<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995.
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT FOR
THE TRANSITION PERIOD FROM ____________ TO _____________.
Commission file number 0-3851
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SUNGROUP, INC.
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(Exact name of small business issuer as specified in its charter)
Tennessee 62-0790469
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9102 North Meridian Street, Suite 545, Indianapolis,
Indiana 46260
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(Address of principal executive offices)
(317) 844-7425
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No N/A
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, No Par Value 6,442,099 Common Shares
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(Title of class) (Shares outstanding as of September 30, 1995)
Transitional Small Business Disclosure Format (check one): Yes No X
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Page 1 of 12
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SUNGROUP, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements 3
Consolidated Balance Sheet 3
September 30, 1995
Consolidated Statements of Operations 4
Three Months Ended September 30, 1995 and 1994
Consolidated Statements of Operations 5
Nine Months Ended September 30, 1995 and 1994
Consolidated Statements of Cash Flow 6
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 11
Item 3. Defaults Upon Senior Securities
Signatures 12
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1995
(unaudited)
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(In Thousands)
<S> <C>
Current Assets
Cash $ 435
Accounts Receivable (net) 1,512
Prepaid and Other 66
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Total Current Assets 2,013
Property And Equipment (Net) 1,733
Other Assets
Intangible Assets (net) 7,529
Other Assets 17
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Total Other Assets 7,546
Total Assets $ 11,292
========
Current Liabilities
Accounts Payable & Accrued
Expenses 489
Accrued Interest 3,226
Current Maturates of LT Debt 9,381
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Total Current Liabilities 13,096
Long Term Debt 10,237
Deferred Income Taxes 78
Stockholders' Equity
Common Stock - no par value,
authorized 30,000,000 shares 3,771
Additional Paid in Capital 5,969
Accumulated Deficit (21,859)
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Total Stockholders' Equity (12,119)
Total Liability &
Stockholders' Equity $ 11,292
========
See "Notes to Consolidated Financial Statements"
</TABLE>
3
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
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(In Thousands*)
<S> <C> <C>
Gross Revenue $2,444 $2,250
Agency Commission (220) (248)
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Net Revenue 2,224 2,002
Expenses
Technical & Programming 507 500
Selling and G & A 1,370 1,373
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1,877 1,873
Income From Operations 347 129
Other Income (Expense)
Interest Expense (145) (208)
Gain (Loss) on Disposal of Assets (18) 0
Other 1 1
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(162) (207)
Income (Loss) Before Income Taxes and Extraordinary Item 185 (78)
Income Taxes 0 0
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Income (Loss) Before Extraordinary Item 185 (78)
Extraordinary Gain From Debt Extinguishment 0 0
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Net Income (Loss) 185 (78)
Income (Loss) Per Common Share
Income (Loss) Before Extraordinary Item .03 (.01)
Extraordinary Item 0 0
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Income (Loss) Per Share .03 (.01)
Weighted Average Number Of
Common Shares Outstanding 6,442 6,442
Dividends Per Share 0 0
</TABLE>
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" amounts
4
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
-----------------
(In Thousands*)
<S> <C> <C>
Gross Revenue $6,847 $6,492
Agency Commission (616) (665)
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Net Revenue 6,231 5,827
Expenses
Technical & Programming 1,538 1,547
Selling and G & A 4,155 4,072
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5,693 5,619
Income From Operations 538 208
Other Income (Expense)
Interest Expense (450) (583)
Loss on Disposal of Assets (22) (4)
Other 4 3
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(468) (584)
Income (Loss) Before Income Taxes and Extraordinary Item 70 (376)
Income Taxes (32) 0
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Income (Loss) Before Extraordinary Item 38 (376)
Extraordinary Gain From Debt Extinguishment 180 52
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Net Income (Loss) 218 (324)
Income (Loss) Per Common Share
Income (Loss) Before Extraordinary Item .00 (0.06)
Extraordinary Item 0.03 0.01
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Income (Loss) Per Share 0.03 (0.05)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,442 6,442
DIVIDENDS PER SHARE 0 0
</TABLE>
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" amounts
5
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
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(In Thousands)
<S> <C> <C>
Operating Activities
Net Income (Loss) $ 218 $(324)
Reconciliation Of Net Income (Loss)
To Net Cash Provided By Operating Activities
Depreciation And Amortization 552 719
(Gain) Loss On Disposal Of Assets 22 (4)
Net (Income) Loss From Barter Transactions (38) 64
Extraordinary Gain From Debt Extinguishment (180) (52)
Changes In:
Accounts Receivable (254) (187)
Prepaid Expenses And Other Current Assets 102 6
Accounts Payable And Accrued Expense 69 27
Interest Payable 263 391
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Net Cash Provided by Operating Activities 754 640
INVESTMENT ACTIVITIES
Purchase of Property and Equipment (55) (104)
Proceeds from Sale of Equipment 1 4
Received on Notes Receivable 0 40
Other (3) 10
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Net Cash Provided (used) by Investing Activities (57) (50)
FINANCING ACTIVITIES:
Repayments of Long-term Debt (625) (587)
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Net Cash Used by Financing Activities (625) (587)
INCREASE IN CASH 72 3
Cash, Beginning Of Year 363 302
Cash, End Of Quarter 435 305
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest Paid 181 183
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 21 22
Accrued Interest Added to New Notes in Restructuring 6 8
</TABLE>
See "Notes to Consolidated Financial Statements"
6
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SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
(1) Consolidated Condensed Financial Statements. The accompanying unaudited
financial statements have been prepared in accordance with the instructions
to Form 10-QSB and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair presentation have
been included. While management believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that these
financial statements be read in conjunction with the financial statements
and the related notes included in the Corporation's latest report on Form
10-KSB. Operating results for the interim period are not necessarily
indicative of the results to be expected for the entire year.
(2) Income Taxes. Income taxes in the consolidated statement of operations
include deferred income tax provisions for all significant temporary
differences in recognizing income and expenses for financial reporting and
income tax purposes. The Corporation files consolidated income tax returns.
At September 30, 1995, the Corporation had approximately $12 million of net
operating loss carry forwards, which expire in years 2002 through 2009.
At September 30, 1994, the Corporation had a cumulative net deferred tax
asset. This asset has been offset by an evaluation allowance since
management believes it is more likely than not that, except for the
reversals of taxable temporary differences, the Corporation will not
generate income to utilize all of the net operating loss carry forwards. In
addition, the Corporation had deferred state income tax expense of $78,000.
(3) Net Income/Loss Per Common Share. Net income/loss per common share is
determined on the average number of common shares outstanding during the
period. The inclusion of stock warrants and stock options in the
computation per common share would be anti-dilutive or immaterial since the
Corporation incurred a net loss for the three and nine months ended
September 30, 1994 and had nominal net income for the three and nine months
ended September 30, 1995, and accordingly was not considered in the
calculation.
7
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Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
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For the quarter and nine months ended September 30, 1995 and 1994, the
Corporation operated the same properties.
Gross revenues for the quarter were up 8.6%, or $194,000. This increase is
attributable to an increase in sales related to barter transactions. In
addition, market revenues for the broadcast industry as a whole were up. Gross
Revenue for the nine months were up $355,000, or 5.5%. The bulk of this increase
came with increased national advertising dollars during the first quarter of
1995, and increased barter sales in the third quarter.
Agency commissions as a percentage of gross sales for the quarter ended
September 30, 1995, was approximately 9% in 1995, versus 11% in 1994. Agency
commissions as a percentage of gross sales for the nine months ended September
30, 1995, was approximately 9% in 1995, and 10.2% in 1994. The decrease in the
quarter and year-to-date results is a result of the company having higher barter
sales in 1995.
Technical and programming expenses were up $7,000 for the quarter ended
September 30, 1995, and down $9,000 for nine months ended September 30.
Selling and general administrative expenses were down $3,000, or less than
1%, for the quarter ended September 30, 1995, and up $83,000, or 2%, for the
nine months ended September 30, 1995. The increase for the year is a result of
higher compensation costs to the Corporation's General Managers. Because of
increased operating profits during 1995, bonus compensation to the station
General Managers, has been higher during the first half of the year.
Interest expense was down $63,000, or 30%, for the quarter ended September
30, 1995, and down $133,000, or 22.3%, for the nine months ended September 30,
1995. This is a result of the Corporation ceasing to accrue interest on a total
$2.9 million debt in 1995 versus 1994. The Corporation has no contact with the
holder of this debt in over six (6) years. Management believes that the
likelihood of the Corporation eventually being required to pay this interest is
minimal (see financial condition). The Corporation's overall interest expense,
compared to the debt level, continues to remain low as a result of a substantial
amount of the debt being restructured with an effective interest rate of 0% for
book purposes.
There was a loss of the disposal of assets of $18,000 during the third
quarter of 1995. This loss is attributed to the write-down of certain assets
which the Corporation retired when it was upgrading some of its studio
equipment.
Changes in other income was negligible for the quarter and nine months
ended September 30, 1995.
8
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The Corporation had no extraordinary items for the quarter ended September
30, 1995 or 1994. For the nine month period ended September 30, 1995 and 1994,
the Corporation had one extraordinary item during each period. In February 1995,
the Corporation canceled a note issued in December 1989 with unpaid principal
and unpaid interest in excess of $180,000. This note has been treated as
canceled because it has been in default for more than four years and the
Corporation has been advised by counsel that the statute of limitations for
collection of this note is four years.
Financial Condition
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The Corporation's principal source of funds is cash flow provided by the
operation of the radio stations. Its primary needs include working capital,
capital expenditures to maintain property, plant, and equipment, and repayment
of debt. During the first nine months of 1995, the Corporation was able to meet
its primary cash need of debt service ($625,000) with its station operating cash
flow of approximately $1,050,000.
The Corporation has operated with a working capital deficiency for several
years. At September 30, 1995, the deficit was approximately $11,083,000. This
deficit compares to a deficit of approximately $11,178,000 at December 31, 1994.
During the last several years, the Corporation has not generated sufficient
funds for working capital, debt repayment schedules as they currently exist, and
capital expenditures. The Corporation is currently in default on $8,603,000 in
debt and has scheduled debt repayments of $778,000 over the next 12 months.
As described in Part II, Item 3, "Defaults Upon Senior Security", the
Corporation continues to be in violation of certain provisions of its long-term
borrowings. The total principal value of all notes on which the Corporation is
currently in default is approximately $8,603,000. These notes have approximately
$3.1 million in unpaid accrued interest. The Corporation is in default on this
debt primarily because of non-payment of principal and interest. Some lenders
have received no payments from the Corporation for over six years and several of
the notes have either matured in full or have had substantial principal payments
due since 1991. Under applicable state law, scheduled debt payments which are
not made after a specified period of time (statute of limitations) are not
collectible by the creditor.
In February 1995, the Corporation treated as canceled a note issued in
December, 1989, with unpaid principal of $128,749 and unpaid interest of
$51,535. This note has been treated as canceled because it has been in default
for more than four years, and the Corporation has been advised by counsel that
the applicable statute of limitations for collection of this note is four years.
Also, at September 30, 1995, the Corporation had ceased accruing interest
on a total of $2,950,000 of its notes. The holders of these notes have not made
an effort to collect on them for more than six years.
The Corporation plans to deal with its weak financial condition by
continuing to develop a strong profit base with its current stations and
focusing on the restructuring of secured and unsecured debts. The Corporation
continues to negotiate with some of its secured lenders in
9
<PAGE>
order to restructure its debt obligations in such a way they can be paid out of
the net cash now being generated by the Corporation's broadcast properties.
Recently the Corporation has had intensified negotiations with the Federal
Deposit Insurance Corporation regarding the resolution of over $5 million in
debt. However, at this date no resolution regarding this matter has been
completed. In addition, another $2.2 million in debt held by the FDIC matured on
September 30, 1995 and was scheduled to be auctioned in the middle of October.
At this time, the Corporation has not been contacted regarding the collection of
this note or the status of its sale.
The Corporation has had success in the past in renegotiating with creditors
on extended payment pay-outs. However, the Corporation was not successful in
renegotiating any notes in 1994 or the first nine months of 1995, and there is
no certainty that additional creditors with whom the Corporation is now in
default will accept renegotiated terms in the future. Failure to renegotiate
successfully with these lenders will severely hamper the Corporation's ability
to continue as a going concern. The Corporation will not generate sufficient
funds in 1995 to service its current operating expenses, capital needs, and debt
obligations as they are currently structured.
10
<PAGE>
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
There have been no changes in legal proceedings since the Corporation's
last filing.
Item 3. Defaults Upon Senior Securities
Below is a table of the Corporation's debt instruments which were in
default at September 30, 1995, each of which is an amount greater than 5% of the
Corporation's total assets.
<TABLE>
<CAPTION>
REASON FOR PRINCIPAL IN INTEREST IN
HOLDER DEFAULT DEFAULT DEFAULT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Note Payable Non-payment
Individual principal and interest $ 525,000 $ 293,000
Default Since 01/01/90
Note Payable Bank Note was due
(RTC Receivership) in full on April 28, 1990 $2,162,820 $1,263,000
Default Since 05/01/88
Note Payable Bank Non-payment of
(FDIC Receivership) principal and interest $3,500,000 $1,567,000
Default Since 06/30/90
Note Payable Bank Note matured $2,184,910 $ 9,413
(FDIC Receivership) 09/30/95
</TABLE>
11
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SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SUNGROUP, INC.
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(Registrant)
November 6, 1995 /S/ John W. Biddinger
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Date John W. Biddinger
Principal Operating Officer
November 6, 1995 /S/ John E. Southwood, Jr.
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Date John E. Southwood, Jr.
Principal Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Interim financial statements for the period ending September 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 435
<SECURITIES> 0
<RECEIVABLES> 1,568
<ALLOWANCES> (56)
<INVENTORY> 0
<CURRENT-ASSETS> 2,013
<PP&E> 4,598
<DEPRECIATION> (2,865)
<TOTAL-ASSETS> 11,292
<CURRENT-LIABILITIES> 13,096
<BONDS> 10,237
<COMMON> 3,771
0
0
<OTHER-SE> (15,890)
<TOTAL-LIABILITY-AND-EQUITY> 11,282
<SALES> 6,231
<TOTAL-REVENUES> 6,847
<CGS> 0
<TOTAL-COSTS> 5,075
<OTHER-EXPENSES> 570
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 450
<INCOME-PRETAX> 70
<INCOME-TAX> 32
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 180
<CHANGES> 0
<NET-INCOME> 218
<EPS-PRIMARY> .034
<EPS-DILUTED> .016
</TABLE>
