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, 1997
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2201 Cantu Court, Suite 102A, Sarasota,
Florida 34232-6254
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(Address of principal executive offices)
941-377-6710
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(Issuer's telephone number)
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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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 6,543,700 Common Shares
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(Title of class) (Shares outstanding March 31, 1997)
Transitional small business disclosure format (check one): Yes No X
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Page 1 of 10
<PAGE>
SUNGROUP, INC.
FORM 10-QSB
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet 3
March 31, 1997
Consolidated Statement of Operations 4
Three Months Ended March 31, 1997 and 1996
Consolidated Statement of Cash Flow 5
Three Months Ended March 31, 1997 and 1996
Notes to Consolidated Financial Statement 6
Three Months Ended March 31, 1997 and 1996
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Results of Operations 7
Financial Condition 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
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(IN THOUSANDS)
--------------
(UNAUDITED)
<S> <C>
CURRENT ASSETS
Cash $ 559
Accounts Receivable (net) 1,173
Deferred Income Taxes 0
Prepaid and Other 122
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TOTAL CURRENT ASSETS 1,854
PROPERTY AND EQUIPMENT (NET) 1,604
OTHER ASSETS
Intangible Assets (net) 6,040
Other Assets 7
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TOTAL OTHER ASSETS 6,047
TOTAL ASSETS $9,505
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CURRENT LIABILITIES
Accounts Payable & Accrued
Expenses 538
Accrued Interest 0
Current Maturities of LT Debt 2,999
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TOTAL CURRENT LIABILITIES $3,537
LONG TERM DEBT $7,279
DEFERRED INCOME TAXES 92
STOCKHOLDERS' EQUITY
Common Stock - $1 par value, authorized 10 million 3,770
Additional Paid in Capital 5,970
Accumulated Deficit (11,143)
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TOTAL STOCKHOLDERS' EQUITY (1,403)
TOTAL LIABILITY & STOCKHOLDERS' EQUITY $9,505
======
</TABLE>
See "Notes to Consolidated Financial Statements"
3
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
(UNAUDITED, IN THOUSANDS)*
--------------------------
<S> <C> <C>
INCOME $ 1,847 $ 1,950
Agency Commission (211) (209)
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1,636 1,741
EXPENSES
Technical & Programming 402 512
Selling and Administrative 1,253 1,326
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1,655 1,838
LOSS FROM OPERATIONS (19) (97)
OTHER INCOME (EXPENSE)
Interest Expense (57) (71)
Gain (Loss) on Disposal of Assets 0 0
Other 2 1
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(55) (70)
LOSS BEFORE EXTRAORDINARY ITEM (74) (167)
Extraordinary Gain From Debt Extinguishment 0 1,142
NET INCOME (LOSS) (74) 975
LOSS PER COMMON SHARE
Loss Before Extraordinary Item (0.01) (0.01)
Extraordinary Item 0.00 0.08
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LOSS PER SHARE (0.01) 0.07
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,340 13,164
DIVIDENDS PER SHARE 0 0
</TABLE>
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" and "Per Share" amounts
4
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
(UNAUDITED, IN THOUSANDS)
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $(74) $975
Reconciliation of net income (loss)
to net cash provided by operating activities
Depreciation and Amortization 152 186
(Gain) Loss on Disposal of Assets 0 0
Net Income Loss From Barter Transactions (6) (7)
Extraordinary Gain From Debt Extinguishment - (1,142)
Changes In:
Accounts Receivable 51 139
Prepaid Expenses and Other Current Assets (22) 26
Accounts Payable and Accrued Expense 111 78
Interest Payable (13) 2
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Net Cash Provided by Operating Activities 199 257
INVESTMENT ACTIVITIES
Purchase of Property and Equipment (37) (25)
Proceeds from Sale of Equipment 0 0
Other 7 (30)
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Net Cash Provided by Operating Activities (30) (55)
FINANCING ACTIVITIES:
Repayment of Long-term Debt (162) (247)
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(162) (247)
INCREASE IN CASH 7 (47)
Cash, Beginning Of Quarter 552 335
Cash, End Of Quarter 559 288
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid 66 68
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 6 10
Accrued Interest Added to New Notes in Restructuring 3 3
</TABLE>
See "Notes to Consolidated Financial Statements"
5
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(1) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. The accompanying
unaudited consolidated financial statements of SunGroup, Inc. and its
subsidiaries (collectively, "Corporation") 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 of
such financial information for the periods indicated 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, 1997, the Corporation had approximately $11 million of
net operating loss carry-forwards, which expire in years 2002 through
2010.
At March 31, 1997, 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
reversals of taxable temporary differences, the Corporation will not
generate income to utilize all of the net operating loss carry
forwards. At March 31, 1997, the Corporation had a recorded deferred
tax asset of $61,000.
(3) NET INCOME PER COMMON SHARE. For 1996 and 1997, 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 per share of the common stock. The average
price has been determined to be $.375.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
For the period ended March 31, 1997 and 1996, the Corporation
operated the same properties, except for WOWW-FM in Pensacola, Florida. Gross
revenue for 1997 decreased 7.6% or $133,251 from 1996. This decrease is
attributable to sale of WOWW-FM on July 2, 1996. Excluding the Pensacola
station, revenues increased $65,209 or 4.2%. This increase is due to a
larger portion of national advertising and a slight increase in local
advertising. Miscellaneous and network income has been flat in 1997.
Agency commission as a percentage of gross sales for the quarter was
approximately 10.5% in 1997 versus 10.2% in 1996. The increase is
attributable to the larger amount of national advertisements which originate
through agencies.
Technical and programming expense decreased 21.5% from the same
periods of 1997 to 1996. The majority of this decrease is due to the sale of
Station WOWW-FM. Excluding the Pensacola station, such expense decreased
$36,000 or 8.2%. The savings are a result of better maintenance on the
technical equipment and more prudent spending on promotions.
Selling and administrative expense, which include depreciation and
amortization, decreased $73,000 or 5.5%. The decrease is due to the sale of
the Pensacola station. Fewer of the Corporation's general managers hit their
monthly and quarterly bonus targets during the first quarter of 1997 as
opposed to 1996. Bonus compensation is generally tied to budgeted financial
performance which is typically higher than prior year s actual results.
Interest expense decreased 19.7% or $14,000. This is a result of the
sale of the Pensacola station and its subsequent debt elimination, which sale
was consummated on July 2, 1996. The Corporation s overall interest expense
compared to its debt level continues to remain low as a result of a
substantial amount of the debt being restructured with an effective rate of 0%
for book purposes.
The Corporation recorded other income of $2,000 in 1997 versus $1,000
in 1996. This consists of interest income.
The Corporation had no extraordinary items in 1997 as compared to
$1,142,000 in 1996. The 1996 gain was attributable to the Corporation
treating as canceled several notes issued in July, 1986, consisting of unpaid
principle of $755,000 and unpaid interest of $387,000. The notes had been
treated as canceled because they were in default for more than six years, and
the Corporation had been advised by counsel that the applicable statute of
limitations for collection of these notes had expired.
The Corporation, through its subsidiary Radio SunGroup of Texas,
Inc., has signed a Local Management Agreement and Right to Purchase Agreement
with Mt. Pleasant Radio, Inc. for the Corporation to manage and ultimately
purchase radio station KALK-FM, Mt. Pleasant, Texas.
7
<PAGE>
Radio SunGroup of Texas, Inc. has also acquired a construction permit
for KFXJ in Abilene, Texas. The Corporation is in the process of constructing
the station and expects it to be operational late in the second quarter of
1997.
KEAN-AM, which had been simulcast with KEAN-FM, changed to a sports
format in February, 1997. The change was made to give the audience another
choice in the market which they did not previously have. The Corporation
views this change as a good opportunity to create additional income and net
revenue.
FINANCIAL CONDITION
The Corporation's principal source of funds is cash flow provided by
the operation of its subsidiaries' radio stations. Its primary needs include
working capital, capital expenditures, maintenance of property, plant, and
equipment, and repayment of debt. During the first three months of 1997, the
Corporation was able to meet its primary cash need of debt service ($162,000)
with its stations operating cash flow of approximately $136,000.
The Corporation plans to spend sufficient funds to maintain its
capital equipment in a competitive working condition. However, these
expenditures are limited by the Corporation's lenders. Such expenditures are
not expected to exceed average expenditures in previous years, which have been
approximately $150,000 per annum. The Corporation is committed to make its
radio stations as technologically competitive as possible in their markets
within the constraints set by its lenders. Capital needs are expected to be
paid from operating revenues as they become available.
The Corporation currently has debt payments of approximately
$2,900,000 on the current restructured notes due within one year. The
Corporation has had success in the past in renegotiating with creditors for
extended payments. At present, the Corporation is generating sufficient cash
flow to meet its current obligations. The Corporation has had several
discussions with lenders with regards to refinancing the total outstanding
obligations of the Corporation and continues to work and focus its efforts on
refinancing the total loan package. However, without restructuring debt, the
Corporation s ability to meet future obligations may be in jeopardy.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
During the normal course of operations, the Corporation is engaged in routine
litigation incidental to its business. In most cases, such litigation is not
material and is settled before proceeding to litigation.
Currently, KKSS-FM, a subsidiary of the Corporation, is being sued by
a previous employee for wrongful discharge. The Corporation expects to be
successful in their defense of this lawsuit.
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
27 Financial Data Schedule
(b.) No reports on Form 8-K were filed during the first quarter
of 1997.
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, 1997 /s/ JOHN W. BIDDINGER
- --------------------------------- --------------------------------
Date John W. Biddinger
Principal Operating Officer
May 10, 1997 /s/ JAMES A. HOETGER
- --------------------------------- --------------------------------
Date James A. Hoetger,
Vice President/Treasurer
Principal Accounting and
Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD
ENDING MARCH 31, 1997. 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 559
<SECURITIES> 0
<RECEIVABLES> 1,296
<ALLOWANCES> (59)
<INVENTORY> 0
<CURRENT-ASSETS> 1,917
<PP&E> 3,758
<DEPRECIATION> (2,154)
<TOTAL-ASSETS> 9,568
<CURRENT-LIABILITIES> 3,600
<BONDS> 7,279
0
0
<COMMON> 3,770
<OTHER-SE> (5,173)
<TOTAL-LIABILITY-AND-EQUITY> 9,568
<SALES> 1,847
<TOTAL-REVENUES> 1,848
<CGS> 0
<TOTAL-COSTS> 1,714
<OTHER-EXPENSES> 152
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (75)
<INCOME-TAX> 0
<INCOME-CONTINUING> (75)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75)
<EPS-PRIMARY> (0.006)
<EPS-DILUTED> (0.006)
</TABLE>
