<PAGE>
FORM 10-QSB.-QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO 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
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9102 North Meridian Street, Suite 545, Indianapolis,
Indiana 46260
--------------
(Address of principal executive offices)
(317) 844-7425
--------------
(Issuer's telephone number)
(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
_____ ______
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 _____
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
------------------------------------------------------------
(Title of class) (Shares outstanding March 31, 1995)
Transitional small business disclosure format (check one) Yes No X
____ ______
Page 1 of 10
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SUNGROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet 3
March 31, 1995
Consolidated Statements of Operations 4
Three Months Ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION:
Other Information 9
Signatures 10
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1995
(unaudited)
------------
(In Thousands)
<S> <C>
CURRENT ASSETS
Cash $ 329
Accounts Receivable (net) 1,140
Prepaid and Other 124
--------
TOTAL CURRENT ASSETS 1,593
PROPERTY AND EQUIPMENT (NET) 1,850
OTHER ASSETS
Intangible Assets (net) 7,744
Other Assets 19
--------
TOTAL OTHER ASSETS 7,763
TOTAL ASSETS $ 11,206
========
CURRENT LIABILITIES
Accounts Payable & Accrued
Expenses 416
Accrued Interest 3,051
Current Maturates of LT Debt 9,382
--------
TOTAL CURRENT LIABILITIES 12,849
LONG TERM DEBT 10,596
DEFERRED INCOME TAXES 78
STOCKHOLDERS' EQUITY
Common Stock - $1 par value,
authorized $10 million 3,771
Additional Paid in Capital 5,969
Accumulated Deficit (22,057)
--------
TOTAL STOCKHOLDERS' EQUITY (12,317)
TOTAL LIABILITY &
STOCKHOLDERS' EQUITY $ 11,206
========
</TABLE>
See "Notes to Consolidated Financial Statements"
3
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
(unaudited)
March 31,
1995 1994
----------------------
(In Thousands*)
<S> <C> <C>
Gross Revenue $1,977 $1,754
Agency Commission (203) (172)
------ ------
1,774 1,582
EXPENSES
Technical & Programming 456 424
Selling and G & A 1,333 1,241
------ ------
1,789 1,665
LOSS FROM OPERATIONS (15) (83)
OTHER INCOME (EXPENSE)
Interest-Expense (149) (181)
Gain (Loss) on Disposal of Assets 1 (3)
Other 2 22
------ ------
(146) (162)
LOSS BEFORE EXTRAORDINARY ITEM (161) (245)
Extraordinary Gain From Debt Extinguishment 180 0
NET INCOME (LOSS) 19 (245)
LOSS PER COMMON SHARE
Loss Before Extraordinary Item (0.02) (0.04)
Extraordinary Item .02 0
------ ------
LOSS PER SHARE (0.00) (0.04)
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
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
(unaudited)
March 31,
1995 1994
--------------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ 19 $(245)
Reconciliation of net income (loss)
to net cash provided by operating activities
Depreciation and Amortization 185 244
(Gain) Loss on Disposal of Assets (1) 3
Net Income Loss From Barter Transactions (2) 37
Extraordinary Gain From Debt Extinguishment (180) (52)
Changes In:
Accounts Receivable 96 13
Prepaid Expenses and Other Current Assets 45 20
Accounts Payable and Accrued Expense (4) (4)
Interest Payable 89 99
----- -----
Net Cash Provided by Operating Activities 247 115
INVESTMENT ACTIVITIES
Purchase of Property and Equipment (20) (1)
Proceeds from Sale of Equipment 0 0
Received on Notes Receivable 0 40
Other 0 11
----- -----
Net Cash Provided (used) by Investing Activities (20) 52
FINANCING ACTIVITIES:
Repayments of Long-term Debt (261) (165)
----- -----
Net Cash Used by Financing Activities (261) (165)
INCREASE IN CASH (34) 0
Cash, Beginning Of Quarter 363 302
Cash, End Of Quarter 329 302
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest Paid 58 80
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 20 0
Accrued Interest Added to New Notes in Restructuring 3 2
</TABLE>
See "Notes to Consolidated Financial Statements"
5
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 1995, the Corporation had approximately $12 million of net
operating loss carry forwards, which expire in years 2002 through 2009.
At March 31, 1994, the Corporation had a cumulative net deferred tax asset.
This asset has been offset by an evaluation allowance since management
believes it is more likely than not that, except for the reversals of
taxable temporary differences, the Corporation will not generate income to
utilize all of the net operating loss carry forwards. In addition, the
Corporation had deferred state income tax expense of $78,000.
(3) Net Loss Per Common Share. Net loss per common share is determined on the
average number of common shares outstanding during the period. The
inclusion of stock warrants and stock options in the computation per common
share would be anti-dilutive since the Corporation incurred a net loss for
the three months ended March 31, 1994 and had nominal net income for the
three months ended March 31, 1995, and accordingly was not considered in
the calculation.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
- ---------------------
For the quarter ended March 31, 1995 and 1994, the Corporation operated the
same properties.
Gross revenues for the quarter were up 13% or $223,000. This increase is
attributable to an increase in local advertising dollars for the radio industry
in general, and a significant increase in national business. National revenues
at the Corporation's stations were up 43% over the prior year. The
Corporation's Albuquerque property showed the most significant increase with
revenues exceeding the prior year's by 55%. The Albuquerque market as a whole
showed significant revenue growth in the quarter. All other markets had
insignificant changes in revenues except for Bryan, Texas which decreased 23% as
a result of poor ratings and increased market competition.
Agency commissions as a percentage of gross sales were approximately 10.3%
in 1995 vs. 9.8% in 1994. This increase is a result of the increase in national
sales in 1995.
Technical and programming expenses increased $32,000 or 8%. The increase
was largely due to an increase in engineering salaries as a result of adding an
additional full time engineer at one of the Corporation's properties. The
remaining increase related to wage increases for program personnel, as program
salaries constitute the largest portion of expense in this line.
Selling and general administrative expenses increased $92,000 or 7%. This
increase is related to higher compensation costs related to the Corporation's
general managers. All of the Corporation's general managers signed new
employment contracts in the fourth quarter of 1994. These new employment
contracts had new pay structures which were based more on the performance of the
property and some general salary increases. In addition, the Corporation
replaced two of its sales managers in the first quarter and incurred relocation
expense as a result.
Interest expense decreased 18% or $32,000 as a result of the Corporation
ceasing to accrue interest on a total of $2.9 million in debt in 1995 vs. 1994.
The Corporation has had no contact with the holders of this debt in over six
years. Management believes that the likelihood of the Corporation eventually
being required to pay this interest is minimal (see Financial Condition). The
Corporation's overall interest expense compared to the debt level continues to
remain low as a result of a substantial amount of the debt being restructured
with an effective interest rate of 0% for book purposes.
Other income (expense) which consists of consulting fees, interest income
and other miscellaneous items decreased as a result of lower miscellaneous items
during the first quarter of 1995.
Financial Condition
- -------------------
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 quarter of 1995, the Corporation was able to meet its
primary cash need of debt service ($261,000) by not paying
7
<PAGE>
interest on the portion of the debt which is currently in default ($89,000), a
decrease in receivables ($96,000), and a decrease in prepaid items ($45,000).
The Corporation has operated with a working capital deficiency for several
years. At March 31, 1995, the deficit was approximately $11,256,000. This
deficit compares to a deficit of approximately $11,178,000 at December 31, 1994.
During the last several years, the Corporation has not generated sufficient
funds for working capital, debt repayment schedules as they currently exist, and
capital expenditures. The Corporation is currently in default on $6,418,000 in
debt and has scheduled debt repayments of $2,964,000 over the next 12 months.
As described in Part II, Item 3, "Defaults Upon Senior Security", the
Corporation continues to be in violation of certain provisions of its long-term
borrowings. The total principal value of all notes on which the Corporation is
currently in default is approximately $6,418,000. These notes have
approximately $3 million in unpaid accrued interest. The Corporation is in
default on this debt primarily because of non-payment of principal and interest.
Some lenders have received no payments from the Corporation for over six years
and several of the notes have either matured in full or have had substantial
principal payments due since 1991. Under applicable state law, scheduled debt
payments which are not made after a specified period of time (statute of
limitations) are not collectible by the creditor.
During the quarter ended March 31, 1995, the Corporation treated as
canceled a note issued in December, 1989, with unpaid principal of $128,749 and
unpaid interest of $55,135. 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 March 31, 1995, the Corporation had ceased accruing interest on
$2,200,000 of its notes and on $750,000 of its notes. The holders of these
notes have not made an effort to collect on them for more than six years.
The Corporation plans to deal with its weak financial condition by
continuing to develop a strong profit base with its current stations and
focusing on the restructuring of secured and unsecured debts. The Corporation
continues to negotiate with some of its secured lenders in order to restructure
its debt obligations in such a way they can be paid out of the net cash now
being generated by the Corporation's broadcast properties.
The Corporation has had success in the past in renegotiating with creditors
on extended payment pay-outs. However, the Corporation was not successful in
renegotiating any notes in 1994 or first quarter 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.
8
<PAGE>
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
On April 17, 1995, the Federal Deposit Insurance Corporation as Receiver
for the National Bank of Washington ("FDIC"), the senior creditor for the
Corporation's Pensacola, Florida property ("Pensacola Property"), filed an
application seeking a receiver for the Pensacola Property and a temporary
restraining order against the Corporation, the Corporation's subsidiary,
SunMedia, Inc., and Colonial Broadcasting Company, Inc. in the United States
District Court for the Northern District of Florida, Pensacola Division. The
Corporation owes $4,891,000 in principal and interest to the FDIC, and has been
delinquent in payments on this debt since June 30, 1990. Pursuant to an Agreed
Motion filed by counsel for the FDIC, the hearing on this matter, originally
scheduled for April 24, 1995, has been postponed by the Court for approximately
thirty (30) days while settlement negotiations are conducted between the
Corporation, SunMedia, Inc. and the FDIC.
Item 3. Defaults Upon Senior Securities
Below is a table of the Corporation's debt instruments which were in
default at March 31, 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 $1,391,000
Default Since 06/30/90
</TABLE>
9
<PAGE>
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.
----------------------------
(Registrant)
May 9, 1995 /S/ John W. Biddinger
- ----------- ---------------------------
Date John W. Biddinger
Principal Operating Officer
May 9, 1995 /S/ John E. Southwood, Jr.
- ----------- ---------------------------
Date John E. Southwood, Jr.
Principal Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 379
<SECURITIES> 0
<RECEIVABLES> 1,177
<ALLOWANCES> 37
<INVENTORY> 0
<CURRENT-ASSETS> 1,593
<PP&E> 4,675
<DEPRECIATION> 2,825
<TOTAL-ASSETS> 11,206
<CURRENT-LIABILITIES> 12,849
<BONDS> 10,596
<COMMON> 3,771
0
0
<OTHER-SE> (16,088)
<TOTAL-LIABILITY-AND-EQUITY> 11,206
<SALES> 1,774
<TOTAL-REVENUES> 1,977
<CGS> 0
<TOTAL-COSTS> 1,581
<OTHER-EXPENSES> 183
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> (161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (161)
<DISCONTINUED> 0
<EXTRAORDINARY> 180
<CHANGES> 0
<NET-INCOME> 19
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
