U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-3851
SUNGROUP, INC.
(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.)
2201 Cantu Court, Suite 102A, Sarasota,
Florida 34232-6254
- -----------------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
(941) 377-6710
- -----------------------------------------------------------------------------
(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
--- ---
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
- -----------------------------------------------------------------------------
(Title of class) (Shares outstanding as of
September 30, 1997)
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
SUNGROUP, INC.
FORM 10-QSB
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements
Consolidated Balance Sheet September 30, 1997 3
Consolidated Statement of Operations
Three Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Operations
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statement of Cash Flow
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements
Three and Nine Months Ended
September 30, 1997 and 1996 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Results of Operations 8
Financial Condition 9
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 13
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED, IN THOUSANDS)
-------------------------
CURRENT ASSETS
Cash $ 357
Accounts Receivable (net) 2,262
Deferred Income Taxes 61
Prepaid and Other 296
--------
TOTAL CURRENT ASSETS $ 2,976
PROPERTY AND EQUIPMENT (NET) $ 1,599
OTHER ASSETS
Intangible Assets (net) $ 5,689
Other Assets 59
--------
TOTAL OTHER ASSETS $ 5,748
TOTAL ASSETS $ 10,323
========
CURRENT LIABILITIES
Accounts Payable & Accrued
Expenses $ 1,150
Accrued Interest 0
Current Maturities of LT Debt 2,900
--------
TOTAL CURRENT LIABILITIES $ 4,050
LONG TERM DEBT $ 7,036
DEFERRED INCOME TAXES 94
STOCKHOLDERS' EQUITY
Common Stock - $1 par value, authorized $10 million $ 3,770
Additional Paid in Capital 5,970
Accumulated Deficit (10,597)
--------
TOTAL STOCKHOLDERS' EQUITY $ (857)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,323
========
See "Notes to Consolidated Financial Statements"
Page 3 of 13
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED, IN THOUSANDS)*
-----------------------------
<S> <C> <C>
INCOME $ 2,393 $ 2,151
Agency Commission (262) (247)
-------- --------
$ 2,131 $ 1,904
EXPENSES
Technical & Programming $ 537 $ 420
Selling & Administrative 1,362 1,127
-------- --------
$ 1,899 $ 1,547
GAIN (LOSS) FROM OPERATIONS $ 232 $ 357
OTHER INCOME (EXPENSE)
Interest Expense $ (73) $ (72)
Gain (Loss) on Sale of Assets 0 652
Gain (Loss) on Disposal of Assets 0 0
Other 0 4
-------- --------
$ (73) $ 584
GAIN (LOSS) BEFORE INCOME TAXES &
EXTRAORDINARY ITEM $ 159 $ 941
Income Taxes 0 1,623
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM 159 (682)
Extraordinary Gain from Debt Extinguishment 0 7,169
-------- --------
NET INCOME (LOSS) $ 159 $ 6,487
LOSS PER COMMON SHARE
Loss Before Extraordinary Item $ 0.01 $ (0.05)
Extraordinary Item 0.00 0.54
-------- --------
LOSS PER SHARE $ 0.01 $ 0.49
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,340 13,174
DIVIDENDS PER SHARE 0 0
</TABLE>
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" and Per Share amounts
Page 4 of 13
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED, IN THOUSANDS)*
----------------------------
<S> <C> <C>
INCOME $ 6,784 $ 6,726
Agency Commission (749) (736)
-------- --------
$ 6,035 $ 5,990
EXPENSES
Technical & Programming $ 1,495 $ 1,628
Selling & Administrative 3,966 3,848
-------- --------
$ 5,461 $ 5,476
GAIN (LOSS) FROM OPERATIONS $ 574 $ 514
OTHER INCOME (EXPENSE)
Interest Expense $ (204) $ (214)
Gain (Loss) on Sale of Assets 0 647
Gain (Loss) on Disposal of Assets (4) 0
Other 7 6
-------- --------
$ (201) $ 439
GAIN (LOSS) BEFORE INCOME TAXES &
EXTRAORDINARY ITEM $ 373 $ 953
Income Taxes 0 1,651
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM 373 (698)
Extraordinary Gain from Debt Extinguishment 0 8,511
-------- --------
NET INCOME (LOSS) $ 373 $ 7,813
LOSS PER COMMON SHARE
Gain (Loss) Before Extraordinary Item $ 0.03 $ (0.05)
Extraordinary Item 0.00 0.65
-------- --------
LOSS PER SHARE $ 0.03 $ 0.59
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,340 13,174
DIVIDENDS PER SHARE 0 0
</TABLE>
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" and Per Share amounts
Page 5 of 13
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED, IN THOUSANDS)*
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 373 $7,813
Reconciliation of Net Income (Loss)
to net cash provided by operating activities
Depreciation and Amortization 492 524
(Gain) Loss on Disposal of Assets 4 (647)
Net (Income) Loss From Barter Transactions (74) 29
Extraordinary Gain From Debt Extinguishment 0 (6,903)
Changes In:
Accounts Receivable (473) (1)
Prepaid Expenses and Other Current Assets (103) 21
Accounts Payable and Accrued Expense 303 273
Interest Payable (16) 9
------ ------
Net Cash Provided by Operating Activities 506 1,118
INVESTMENT ACTIVITIES
Purchase of Property & Equipment (139) (67)
Proceeds from Sale of Equipment 0 1,958
Investments (45) 0
Other (16) 0
------ ------
Net Cash (Used) Provided by Financing Activities (200) 1,891
FINANCING ACTIVITIES
Repayment of Long-term Debt (Net) (501) (2,739)
------ ------
(501) (2,739)
INCREASE (DECREASE) IN CASH (195) 270
Cash, Beginning Of Year 552 335
Cash, End Of Quarter 357 605
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid 197 0
NON-CASH TRANSACTION
Property and Equipment Acquired by Barter Transaction 6 13
Accrued Interest Added to New Notes in Restructuring 9 9
Liability Received in Sale of WOWW 0 192
</TABLE>
*See "Notes to Consolidated Financial Statements"
Page 6 of 13
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE & NINE MONTHS ENDED SEPTEMBER 30, 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 the Corporation, 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 September 30, 1997, the Corporation had approximately $11 million
of net operating loss carry- forwards, which expire at varying times
in years 2002 through 2010.
At September 30, 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 September 30, 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 second quarter. The Corporation's
warrants have been considered the equivalent of common stock and, as
such, increased the number of common shares outstanding. The
Corporation's outstanding stock options, however, have not been added
to the number of common shares outstanding because of the market
price of a share of common stock does not exceed the exercise price
of the options for such shares. 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.
Page 7 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
For the period ended September 30, 1997 and 1996, the Corporation
operated the same properties, except for station WOWW-FM in Pensacola,
Florida, which was sold on July 2, 1996. Gross revenues for this period in
1997 increased .80% or $45,000 from the same period in 1996. Excluding the
Pensacola radio station, revenues for the period increased $451,000 or 8.1%
from 1996 to 1997. This increase is due to a larger portion of national
advertising and an increase in local advertising and miscellaneous income.
Network income has been flat in 1997.
Agency commission as a percentage of gross sales for the third quarter
was approximately 11% in 1997 versus 10.9% in 1996. This increase is
attributable to the larger amount of national advertisements which originate
through agencies.
Technical and programming expense decreased 8.2% in the same period from
1996 to 1997. The majority of this decrease is due to the sale of radio
station WOWW-FM. Excluding the Pensacola radio station, such expense
increased $34,000 or 2.3%. This increase is a result of higher royalty fees,
which are a function of advertisement sales.
Selling and administrative expense, which include depreciation and
amortization, increased $118,000 or 3.0% for the period from 1996 to 1997.
This increase is due to higher commissions as a result of increased revenue.
Fewer of the Corporation's general managers hit their monthly and quarterly
bonus targets during the first half of 1997 as compared to 1996, but several
did attain their bonus in the third quarter. Bonus compensation is generally
tied to budgeted financial performance, which is typically higher than the
prior year's actual results.
Interest expense decreased 4.7% or $10,000 for the period from 1996 to
1997. This is a result of the sale of the Pensacola radio station and its
subsequent debt elimination. The Corporation's overall interest expense
compared to its debt level continues to remain low as a result of a
substantial amount of its long term debt being restructured with an effective
rate of 0% for book purposes.
The Corporation recorded other income of $7,000 in 1997 versus $653,000
in 1996. This consists of interest income of $7,000 in 1997 compared to
$6,000 in 1996. The balance of the other income, $647,000, is a result of the
sale of the assets of radio station WOWW-FM in Pensacola, Florida on July 2,
1996.
The Corporation had no extraordinary items in 1997 as compared to
extraordinary items totaling $8,511,000 in 1996. The 1996 gain was
attributable to the Corporation treating as canceled several promissory notes
issued in July, 1986, which consisted of unpaid principal and interest of
$4,708,000.00. The promissory notes had been treated as canceled because they
were in default for more than six years, and the Corporation had been advised
by legal counsel that the applicable statute of limitations for collection of
these notes had expired. As a result of the sale of radio station WOWW-FM in
1996, the Corporation realized $2,595,000 in debt forgiveness from the Federal
Deposit Insurance Corporation. In addition, during the third quarter of 1996,
the Corporation received a cash payment in the amount of $200,000 and real and
personal property in the amount of $644,000 from Service Broadcasting, in
Page 8 of 13
<PAGE>
accordance with an agreement between Service Broadcasting and the Corporation
whereby the Corporation agreed to move a transmitter site from one of its
radio stations.
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.
Radio SunGroup of Texas, Inc. has also acquired a construction permit
for KROW-FM in Abilene, Texas. The Corporation is in the process of
constructing the station and expects it to be operational by late October,
1997.
In April, 1997, KKYS-FM, owned by Radio SunGroup of Bryan/College
Station, Inc. a subsidiary of the Corporation, relocated its offices and
studios to a new site in the market. The new location provides better
visibility in and access to the community.
KEAN-AM, owned by Radio SunGroup of Texas, Inc., 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. Since this change,
the station has provided positive cash flow to the Corporation.
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 nine months of 1997, the
Corporation was able to meet its primary cash need for debt service of
$445,000 with its stations' operating cash flow of approximately $1,077,000.
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 making 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 promissory notes due within one year. The
Corporation has had success in the past in renegotiating with its 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 this debt,
the Corporation's ability to meet future obligations may be in jeopardy.
Page 9 of 13
<PAGE>
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the third
quarter of 1997.
Page 10 of 13
<PAGE>
SIGNATURES
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)
October 31, 1997 /s/ JOHN W. BIDDINGER
- --------------------------- ---------------------------
Date John W. Biddinger
Principal Executive Officer
October 31, 1997 /s/ JAMES A. HOETGER
- --------------------------- ---------------------------
Date James A. Hoetger
Vice President/Treasurer
Principal Accounting
and Financial Officer
Page 11 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDING SEPTEMBER
30, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 357
<SECURITIES> 0
<RECEIVABLES> 1,825
<ALLOWANCES> (77)
<INVENTORY> 0
<CURRENT-ASSETS> 2,105
<PP&E> 3,852
<DEPRECIATION> 2,253
<TOTAL-ASSETS> 9,809
<CURRENT-LIABILITIES> 3,537
<BONDS> 7,036
0
0
<COMMON> 3,770
<OTHER-SE> (4,628)
<TOTAL-LIABILITY-AND-EQUITY> 9,809
<SALES> 6,784
<TOTAL-REVENUES> 6,784
<CGS> 0
<TOTAL-COSTS> 5,718
<OTHER-EXPENSES> 492
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 205
<INCOME-PRETAX> 372
<INCOME-TAX> 0
<INCOME-CONTINUING> 372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372
<EPS-PRIMARY> 0.028
<EPS-DILUTED> 0.028
</TABLE>