Subsequent to Atlantic
Mr. Coleman was the founder and Chairman of the Independent Telemedia Group a
national market public company that acquired and developed emerging businesses
in the entertainment sector. Since resigning as Co-Chairman of INDE, Mr. Coleman
has pursued several entertainment and media related businesses.
William H. Coleman has been a Director of the Company since July 16, 2001. Mr.
Coleman is the Company's Secretary. Mr. Coleman is Trustee of the Coleman Family
Trust and Chairman of the Coleman Media Group, which has interests in several
media related businesses including radio syndication. Mr. Coleman is a Director
and Treasurer of Egolf.com Incorporated, an online retail golf business and he
has formerly held executive positions at Atlantic Entertainment Group and the
Independent Telemedia Group.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
We are not aware of any material legal proceedings that have occurred within the
past five years concerning any director, director nominee, or control person
which involved a criminal conviction, a pending criminal proceeding, a
participation in the securities or banking industries, or a finding of
securities or commodities law violations.
EXECUTIVE COMPENSATION
The following table sets forth a summary for the fiscal years ended, of the cash
and non-cash compensation awarded, paid or accrued by us to our President and
CEO our compensated officer, who served in such capacities at the end of fiscal
2001.
Summary Compensation Table Annual Compensation
- ---------------------------------------------------------------------------
Name and Principal Year Salary ($) Bonus($) All Other
Positions Compensations ($)
- ----------------------- ---- ---------- -------- -----------------
T. Joseph Coleman 2001 89,750(1) - 12,018 (2)
Chief Executive Officer
(1) Mr. Coleman deferred his 1st year of salary and bonus due under his
employment agreement with the Company dated July 16, 2001. The deferred amount
is $68,750.
(2) RTV Media Corp. paid certain auto and insurance expense for Mr. Coleman in
2001.
24
EMPLOYMENT AGREEMENTS
The Company has one employment agreement with its Chief Executive Officer, T.
Joseph Coleman. Mr. Coleman's three (3) year agreement entitles him to an annual
salary of $120,000 plus a guaranteed annual bonus of $30,000 and customary
fringe benefits and expenses. Mr. Coleman has deferred his salary and bonus for
the first year of his contract and the Company intends to issue shares of its
common stock to Mr. Coleman to satisfy the obligation. The Company has no other
employment agreements but may enter into them in the future in connection with
acquisitions or in the normal course of its business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of this Report
regarding the beneficial ownership of our common stock held by each of two
executive officers and directors,individually and as a group and by each person
who beneficially owns in excess of five percent of the common stock. In general,
beneficial ownership includes those shares that a person has the power to vote,
sell, or otherwise dispose. Beneficial ownership also includes that number of
shares, which an individual has the right to acquire within 60 days (such as
stock options) of the date this table was prepared. Two or more persons may be
considered the beneficial owner of the same shares. In this Annual Report on
Form 10-KSB, "voting power" is the power to vote or direct the voting of shares,
and "investment power" includes the power to dispose or direct the disposition
of shares. The inclusion in this section of any shares deemed beneficially owned
does not constitute an admission by that person of beneficial ownership of those
shares.
Amount and Nature Percent
Of of
Position with Beneficial Common
Stock Name & Address Sun Network Grp. Ownership (1) Outstanding (1)
- -------------------- ------------------- ----------------- ---------------
T. Joseph Coleman Director, President 3,617,500 (2) 16.5%
1440 Coral Ridge Dr. CEO
#140
Coral Springs,
FL 33071
William H. Coleman Director, Secretary 2,350,000 (3) 10.7%
45 Whitewood Circle
Norwood, MA 02002
All directors and Executive Officers 5,967,500 27.2%
As a Group (2 persons)
(1) Based upon 22,148,487 shares outstanding as of November 1, 2002.
(2) Mr. Coleman is the President of RTV Media Corp and votes the Company's
shares on behalf of RTV Media Corp. Mr. Coleman is not the majority shareholder
of RTV Media Corp. Mr. Coleman's brother is William H. Coleman.
(3) Mr. Coleman is the Trustee of the Coleman Family Trust. Mr. Colemans brother
is T. Joseph Coleman.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the best of managements' knowledge, other than as set forth below, there were
no material transactions, or series of similar transactions, or any currently
proposed transactions, or series of similar transactions, to which we were or
are to be a party, in which the amount involved exceeds $60,000, and in which
any director or executive officer, or any security holder who is known by us to
own of record or beneficially more than 5% of any class of our common stock, or
any member of the immediate family of any of the foregoing persons, has an
interest.
SELLING STOCKHOLDERS
This prospectus relates to the offer and sale by the following selling
stockholders of the indicated number of shares, all of which are issuable
pursuant to warrants and/or convertible debentures held by these selling
stockholders. The number of shares set forth in the table for the selling
stockholders represents an estimate of the number of shares of common stock to
be offered by the selling stockholders. The actual number of shares of common
stock issuable upon conversion of the debentures and exercise of the related
warrants is indeterminate, is subject to adjustment and could be materially less
or more than such estimated number depending on factors which cannot be
predicted by us at this time including, among other factors, the future market
price of the common stock. None of the following selling stockholders has held
any position or office within our Company, nor has had any other material
relationship with us in the past three years, other than in connection with
transactions pursuant to which the selling stockholders acquired convertible
debentures and warrants.
Under the securities purchase agreement, we will receive up to $750,000 from the
selling stockholders, and they will receive in return a corresponding amount of
our 12% secured convertible debentures and warrants to purchase up to an
aggregate of 750,000 shares of common stock. The terms of the debentures provide
for full payment on or before the first anniversary date of issuance, with
interest of 12% per annum, which may be converted at any time at the lesser of
(i) $0.15 or (ii) the average of the lowest three inter-day trading prices
during the twenty trading days immediately prior to the date the conversion
notice is sent, discounted by fifty percent. The terms of the warrants entitle
each selling stockholder to purchase shares of our common stock at a price equal
to $.15 per share before the third anniversary date of the issuance. Under the
related Registration Rights Agreement, we agreed to register all of the shares
underlying such convertible debentures and warrants to allow the selling
stockholders to sell them in a public offering or other distribution.
As of November 1, 2002, (i) $500,000 of the 12% convertible debentures have
been issued, none of which have been converted, and (ii) 500,000of the warrants
have been issued, none of which have been exercised. On June 27, 2002, the
investors purchased $250,000 of the 12% convertible debentures and warrants to
purchase 250,000 shares of our common stock in connection with the execution of
the securities purchase agreement. On August 8, 2002, pursuant to the terms of
the securities purchase agreement, the investors purchased an additional
$250,000 of the 12% convertible debentures and warrants to purchase 250,000
shares of our common stock in connection with the initial filing of this
registration statement with the SEC. Under the terms of the securities purchase
agreement, the investors are obligated to purchase the remaining $250,000 of our
26
12% debentures and warrants to purchase 250,000 shares of our common stock
within ten days of the date this registration statement is declared effective by
the Commission and upon satisfaction of additional conditions by the Company.
The additional conditions that must be satisfied by the Company prior to the
purchase by the investors of the remaining convertible debentures and warrants
consist of the following: (i) the Company's representations and warranties
contained in the securities purchase agreement are true and correct in all
material respects on the date of purchase; (ii) there is no litigation, statute,
rule, regulation, executive order, decree, ruling or injunction that has been
enacted, entered, promulgated or endorsed by or in any court or government
authority of competent jurisdiction or any self-regulatory organization having
requisite authority which prohibits the transactions contemplated by the
securities purchase agreement; (iii) no event has occurred which could
reasonably be expected to have a material adverse effect on the Company; (iv)
the shares of common stock underlying the convertible debentures and warrants
have been authorized for quotation on the Over-The-Counter Bulletin Board
(OTCBB) and trading in our common stock on the OTCBB has not been suspended by
the SEC or the OTCBB; (v) the Company shall provide a legal opinion to the
investors; and (vi) the Company shall provide certain certificates of its
officers to the investors regarding the Company's capitalization and the truth
and correctness of its representations and warranties in the securities purchase
agreement. If the registration statement is not declared effective, the
investors have no obligation to purchase the remaining 12% convertible
debentures or the related warrants.
If all 750,000 debentures were converted and all 750,000 warrants were exercised
on November 1, 2002, a total of 75,750,000 shares of common stock would be
required for issuance.
The information listed below was furnished to us by the indicated selling
stockholders. Shares of our common stock will be acquired by the selling
stockholders pursuant to the exercise by AJW Partners, LLC, New Millennium
Capital Partners II, LLC, Pegasus Capital Partners, LLC and AJW/New Millennium
Offshore, Ltd. of up to $750,000 in secured convertible debentures and warrants
to purchase up to 750,000 shares of common stock, in the aggregate, in
accordance with the terms of that certain securities purchase agreement dated
June 27, 2002.
AJW Partners, LLC is a private investment fund that is owned by its investors
and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey S. Ribotsky is
the fund manager, has voting and investment control over the shares listed below
owned by AJW Partners, LLC. New Millennium Capital Partners II, LLC is a private
investment fund that is owned by its investors and managed by First Street
Manager II, LLC. First Street Manager II, LLC, of which Corey S. Ribotsky is the
fund manager, has voting and investment control over the shares listed below
owned by New Millennium Capital Partners II, LLC. AJW/New Millennium Offshore,
Ltd. is a private investment fund that is owned by its investors and managed by
First Street Manager II, LLC. First Street Manager II, LLC, of which Corey S.
Ribotsky is the fund manager, has voting and investment control over the shares
listed below owned by AJW/New Millennium Offshore, Ltd. Pegasus Capital
Partners, LLC is a private investment fund that is owned by its investors and
managed by Pegasus Manager, LLC, of which Corey S. Ribotsky and Lloyd A.
Groveman are the fund managers, have voting and investment control over the
shares listed below owned by Pegasus Capital Partners, LLC. None of the selling
stockholders are broker-dealers or affiliates of broker-dealers.
27
Number of
Shares
Beneficially
owned prior Shares Shares owned
to the Offered after offering (2)
Name offering (1) Hereby Number Percentage
- ----------------- ------------ ---------- ------ ----------
AJW Partners, LLC 15,630,302 15,630,302 0 0%
- ----------------- ------------ ---------- ------ ----------
New Millennium
Capital Partners
II, LLC 7,815,151 7,815,151 0 0%
- ----------------- ------------ ---------- ------ ----------
AJW/New
Millennium
Offshore, Ltd. 27,353,030 27,353,030 0 0%
- ----------------- ------------ ---------- ------ ----------
Pegasus Capital
Partners, LLC 27,353,030 27,353,030 0 0%
- ----------------- ------------ ---------- ------ ----------
(1) Amounts equal 200% of the shares issuable upon conversion of investor's
respective ownership of (i) the aggregate $750,000 of convertible debentures,
based on a conversion price of $.01 per share, and (ii) warrants to purchase an
aggregate of 750,000 shares of our common stock at a fixed exercise price of
$.15 per share and limited by the number of shares the Company is authorized to
issue under its Certificate of Incorporation. Because the number of shares of
common stock issuable upon conversion of the convertible debentures is dependent
in part upon the market price of the common stock prior to a conversion, the
actual number of shares of common stock that will be issued upon conversion will
fluctuate daily and cannot be determined at this time. However the selling
stockholders have contractually agreed to restrict their ability to convert or
exercise their warrants and receive shares of our common stock such that the
number of shares of common stock held by them and their affiliates after such
conversion or exercise does not exceed 4.9% of the then issued and outstanding
shares of common stock.
(2) Such figure assumes the sale of all of the shares offered by the selling
stockholders.
The number of shares set forth in the table for the selling
stockholders represents an estimate of the number of shares of common stock to
be offered by the selling stockholders. The actual number of shares of common
stock issuable upon conversion of the debentures and exercise of the related
warrants is indeterminate, is subject to adjustment and could be materially less
or more than such estimated number depending on factors which cannot be
predicted by us at this time including, among other factors, the future market
price of the common stock. Under the terms of the debentures, if the debentures
had actually been converted on November 1, 2002, the conversion price would have
been $.01.
28
Under the terms of the debentures and the related warrants, the
debentures are convertible and the warrants are exercisable by any holder only
to the extent that the number of shares of common stock issuable pursuant to
such securities, together with the number of shares of common stock owned by
such holder and its affiliates (but not including shares of common stock
underlying unconverted shares of debentures or unexercised portions of the
warrants) would not exceed 4.9% of the then outstanding common stock as
determined in accordance with Section 13(d) of the Exchange Act. Accordingly,
the number of shares of common stock set forth in the table for the selling
stockholder exceeds the number of shares of common stock that the selling
stockholder could own beneficially at any given time through their ownership of
the debentures and the warrants. In that regard, the beneficial ownership of the
common stock by the selling stockholder set forth in the table is not determined
in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended.
PLAN OF DISTRIBUTION
The shares being offered by the selling stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold from
time to time in one or more transactions, which may involve block transactions:
- - on the Over-the-Counter Bulletin Board or on such other market on which the
common stock may from time to time be trading;
- - in privately-negotiated transactions;
- - through the writing of options on the shares;
- - OR
- - any combination thereof.
The sale price to the public may be:
- - the market price prevailing at the time of sale;
- - a price related to such prevailing market price;
- - at negotiated prices; or
- - such other price as the selling stockholders determine from time to time.
The shares may also be sold pursuant to Rule 144 or Regulation S. However, the
selling stockholders may not use this registration statement to cover the resale
of shares that are not issuable shortly after the effectiveness of this
registration statement. As described previously in this registration statement,
the investors are obligated to purchase from the Company the remaining $250,000
of convertible debentures and warrants to purchase 250,000 shares of our common
stock within ten days from the date this registration statement is declared
effective by the SEC, subject to satisfaction of certain conditions by the
Company. Therefore, this registration statement covers the shares of common
stock underlying the debentures and warrants purchased after the effectiveness
of this registration statement pursuant to the terms of the securities purchase
agreement. The selling stockholders shall have the sole and absolute discretion
not to accept any purchase offer or make any sale of shares if they deem the
purchase price to be unsatisfactory at any particular time.
29
The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker/dealer might be in excess of customary
commissions. Market makers and block purchasers purchasing the shares will do so
for their own account and at their own risk. It is possible that a selling
stockholder will attempt to sell shares of common stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. The selling stockholders cannot assure that all or any of the
shares offered in this prospectus will be issued to, or sold by, the selling
stockholders. The selling stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares offered in this prospectus may be deemed
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations under such acts.
The selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations under such act, including, without
limitation, Regulation M. These provisions may restrict certain activities of,
and limit the timing of purchases and sales of any of the shares by, the selling
stockholders or any other such person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the shares.
We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the selling stockholders or their
respective pledgees, donees, transferees or other successors in interest, may be
required to make in respect of such liabilities.
AMENDMENT AND SUPPLEMENTATION NECESSITATED BY FUTURE SALES.
To the extent required, this prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution. In connection with
distributions of such shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealer or other financial institutions. In
connection with these transactions, broker-dealer or other financial
institutions may engage in short sales of our common stock in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders may also sell our common stock short and redeliver the shares to
close out such short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial institutions
which require the delivery to the broker-dealer or other financial institution
of the shares offered in this prospectus, which shares the broker-dealer or
other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction).
30
The selling stockholders may also pledge their shares to a broker-dealer or
other financial institution, and, upon a default, the broker-dealer or other
financial institution may effect sales of the pledged shares pursuant to this
prospectus (as supplemented or amended to reflect such transaction). In
addition, any shares that qualify for sale pursuant to Rule 144 may be sold
under Rule 144 rather than pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling stockholders in amounts to be negotiated prior to the sale. These
brokers or dealers, the selling stockholders, and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales, and any such commissions,
discounts or concessions may be deemed to be underwriting discounts or
commissions under the Securities Act. The selling stockholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their securities,
nor is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
If a selling stockholder enters into an underwriting agreement, the relevant
details will be set forth in a post-effective amendment to the registration
statement, rather than a prospectus supplement.
OTHER INFORMATION REGARDING FUTURE SALES
In order to comply with the securities laws of some states, if applicable, the
shares being offered in this prospectus must be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or a seller complies with an available exemption from the
registration or qualification requirement.
We will make copies of this prospectus available to the selling stockholders and
will inform them of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the shares offered hereby. The
selling shareholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against some liabilities,
including liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a prospectus
supplement will be filed and distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount
commission or concession allowed or re-allowed or paid to any dealer, and the
proposed selling price to the public. In addition, upon being notified by a
selling stockholder that a donee or pledgee intends to sell more than 500
shares, a prospectus supplement will be filed and distributed.
PAYMENT OF EXPENSES
We will pay all the expenses related to the registration of the shares offered
by this prospectus, except for any underwriting, brokerage or related fees,
discounts, commissions or the fees or expenses of counsel or advisors to the
selling stockholders.
31
DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL
The total number of our authorized shares of stock is one hundred million
(100,000,000) shares of common stock with a par value of $.001 per share.
COMMON STOCK
Our certificate of incorporation authorizes the issuance of 100,000,000 shares
of common stock, $.001 value per share, of which 22,148,487 shares are issued
and outstanding as of the date hereof.
Holders of shares of common stock are entitled to one vote for each share on all
matters to be voted on by the stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor. In the event
of our liquidation, dissolution or winding up, the holders of common stock are
entitled to share pro rata all assets remaining after payment in full of all
liabilities. All of the outstanding shares of common stock are fully paid and
non-assessable.
Holders of common stock have no preemptive rights to purchase our common stock.
There are no conversion or redemption rights or sinking fund provisions with
respect to the common stock.
NONCUMULATIVE VOTING
Each holder of common stock is entitled to one vote per share on all matters on
which such stockholders are entitled to vote. Shares of common stock do not have
cumulative voting rights. The holders of more than 50 percent of the shares
voting for the election of directors can elect all the directors if they choose
to do so and, in such event, the holders of the remaining shares will not be
able to elect any person to the Board of Directors.
PENNY STOCK REGULATION
If the market price of the our common stock, if a market for its common stock
develops and is maintained, is or falls below $5.00 per share, then our common
stock may be considered "penny stock". Penny stocks generally are equity
securities with a price of less than $5.00 per share other than securities
registered on certain national securities exchange or quoted on the Nasdaq Stock
Market, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. Our
securities may be subject to "penny stock" rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure scheduled prescribed by the commission related to
the penny stock market.
32
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 on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell our securities.
REPORTS TO STOCKHOLDERS
We will furnish to holders of our common stock annual reports containing
audited financial statements examined and reported upon, and with an opinion
expressed by, an independent certified public accountant. We may issue other
unaudited interim reports to our stockholders as we deem appropriate.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Inc., Denver, Colorado, serves as our transfer agent.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our certificate of incorporation provides that we shall indemnify its directors
provided that the indemnification shall not eliminate or limit the liability of
a director (a) for any breach of the director's duty or loyalty to the
corporation or its stockholders, (b) for acts of omission not in good faith or
which involve intentional misconduct or a knowing violation of law, or (c) for
any transaction from which the director derived an improper personal benefit.
Section 607.085 of the Florida Business Corporation Act permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorney's fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees or
agents of the corporation, if these directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceedings, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one 29 by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agent in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnify for such expenses despite such
adjudication of liability.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended ("Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful
33
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act, and will be governed by the final adjudication
of such issue.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form SB-2 under the Securities Act with respect to the
securities being offered. This prospectus, filed as a part of the registration
statement, does not contain certain information contained in or annexed as
exhibits to the registration statement. Reference is made to exhibits to the
registration statement for the complete text. For further information with
respect to us and the securities hereby offered, reference is made to the
registration statement and to the exhibits filed as part of it, which may be
inspected and copied at the public reference facilities of the Commission in
Washington D.C. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 5th Street, NW, Washington, D.C. 20549,
at prescribed rates and are available on the World Wide Web at:
http://www.sec.gov.
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934 and intend to file reports and other information with the
Commission. We will provide without charge to each person who receives a copy of
this prospectus, upon written or oral request, a copy of any of the information
incorporated herein by reference, not including exhibits. Such requests should
be made in writing to T. JOSEPH COLEMAN, 1440 Coral Ridge Drive, # 140, Coral
Springs, FL 33071or call us at (954) 360-4080.
LEGAL MATTERS
The legality of the common stock included in this prospectus has been passed
upon for us by the law offices of The Thomas Group, P.C. of Peoria, Illinois.
EXPERTS
The audited financial statements as of December 31, 2001 included in this
prospectus have been so included in reliance on the report of Salberg & Company.
P.A., independent accountants, given as experts in accounting and auditing.
34
Sun Network Group, Inc.
and Subsidiary
Consolidated Financial Statements
June 30, 2002
Sun Network Group, Inc.
and Subsidiary
Contents
Page(s)
-------
Consolidated Balance Sheets ................................................. 1
Consolidated Statements of Operations ....................................... 2
Consolidated Statements of Cash Flows ....................................... 3
Notes to Consolidated Financial Statements .............................. 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.
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.
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.
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
=========
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.
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.
6
SUN NETWORK GROUP, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
Sun Network Group, Inc. and Subsidiary
Contents
Page
----
Independent Auditors' Report ................................................ 1
Consolidated Balance Sheets ................................................. 2
Consolidated Statements of Operations ....................................... 3
Consolidated Statements of Changes in Stockholders' Equity (Deficiency) ..... 4
Consolidated Statements of Cash Flows ....................................... 5
Notes to Consolidated Financial Statements ............................. 6 - 12
Independent Auditors' Report
Board of Directors and Stockholders of:
Sun Network Group, Inc.
We have audited the accompanying consolidated balance sheets of Sun Network
Group, Inc. and Subsidiary as of December 31, 2001 and 2000 and the related
consolidated statements of operations, changes of stockholders' equity
(deficiency) and cash flows for the years ended December 31, 2001, 2000 and
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated financial position of Sun
Network Group, Inc. and Subsidiary as of December 31, 2001 and 2000 and the
consolidated results of its operations and its cash flows for the years ended
December 31, 2001, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States of America.
As more fully described in Note 12, subsequent to the issuance of the Company's
2001 consolidated financial statements and our report thereon dated March 15,
2002, we became aware that those consolidated financial statements did not
reflect certain accrued compensation and related compensation expense. In our
related report, we expressed an unqualified opinion with an explanatory
paragraph describing conditions that raised doubt about the Company's ability to
continue as a going concern. Our opinion on the revised consolidated financial
statements, as expressed herein, remains unqualified with an explanatory
paragraph describing conditions that raised doubt about the Company's ability to
continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company's accumulated deficit of
$575,828 at December 31, 2001, net losses in 2001 of $164,935, cash used in
operations in 2001 of $91,617, working capital deficit of $102,629 at December
31, 2001 and the need for additional cash to fund operations over the next year
raise substantial doubt about its ability to continue as a going concern.
Management's Plan in regards to these matters is also described in Note 10. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 15, 2002 (except for Note 12 as to which
the date is September 2, 2002)
1
Sun Network Group, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
December 31,
2001 2000
--------- ---------
Restated
(Note 12)
---------
Current Assets
Cash ................................................... $ 5,321 $ 3,088
Accounts receivable .................................... - 300
Prepaid expenses ....................................... - 385
--------- ---------
Total Current Assets ................................... 5,321 3,773
--------- ---------
Other Assets
Prepaid advertising .................................... 35,200 -
Due from officer ....................................... - 4,587
--------- ---------
Total Other Assets ..................................... 35,200 4,587
--------- ---------
Total Assets ........................................... $ 40,521 $ 8,360
========= =========
Liabilities and Stockholders Equity (Deficiency)
Current Liabilities
Accounts payable ....................................... $ 9,937 $ 4,249
Accrued compensation, related party .................... 68,750 -
Due to stockholder/officer ............................. 29,263 -
--------- ---------
Total Current Liabilities .............................. 107,950 4,249
--------- ---------
Stockholders' Equity (Deficiency)
Common stock, $0.001 par value,
100,000,000 shares authorized 21,665,399 and
11,935,000 issued and outstanding, respectively ..... 21,665 11,935
Additional paid-in capital ............................. 486,734 403,069
Accumulated deficit .................................... (575,828) (410,893)
--------- ---------
Total Stockholders' Equity (Deficiency) ................ (67,429) 4,111
--------- ---------
Total Liabilities and Stockholder' Equity (Deficiency) . $ 40,521 $ 8,360
========= =========
See accompanying notes to consolidated financial statements
2
Sun Network Group, Inc. and Subsidiary
Consolidated Statements of Operations
December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
Restated
(Note 12)
------------
Revenues ............................. $ - $ 43,903 $ 127,992
------------ ------------ ------------
Operating Expenses
Bad debt expense ..................... - - 780
Compensation ......................... 101,768 26,230 9,000
Contract labor ....................... - 1,167 25,445
Consulting ........................... 33,395 - -
Depreciation ......................... - 25,795 18,214
Exploitation costs ................... 10,329 4,252 47,187
Film costs ........................... - 57,979 178,051
General and administrative ........... 30,140 23,967 26,062
Professional fees .................... 24,503 - -
------------ ------------ ------------
Total Operating Expenses ............. 200,135 139,390 304,739
------------ ------------ ------------
Loss from Operations ................. (200,135) (95,487) (176,747)
Other Income (Expenses)
Settlement income .................... 35,200 - -
Interest expense ..................... - (17,996) (11,432)
Settlement expense ................... - - (33,849)
------------ ------------ ------------
Total Other Income (Expenses) ........ 35,200 (17,996) (45,281)
------------ ------------ ------------
Net Loss ............................. $ (164,935) $ (113,483) $ (222,028)
============ ============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.01) $ (0.02)
============ ============ ============
Weighted average shares outstanding .. 16,946,324 13,261,111 13,261,111
============ ============ ============
See accompanying notes to consolidated financial statements
3
Sun Network Group, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
Years Ended December 31, 2001, 2000 and 1999
Common Stock Additional Accumulated
Shares Amount Paid-In Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ........... - $ $ - $ (75,382) $ (75,382)
Stock issued to founders for cash .... 13,261,111 13,261 209,717 - 222,978
Net loss, 1999 ....................... - - - (222,028) (222,028)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ........... 13,261,111 $ 13,261 $ 209,717 $ (297,410) $ (74,432)
Contributed capital .................. - - 103,375 - 103,375
Conversion of promissory note and
accrued interest to equity ......... - - 204,490 - 204,490
Exchange of equity for equipment ..... (1,326,111) (1,326) (114,513) - (115,839)
Net loss, 2000 ....................... - - - (113,483) (113,483)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 ........... 11,935,000 11,935 403,069 (410,893) 4,111
Issuance of stock for cash ........... 898,333 898 59,102 - 60,000
Issuance of stock for services ....... 500,000 500 32,895 - 33,395
Recapitalization ..................... 8,332,066 8,332 (8,332) - -
Net loss, 2001, as previously reported - - - (96,185) (96,185)
Effect of restatement (Note 12) ...... - - - (68,750) (68,750)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 ........... 21,665,399 $ 21,665 $ 486,734 $ (575,828) $ (67,429)
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
4
Sun Network Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
2001 2000 1999
--------- --------- ---------
Restated
(Note 12)
---------
Cash Flows from Operating Activities:
Net loss ...................................... $(164,935) $(113,483) $(222,028)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................. - 25,795 18,214
Stock based consulting expense ................ 33,395 - -
Settlement income ............................. (35,200) - -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ........................... 300 2,700 (3,000)
Prepaid expenses .............................. 385 904 (1,290)
Increase (decrease) in:
Accounts payable .............................. 5,688 (7,999) 12,248
Accrued compensation, related party ........... 68,750 - -
--------- --------- ---------
Net Cash Used in Operating Activities ......... (91,617) (92,083) (195,856)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment ............ - (4,846) (155,001)
(Loan to) repayment from officer .............. 4,587 (4,587) -
--------- --------- ---------
Net Cash Provided by (Used in)
Investing Activities ........................ 4,587 (9,433) (155,001)
--------- --------- ---------
Cash Flows from Financing Activities
Loan proceeds from officer .................... 29,263 - 129,108
Proceeds from sale of common stock ............ 60,000 103,375 222,978
--------- --------- ---------
Net Cash Provided by Financing Activities ..... 89,263 103,375 352,086
--------- --------- ---------
Net increase in cash .......................... 2,233 1,859 1,229
Cash at beginning of year ..................... 3,088 1,229 -
--------- --------- ---------
Cash at End of Year ........................... $ 5,231 $ 3,088 $ 1,229
========= ========= =========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During 2000, a stockholder surrendered its entire interest in exchange for all
equipment owned by the Company with a net book value of $115,839.
During 2000, stockholders contributed advances and related accrued interest
totaling $204,409 to stockholders' equity.
See accompanying notes to consolidated financial statements.
5
Sun Network Group, Inc.
Notes to Consolidated Financial Statements
December 31, 2001
Note 1 Nature of Operations and Summary of Significant Accounting Policies
(A) Nature of Operations, Organization, and Reorganizations
Sun Network Group, Inc., formerly known as Sun Express Group, Inc. (the
"Company"), was incorporated under the laws of Florida on May 9, 1990
and was inactive in the last several years.
On July 17, 2001, RadioTV Network, Inc. was merged into Sun Express
Merger Corp., a subsidiary of Sun Express Group, Inc. The transaction
was accounted for as a recapitalization of Radio TV Network, Inc. Radio
TV Network, LLC, the predecessor to Radio TV Network, Inc., had an
inception year of 1998 and acted as a Defacto company until its
formation in 1999. Effective on January 1, 2001, RadioTV Network, LLC
sold its assets and certain liabilities to a newly formed corporation,
RadioTV Network, Inc., under common control of the remaining two
members of the LLC. The transaction was treated as a recapitalization
of Radio TV Network, LLC.
Pursuant to the merger into Sun Express Merger Corp. discussed above,
all shares of RadioTV Network, Inc. were exchanged for 13,333,333
shares or 61.57% of Sun Express Group, Inc. In accordance with APB 16,
the transaction was accounted for as a recapitalization of RadioTV
Network, Inc. at historical cost and the historical results of
operations in the accompanying consolidated financial statements are
those of RadioTV Network, Inc, and its predecessor Radio TV Network,
LLC, with the operations of Sun Express Group, Inc., included from the
July 17, 2001. Sun Express Group, Inc. then changed its name to Sun
Network Group, Inc. Concurrent with the merger, on July 17, 2001, the
Company authorized a 1-for-3 reverse split of its outstanding common
stock.
All amounts in the accompanying consolidated financial statements have
been retroactively restated to reflect the recapitalizations and the
reverse stock split. In addition, for comparative purposes, for
transactions, which occurred during the period the Company was an LLC,
the members are referred to in the accompanying consolidated financial
statements as stockholders.
Sun Network Group, Inc. acts as a holding company for Radio TV Network,
Inc. Radio TV Network, Inc. produces and broadcasts television versions
of top rated radio programs.
(B) Principles of Consolidation
The consolidated financial statements include the accounts of Sun
Network Group, Inc. and its wholly-owned subsidiary, Radio TV Network,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(C) Use of Estimates
In preparing consolidated financial statements, management is required
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 revenues and
expenses during the reported period. Actual results may differ from
these estimates.
6
(D) Cash Equivalents
For the purpose of the consolidated cash flow statement, the Company
considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents.
(E) Long-Lived Assets
The Company reviews long-lived assets and certain identifiable assets
related to those assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying
amounts may not be recoverable. If the non-discounted future cash flows
of the enterprise are less than their carrying amount, their carrying
amounts are reduced to fair value and an impairment loss is recognized.
(F) Revenue Recognition
The Company accounts for revenues in accordance with the AICPA
Accounting Standards Executive Committee Statement of Position No.
00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2").
The Company generally produces episodic television series and generates
revenues from the sale of broadcast licenses. The terms of the
licensing arrangement may vary significantly from contract to contract
and may include fixed fees, variable fees with or without nonrefundable
minimum guarantees, or barter arrangements.
The Company recognizes monetary revenues when evidence of a sale or
licensing arrangement exists, the license period has begun, delivery of
the film to the licensee has occurred or the film is available for
immediate and unconditional delivery, the arrangement fee is fixed or
determinable, and collection of the arrangement fee is reasonably
assured. The Company recognizes only the net revenue due to the Company
pursuant to the formulas or amounts stipulated in the customer
contracts.
The Company recognizes revenues from barter arrangements in accordance
with the Accounting Principles Board Opinion No. 29 "Accounting for
Non-Monetary Exchanges," ("APB 29") as interpreted by EITF No. 93-11
"Accounting for Barter Transactions Involving Barter Credits." In
general, APB 29 and it related interpretation require barter revenue to
be recorded at the fair market value of what is received or what is
surrendered, whichever is more clearly evident.
(G) Costs and Expenses of Producing Films
The Company accounts for costs and expenses of producing a film and
bringing that film to market in accordance with SOP 00-2 as follows:
Film costs include all direct negative costs incurred in the production
of a film as well as allocations of production overhead and capitalized
interest costs. Film costs are capitalized and amortized as the Company
recognizes revenue from each episode. If reliable estimates of
secondary market revenue are established, any subsequent costs are
capitalized and amortized using the individual-film-forecast method,
which amortizes costs in the same ratio as current revenues bears to
estimated unrecognized ultimate revenues.
7
Participation costs which consist of contingent payments based on film
financial results or based on other contractual arrangements, are
expensed and accrued, when a film is released, using the
individual-film-forecast method, if the obligation is probable.
Exploitation costs include advertising, marketing, and other
exploitation costs. Advertising costs are accounted for in accordance
with SOP 93-7, "Reporting on Advertising Costs." All other exploitation
costs, including marketing costs, are expensed as incurred.
(H) Income Taxes
During 2000 and 1999, the Company was structured as a limited liability
company and elected to be taxed as a partnership under the Internal
Revenue Code. In lieu of paying corporate income taxes, the members
were taxed individually on their proportionate share of the Company's
taxable income. Therefore, no provisions or liability for income taxes
during 2000 and 1999 has been included in the accompanying consolidated
financial statements.
Starting from January 1, 2001, income taxes are accounted for under the
asset and liability method of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes ("SFAS 109")." Under
SFAS 109 deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(I) Net Loss Per Common Share
Basic net income (loss) per common share (Basic EPS) excludes dilution
and is computed by dividing net income (loss) available to common
stockholder by the weighted-average number of common shares outstanding
for the period. Diluted net income per share (Diluted EPS) reflects the
potential dilution that could occur if stock options or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Company. At December 31, 2001, there were no common
stock equivalents outstanding, which may dilute future earnings per
share.
(J) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate that value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
8
The carrying amounts of the Company's short-term financial instruments,
including accounts payable and due to officer, approximate fair value
due to the relatively short period to maturity for these instruments.
(K) New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements, which may apply, to the Company.
Statement No. 141 "Business Combinations" establishes revised standards
for accounting for business combinations. Specifically, the statement
eliminates the pooling method, provides new guidance for recognizing
intangible assets arising in a business combination, and calls for
disclosure of considerably more information about a business
combination. This statement is effective for business combinations
initiated on or after July 1, 2001. The adoption of this pronouncement
on July 1, 2001 did not have a material effect on the Company's
financial position, results of operations or liquidity.
Statement No. 142 "Goodwill and Other Intangible Assets" provides new
guidance concerning the accounting for the acquisition of intangibles,
except those acquired in a business combination, which is subject to
SFAS 141, and the manner in which intangibles and goodwill should be
accounted for subsequent to their initial recognition. Generally,
intangible assets with indefinite lives, and goodwill, are no longer
amortized; they are carried at lower of cost or market and subject to
annual impairment evaluation, or interim impairment evaluation if an
interim triggering event occurs, using a new fair market value method.
Intangible assets with finite lives are amortized over those lives,
with no stipulated maximum, and an impairment test is performed only
when a triggering event occurs. This statement is effective for all
fiscal years beginning after December 15, 2001. The Company believes
that the future implementation of SFAS 142 on January 1, 2002 will not
have a material effect on the Company's financial position, results of
operations or liquidity.
Statement No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" supercedes Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121"). Though it retains the basic requirements of
SFAS 121 regarding when and how to measure an impairment loss, SFAS 144
provides additional implementation guidance. SFAS 144 excludes goodwill
and intangibles not being amortized among other exclusions. SFAS 144
also supercedes the provisions of APB 30, "Reporting the Results of
Operations," pertaining to discontinued operations. Separate reporting
of a discontinued operation is still required, but SFAS 144 expands the
presentation to include a component of an entity, rather than strictly
a business segment as defined in SFAS 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS 144 also eliminates the
current exemption to consolidation when control over a subsidiary is
likely to be temporary. This statement is effective for all fiscal
years beginning after December 15, 2001. The Company believes that the
future implementation of SFAS 144 on January 1, 2002 will not have a
material effect on the Company's financial position, results of
operations or liquidity.
Note 2 Film Costs and Exploitation Costs
As of December 31, 2001, there were no capitalized film costs. Film costs
expensed during the year 2000 and 1999 were $57,979 and $178,051, respectively.
There were no film costs incurred during 2001.
9
There were no advertising costs expensed and included in exploitation costs
during 2001, 2000, and 1999. Other exploitation costs totaled $10,329, $4,252,
and $47,187 during 2001, 2000 and 1999, respectively.
Note 3 Due to Stockholder
Amounts due to stockholder are non-interest bearing open advances with no stated
due dates.
Note 4 Commitments
On July 16, 2001, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The agreement stipulated annual salary of
$120,000, $30,000 of a guaranteed bonus plus certain expenses. The Company has
accrued $68,750 as of December 31, 2001.
Note 5 Related Party Transactions
In 2000, an affiliate of a stockholder provided 33% of revenues (see Note 9).
In 2000, a stockholder exchanged their entire equity interest for equipment (see
Note 5).
During 2001, the Company paid $12,018 of personal expenses of the chief
executive officer. This amount was included as compensation expense in 2001.
At December 31, 2001, the Company has amounts due to stockholder and accrued
compensation due to that stockholder who was the Chief executive officer of the
Company.
Note 6 Stockholders' Equity (Deficiency)
On January 1, 2000, a stockholder converted a promissory note of $200,000 plus
$4,490 of accrued interest to contributed capital. The note had been executed in
July 1999 to account for equipment with original cash basis of $155,003 and
advances of $44, 997 provided to the Company.
On December 31, 2000, the stockholder who previously converted the note
discussed above surrendered its entire 10% equity interest in the Company in
exchange for the equipment, which at that time had net book value of $115,839.
This transaction was considered a related party transaction and accordingly
equity was reduced by $115,839 and no gain or loss was recognized.
In February 2001, the Company issued, after its reorganization into a
corporation, 898,333 common shares to an investor for $60,000 and 500,000 common
shares to a service provider valued at the contemporaneous cash offering price
of $0.0668 per share or $33,395, The shares for services was recorded as a
consulting expense for past services rendered.
On July 17, 2001, 8,332,066, common shares were deemed issued in a
recapitalization transaction. (See Note 1(A))
Note 7 Revenues
In May 2001, the Company settled some disputes with a customer licensee by
accepting barter advertising time valued at its estimated fair market value of
$35,200.
10
The Company recorded the advertising time as revenues at the settlement date and
an asset to be amortized on a usage basis. Through December 31, 2001, none of
the advertising time had been used.
Note 8 Income Taxes
There was no income tax expense or benefit for federal and state income taxes in
the consolidated statement of operations due to the Company's net loss and
valuation allowance on the resulting deferred tax asset.
The actual tax expense differs from the "expected" tax expense for the years
ended December 31, 2001 (computed by applying the blended U.S. Federal Corporate
tax rate of 35 percent to income before taxes) as follows:
2001
----------
Computed "expected" tax expense (benefit) $ (70,047)
Established deferred tax asset valuation allowance 70,047
----------
$ -
==========
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2001 are as follows:
Deferred tax assets: 2001
----------
Net operating loss carryforward $ 70,047
----------
Total Gross Deferred Assets 70,047
Less valuation allowance (70,047)
----------
Net Deferred Tax Asset $ -
==========
At December 31, 2001, the Company had useable net operating loss carryforwards
of approximately $96,185 for income tax purposes, available to offset future
taxable income expiring in 2021.
There was no valuation allowance at January 1, 2001. The net change in the
valuation allowance during the year ended December 31, 2001 was an increase of
$33,665.
Note 9 Concentrations
During 2001, one customer provided 100% of the revenue, which was all barter
revenue (See Note 4). During 2000, two customers provided 55% and 42% of the
revenues, respectively. During 1999, one customer provided 62% of the revenues
and an affiliate of a stockholder provided 33% of revenues.
Note 10 Segment Information
The Company has a single reportable segment. All revenues as of December 31,
2001, 2000, and 1999 are derived from customers in the United States of America.
11
Note 11 Going Concern
As reflected in the accompanying consolidated financial statements, the Company
had an accumulated deficit of $575,828 at December 31, 2001, net losses in 2001
of $164,935; cash used in operations in 2001 of $91,617, a working capital
deficit of $102,629 at December 31, 2001 and needs additional cash to fund
operations over the next year. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise additional funds, 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.
Management is in process of seeking additional financing. 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 12 Restatement
Subsequent to the issuance of the Company's fiscal 2001 consolidated financial
statements management became aware that those consolidated financial statements
did not include $68,750 of accrued compensation expense pursuant to a July 16,
2001 employment agreement with the Company's chief executive officer. The
inclusion of this item in the revised consolidated financial statements has the
effect of increasing current liabilities by $68,750 and increasing net loss by
$68,750. Net loss per share, basic and diluted did not change.
12
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN OR THAT ARE CURRENTLY
DEEMED IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. THE RISKS AND
UNCERTAINTIES DESCRIBED IN THIS DOCUMENT AND OTHER RISKS AND UNCERTAINTIES WHICH
WE MAY FACE IN THE FUTURE WILL HAVE A GREATER IMPACT ON THOSE WHO PURCHASE OUR
COMMON STOCK. THESE PURCHASERS WILL PURCHASE OUR COMMON STOCK AT THE MARKET
PRICE OR AT A PRIVATELY NEGOTIATED PRICE AND WILL RUN THE RISK OF LOSING THEIR
ENTIRE INVESTMENT.
SUN NETWORK GROUP, INC.
DISTRIBUTION OF 78,151,513 SHARES
OF COMMON STOCK
_______________
PROSPECTUS
________________
_____________, 2002
- --------------------------------------------------------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
Until _______ 2002 all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act (the "FBCA") empowers
a corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers. The FBCA provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of stockholders or otherwise.
Our Certificate of Incorporation eliminates the personal liability of directors
to the fullest extent permitted by Section 607.0850 of the FBCA and provides for
indemnification of all persons whom we shall have the power to indemnify
pursuant to Section 607.0850 of the FBCA.
The effect of the foregoing is to require us to the extent permitted by law to
indemnify our officers and directors of for any claim arising against such
persons in their official capacities if such person acted in good faith and in a
manner that he reasonably believed to be in or not opposed to our best
interests, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling our Company pursuant to the foregoing
provisions, we have been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the registrant
in connection with the sale of the securities being registered. All amounts are
estimates except the SEC registration fee:
SEC Registration fee $ 126.48
Printing and engraving 1,000.00
Accounting fees and expenses 1,000.00
Attorney fees and expenses 22,000.00
Transfer Agent fees and expenses 500.00
Misc. 500.00
Total $25,126.48
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Some of the holders of the shares issued below may have subsequently
transferred or disposed of their shares and the list does not purport to be a
current listing of the Company's stockholders.
During the last three years, we have issued unregistered securities to the
persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof, Regulation D promulgated thereunder. All recipients had adequate
access, through their relationships with us, to information about us.
On March 28, 2002, the Company issued 183,088 shares of restricted stock to an
individual investor at a purchase price of $.45 per share for cash proceeds of
$82,390. The Company believes such issuance was exempt from registration
pursuant to section 4 (2) of the Securities Act of 1933.
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with the selling stockholders on June 27, 2002 for
the sale of (i) $750,000 in convertible debentures and (ii) a warrants to buy
750,000 shares of our common stock. The investors are obligated to provide us
with the funds as follows:
o $250,000 was disbursed on June 27, 2002;
o $250,000 was be disbursed on August 8, 2002; and
o $250,000 will be disbursed within ten days of the effectiveness of this
prospectus.
The debentures bear interest at 12%, mature on three years from the date of
issuance, and are convertible into our common stock, at the selling
stockholders' option, at the lower of (i) $0.15 or (ii) 50% of the average of
the three lowest intraday trading prices for the common stock on a principal
market for the 20 trading days before but not including the conversion date. The
full principal amount of the convertible debentures are due upon default under
the terms of convertible debentures. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.15 per share.
ITEM 27. EXHIBITS
2.1 Subscription Agreement by and between Sun Network Group, Inc and Bengt
Bjorsvik dated March 28, 2002.*
3.1 AGREEMENT AND PLAN OF MERGER dated July 16, 2001, attached as Exhibit 1
to 8-K/A filed by Company (Sun Express Group, Inc.) on July 31, 2001
and incorporated by reference at this point.
3.2 EMPLOYMENT AGREEMENT, attached as Exhibit 2 to 8-K/A filed by Company
(Sun Express Group, Inc.) on July 31, 2001 and incorporated by
reference at this point.
4.1 Option Agreement and Plan of Merger agreement by and between Sun
Network Group, Inc and Live media Enterprises, Inc dated as of June 28,
2002.*
II-2
5.1 Opinion of Stephen J. Thomas, Esq.**
10.1 Securities Purchase Agreement dated June 27, 2002 between AJW Partners,
LLC, New Millennium Capital Partners II, LLC, AJW/New Millennium
Offshore, Ltd, Pegasus Capital Partners, LLC and the Company.*
10.2 Form of Stock Purchase Warrant dated June 27, 2002.*
10.3 Form of Secured Convertible Debenture dated June 27, 2002.*
10.4 Security Agreement dated June 27, 2002.*
10.5 Form of Registration Rights Agreement dated June 27, 2002 between AJW
Partners, LLC, New Millennium Capital Partners II, LLC Millennium
Capital Partners II, LLC, Pegasus Capital Partners, LLC and the
Company.*
23.1 Consent of Salberg & Company. P.A.**
* Filed as an exhibit to the Company's Registration Statement on Form SB-2
dated July 30, 2002.
** Filed herewith
ITEM 28. UNDERTAKINGS.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) TO FILE, DURING ANY PERIOD IN WHICH OFFERS OR SALES ARE BEING MADE, A
POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION STATEMENT:
(A) TO INCLUDE ANY PROSPECTUS REQUIRED BY SECTION 10(A)(3) OF SECURITIES ACT.
(B) TO REFLECT IN THE PROSPECTUS ANY FACTS OR EVENTS ARISING AFTER THE
EFFECTIVE DATE OF THE REGISTRATION STATEMENT (OR THE MOST RECENT POST-EFFECTIVE
AMENDMENT THEREOF) WHICH, INDIVIDUALLY OR IN THE AGGREGATE, REPRESENT A
FUNDAMENTAL CHANGE IN THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT.
NOTWITHSTANDING THE FOREGOING, ANY INCREASE OR DECREASE IN VOLUME OF SECURITIES
OFFERED (IF THE TOTAL DOLLAR VALUE OF SECURITIES OFFERED WOULD NOT EXCEED THAT
WHICH WAS REGISTERED) AND ANY DEVIATION FROM THE LOW OR HIGH END OF THE
ESTIMATED MAXIMUM OFFERING RANGE MAY BE REFLECTED IN THE FORM OF PROSPECTUS
FILED WITH THE COMMISSION PURSUANT TO RULE 424(B) IF, IN THE AGGREGATE, THE
CHANGES IN VOLUME AND PRICE REPRESENT NO MORE THAN 20% CHANGE IN THE MAXIMUM
AGGREGATE OFFERING PRICE SET FORTH IN THE "CALCULATION OF REGISTRATION FEE"
TABLE IN THE EFFECTIVE REGISTRATION STATEMENT; AND
(C) TO INCLUDE ANY MATERIAL INFORMATION WITH RESPECT TO THE PLAN OF
DISTRIBUTION NOT PREVIOUSLY DISCLOSED IN THE REGISTRATION STATEMENT OR ANY
MATERIAL CHANGE TO SUCH INFORMATION IN THE REGISTRATION STATEMENT
II-3
(2) THAT, FOR THE PURPOSE OF DETERMINING ANY LIABILITY UNDER THE SECURITIES ACT,
EACH SUCH POST-EFFECTIVE AMENDMENT SHALL BE DEEMED TO BE A NEW REGISTRATION
STATEMENT RELATING TO THE SECURITIES OFFERED THEREIN, AND THE OFFERING OF SUCH
SECURITIES AT THAT TIME SHALL BE DEEMED TO BE THE INITIAL BONA FIDE OFFERING
THEREOF.
(3) TO REMOVE FROM REGISTRATION BY MEANS OF A POST-EFFECTIVE AMENDMENT ANY OF
THE SECURITIES BEING REGISTERED WHICH REMAIN UNSOLD AT THE TERMINATION OF THE
OFFERING.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue
II-4
SIGNATURES*
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF LOS
ANGELES STATE OF CALIFORNIA, ON NOVEMBER 8, 2002.
SUN EXPRESS GROUP, INC.
(REGISTRANT)
DATE: NOVEMBER 8, 2002 T. JOSEPH COLEMAN
/S/ T. JOSEPH COLEMAN
---------------------------
T. JOSEPH COLEMAN,
PRESIDENT, DIRECTOR AND CEO
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED:
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