<PAGE>
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, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT For the transition period from to
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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 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)
(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 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
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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 March 31, 1996)
Transitional small business disclosure format (check one): Yes No X
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Page 1 of 10
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SUNGROUP, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
March 31, 1996 3
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 3. Defaults Upon Senior Securities 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1996
(unaudited)
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(In Thousands)
<S> <C>
CURRENT ASSETS
Cash $ 288
Accounts Receivable (net) 1,190
Deferred Income Taxes 1,289
Prepaid and Other 67
--------
TOTAL CURRENT ASSETS 2,834
PROPERTY AND EQUIPMENT (NET) 1,698
OTHER ASSETS
Intangible Assets (net) 7,296
Other Assets 47
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TOTAL OTHER ASSETS 7,343
TOTAL ASSETS $ 11,875
========
CURRENT LIABILITIES
Accounts Payable & Accrued
Expenses 551
Accrued Interest 2,828
Current Maturates of LT Debt 8,711
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TOTAL CURRENT LIABILITIES 12,090
LONG TERM DEBT 9,724
DEFERRED INCOME TAXES 92
STOCKHOLDERS' EQUITY
Common Stock - $1 par value,
authorized $10 million 3,771
Additional Paid in Capital 5,969
Accumulated Deficit (19,771)
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TOTAL STOCKHOLDERS' EQUITY (10,031)
TOTAL LIABILITY &
STOCKHOLDERS' EQUITY $ 11,875
========
</TABLE>
See "Notes to Consolidated Financial Statements"
3
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
(unaudited)
March 31,
1996 1995
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(In Thousands*)
<S> <C> <C>
Gross Revenue $ 1,950 $ 1,977
Agency Commission (209) (203)
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1,741 1,774
EXPENSES
Technical & Programming 512 456
Selling and G & A 1,326 1,333
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1,838 1,789
LOSS FROM OPERATIONS (97) (15)
OTHER INCOME (EXPENSE)
Interest-Expense (71) (149)
Gain (Loss) on Disposal of Assets 0 1
Other 1 2
------- -------
(70) (146)
LOSS BEFORE EXTRAORDINARY ITEM (167) (161)
Extraordinary Gain From Debt Extinguishment 1,142 180
NET INCOME (LOSS) 975 19
LOSS PER COMMON SHARE
Loss Before Extraordinary Item (0.01) (0.01)
Extraordinary Item .08 .01
------- -------
LOSS PER SHARE 0.07 0.00
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,164 13,164
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 CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
(unaudited)
March 31,
1996 1995
-------- --------
<S> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 975 $ 19
Reconciliation of net income (loss)
to net cash provided by operating activities
Depreciation and Amortization 186 185
(Gain) Loss on Disposal of Assets 0 (1)
Net Income Loss From Barter Transactions (7) (2)
Extraordinary Gain From Debt Extinguishment (1,142) (180)
Changes In:
Accounts Receivable 139 96
Prepaid Expenses and Other Current Assets 26 45
Accounts Payable and Accrued Expense 78 (4)
Interest Payable 0 89
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Net Cash Provided by Operating Activities 255 247
INVESTMENT ACTIVITIES
Purchase of Property and Equipment (25) (20)
Proceeds from Sale of Equipment 0 0
Other (30) 0
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Net Cash Provided (used) by Investing Activities (55) (20)
FINANCING ACTIVITIES:
Repayments of Long-term Debt (247) (261)
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Net Cash Used by Financing Activities (247) (261)
INCREASE IN CASH (47) (34)
Cash, Beginning Of Quarter 335 363
Cash, End Of Quarter 288 329
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest Paid 68 58
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 10 20
Accrued Interest Added to New Notes in Restructuring 3 3
</TABLE>
See "Notes to Consolidated Financial Statements"
5
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SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(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, 1996, the Corporation had approximately $13 million of net
operating loss carry forwards, which expire in years 2002 through 2010.
At March 31, 1996, the Corporation had a cumulative net deferred tax asset.
The majority of 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 most of the net operating loss carry forwards.
At March 31, 1996, the Corporation had a recorded deferred tax asset of
$1,288,621. This asset is an allowance against tax expense to be generated
by debt forgiveness in 1996. In addition, the Corporation had deferred
state income tax expense of $92,348.
(3) Net Income Per Common Share. For 1995 and 1996, earnings per common and
common equivalent share were computed by dividing net income by the
weighted average number of common stock and common stock equivalents
outstanding during the first quarter. The Corporation's warrants have been
considered the equivalent of common stock, and as such, increased the
number of common shares. The Corporation's outstanding stock options,
however, have not been added to the number of common shares because of the
market price of the common stock does not exceed the exercise price of the
options. The increase in the number of common shares was reduced by the
number of common shares that are assumed to have been purchased with the
proceeds from the exercise of the warrants; those purchases were assumed to
have been made at the average price of the common stock. The average price
has been determined to be $.1875.
6
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Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
- ---------------------
For the quarter ended March 31, 1996 and 1995, the Corporation operated the
same properties.
Gross revenues for the quarter were down 1% or $27,000. This decrease is
attributable to a 15% decrease in barter sales. The decrease in barter sales
was attributable to transactions with local television stations in the
Corporation's markets. Typically the Corporation's properties will make an
arrangement to exchange radio air time for television air time during certain
promotional times of the year. Typically television stations run their barter
air time on radio stations during the first quarter of the year. However, this
year, the Corporation did not enter into as many agreements with local
television stations as in the past. Overall, cash revenues for the Corporation
were up approximately 1% for the first quarter.
Agency commissions as a percentage of gross sales were approximately 10.7%
in 1996 vs. 10.3% in 1995. This increase is attributable to a larger percentage
of local advertising sales originating through agencies. Agencies historically
charge a radio station a 15% commission.
Technical and programming expenses increased $56,000 or 12%. This increase
was largely due to two of the Corporation's markets adding subscription to
Arbitron's rating services during the later part of 1995. The Corporation did
not incur expense for these services in the first quarter of 1995, however, they
are incurring expenses currently. In addition, the Corporation has increased
its expenditures in the areas of contests and promotions for its radio stations.
The Corporation has increased these expenditures in an effort to increase or
maintain its current rating shares in its respective markets.
Selling and general administrative expenses decreased $7,000 or .5%.
General expenditures such as office supplies, postage, telephone, etc. increased
approximately 1-2%. However, these general increases were offset by a decrease
in bonus compensation to the Corporation's general managers. Fewer of the
managers hit their monthly and quarterly bonus targets during the first quarter
of 1996 as opposed to the first quarter of 1995. Bonus compensation is
generally tied to budgeted financial performance which is typically higher than
prior year's actual results.
Interest expense decreased 52% or $78,000 as a result of the Corporation
ceasing to accrue interest on a total of $6.4 million in debt in 1996 vs. 1995.
On $2.9 million of this debt the Corporation has had no contact with the holders
in over seven years. Management believes that the likelihood of the Corporation
eventually being required to pay this interest is minimal (see Financial
Condition). The remaining $3.5 million in debt is associated with a note
secured by one of the Corporation's properties. The Corporation has entered
into a settlement agreement with the debt holder in which the Corporation will
sell the property and the debt holder will receive the sale proceeds. The sale
proceeds do not exceed the current amount of debt on the books. 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.
7
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Other income (expense) which consists of consulting fees, interest income
and other miscellaneous items was flat during the first quarter of 1996.
The Corporation recorded $1,142,000 in gains from debt extinguishment
during the first quarter of 1996. This gain was attributable to the Corporation
writing off seven notes with an unpaid principal balance of approximately
$755,000 and unpaid interest of $387,000. Payments on these notes became due in
January, 1990. In February of 1990, the Corporation was notified of its default
of non-payment of these notes and demand for payment was made. The holders of
these notes have made no additional collection efforts and the statute of
limitations with respect to the collection of these notes expired in the first
quarter of 1996. In 1995, the Corporation recorded a gain of $180,000 from debt
extinguishment.
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 quarter of 1996, the Corporation was able to meet its
primary cash need of debt service ($247,000) by a decrease in receivables
($139,000), a decrease in prepaid items ($26,000) and an increase in payables
($78,000).
The Corporation has operated with a working capital deficiency for several
years. At March 31, 1996, the deficit was approximately $9,256,000. This
deficit compares to a deficit of approximately $11,397,000 at December 31, 1995.
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 $5,663,000 in
debt and has scheduled debt repayments of $3,048,000 over the next 12 months.
As described in Part II, Item 3, "Defaults Upon Senior Securities", 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 $5,663,000. These notes have
approximately $2.8 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 seven 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, 1996, the Corporation treated as
canceled seven notes issued in July 1986, with unpaid principal of $755,000 and
unpaid interest of $387,000. The notes have been treated as canceled because
they have been in default for more than six years, and the Corporation has been
advised by counsel that the applicable statute of limitations for collection of
these notes is six years.
Also, at March 31, 1996, the Corporation had ceased accruing interest on
$5,663,000 of its notes. The holders of these notes have not made an effort to
collect on them for more than seven years or the Corporation has reached
settlement agreements which have not been finalized but do not require
additional interest payments.
8
<PAGE>
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. In the fourth quarter of 1995, the Corporation
was successful in renegotiating one note and reaching a settlement with another
creditor; however, there is no certainty that additional creditors to 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 1996 to service its current operating expenses,
capital needs, and debt obligations as they are currently structured.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
There have been no changes in legal proceedings since the Corporation's
last report.
Item 3. Defaults Upon Senior Securities
Below is a table of the Corporation's debt instruments which were in
default at March 31, 1996, 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 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 $1,554,000
Default Since 06/30/90
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedules
(b) The Corporation filed a report on Form 8-K with the Securities and
Exchange Commission on February 21, 1996, regarding the sale of
radio station WOWW-FM in Pensacola, Florida.
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.
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(Registrant)
May 10, 1996 /S/ John W. Biddinger
- ------------- -------------------------------
Date John W. Biddinger
Principal Operating Officer
May 10, 1996 /S/ John E. Southwood, Jr.
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Date John E. Southwood, Jr.
Principal Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
interim financial statements for the period ending March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 288
<SECURITIES> 0
<RECEIVABLES> 1,250
<ALLOWANCES> (60)
<INVENTORY> 0
<CURRENT-ASSETS> 2,834
<PP&E> 4,694
<DEPRECIATION> (2,996)
<TOTAL-ASSETS> 11,875
<CURRENT-LIABILITIES> 12,090
<BONDS> 9,724
<COMMON> 3,771
0
0
<OTHER-SE> (13,802)
<TOTAL-LIABILITY-AND-EQUITY> 11,875
<SALES> 1,950
<TOTAL-REVENUES> 1,951
<CGS> 0
<TOTAL-COSTS> 1,828
<OTHER-EXPENSES> 185
<LOSS-PROVISION> 34
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> (167)
<INCOME-TAX> 0
<INCOME-CONTINUING> (167)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,142
<CHANGES> 0
<NET-INCOME> 975
<EPS-PRIMARY> .151
<EPS-DILUTED> .074
</TABLE>
