U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER 0-3851
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
incorporation or organization) Identification No.)
2201 Cantu Court, Suite 102A, Sarasota,
Florida 34232-6254
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(Address of principal executive offices)(Zip code)
(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
----- -----
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 as of June 30, 1997)
Transitional Small Business Disclosure Format (check one): Yes No X
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Page 1 of 11
<PAGE>
SUNGROUP, INC.
FORM 10-QSB
INDEX
Page No.
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheet June 30, 1997 3
Consolidated Statement of Operations 4
Three Months Ended June 30, 1997 and 1996
Consolidated Statement of Operations 5
Six Months Ended June 30, 1997 and 1996
Consolidated Statement of Cash Flow 6
Six Months Ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements 7
Three & Six Months Ended June 30, 1997 and 1996
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 10
Signatures 11
Page 2 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED, IN THOUSANDS)
-------------------------
<S> <C>
CURRENT ASSETS
Cash $ 359
Accounts Receivable (net) 2,164
Deferred Income Taxes 61
Prepaid and Other 298
--------
TOTAL CURRENT ASSETS $ 2,882
PROPERTY AND EQUIPMENT (NET) $ 1,628
OTHER ASSETS
Intangible Assets (net) $ 5,779
Other Assets 58
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TOTAL OTHER ASSETS $ 5,837
TOTAL ASSETS $ 10,347
========
CURRENT LIABILITIES
Accounts Payable & Accrued Expenses $ 1,157
Accrued Interest 0
Current Maturities of LT Debt 2,900
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TOTAL CURRENT LIABILITIES $ 4,057
LONG TERM DEBT $ 7,212
DEFERRED INCOME TAXES 94
STOCKHOLDERS' EQUITY
Common Stock - $1 par value, authorized $10 million $ 3,770
Additional Paid in Capital 5,970
Accumulated Deficit (10,756)
---------
TOTAL STOCKHOLDERS' EQUITY $ (1,016)
TOTAL LIABILITY & STOCKHOLDERS' EQUITY $ 10,347
=========
</TABLE>
See "Notes to Consolidated Financial Statements"
Page 3 of 11
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
(Unaudited, In Thousands)*
-------------------------------
<S> <C> <C>
INCOME $ 2,544 $ 2,625
Agency Commission (276) (280)
------- -------
$ 2,268 $ 2,345
EXPENSES
Technical & Programming $ 556 $ 696
Selling & Administrative 1,351 1,395
------- -------
$ 1,907 $ 2,091
GAIN (LOSS) FROM OPERATIONS $ 361 $ 254
OTHER INCOME (EXPENSE)
Interest Expense $ (74) $ (71)
Gain (Loss) on Disposal of Assets (4) (5)
Other 4 1
------- -------
$ (74) $ (75)
GAIN (LOSS) BEFORE INCOME TAXES &
EXTRAORDINARY ITEM $ 287 $ 179
Income Taxes 0 28
------- -------
INCOME BEFORE EXTRAORDINARY ITEM 287 151
Extraordinary Gain from Debt Extinguishment 0 200
------- -------
NET INCOME (LOSS) $ 287 $ 351
LOSS PER COMMON SHARE
Loss Before Extraordinary Item $ 0.02 $ 0.01
Extraordinary Item 0.00 0.02
------- -------
LOSS PER SHARE $ 0.02 $ 0.03
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 11
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
(Unaudited, In Thousands)*
-------------------------------
<S> <C> <C>
INCOME $ 4,391 $ 4,575
Agency Commission (487) (489)
------- -------
$ 3,904 $ 4,086
EXPENSES
Technical & Programming $ 958 $ 1,208
Selling & Administrative 2,604 2,721
------- -------
$ 3,562 $ 3,929
GAIN (LOSS) FROM OPERATIONS $ 342 $ 157
OTHER INCOME (EXPENSE)
Interest Expense $ (131) $ (142)
Gain (Loss) on Disposal of Assets (4) (5)
Other 6 2
------- -------
$ (129) $ (145)
GAIN (LOSS) BEFORE INCOME TAXES &
EXTRAORDINARY ITEM $ 213 $ 12
Income Taxes 0 28
------- -------
INCOME BEFORE EXTRAORDINARY ITEM 213 (16)
Extraordinary Gain from Debt Extinguishment 0 1,342
------- -------
NET INCOME (LOSS) $ 213 $ 1,326
LOSS PER COMMON SHARE
Gain (Loss) Before Extraordinary Item $ 0.02 $ 0.00
Extraordinary Item 0.00 0.10
------- -------
LOSS PER SHARE $ 0.02 $ 0.10
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 11
<PAGE>
SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
(Unaudited, In Thousands)*
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 213 $1,326
Reconciliation of Net Income (Loss)
to net cash provided by operating activities
Depreciation and Amortization 327 373
(Gain) Loss on Disposal of Assets 0 5
Net (Income) Loss From Barter Transactions (47) 41
Extraordinary Gain From Debt Extinguishment 0 (1,142)
Changes In:
Accounts Receivable (334) (119)
Prepaid Expenses and Other Current Assets (105) 37
Accounts Payable and Accrued Expense 236 24
Interest Payable (10) 0
------- ------
Net Cash Provided by Operating Activities 280 545
INVESTMENT ACTIVITIES
Purchase of Property & Equipment (97) (56)
Investments (45) 0
Other (1) (50)
------- ------
Net Cash Provided by Operating Activities (143) (106)
FINANCING ACTIVITIES:
Repayment of Long-term Debt (330) (433)
------- ------
(330) (433)
INCREASE IN CASH (193) 6
Cash, Beginning Of Year 552 335
Cash, End Of Quarter 359 341
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid 66 137
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 6 10
Accrued Interest Added to New Notes in Restructuring 6 6
</TABLE>
*See "Notes to Consolidated Financial Statements"
Page 6 of 11
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE & SIX MONTHS ENDED JUNE 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 management 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 June 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 June 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 June 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.
Page 7 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
- ---------------------
For the period ended June 30, 1997 and 1996, the Corporation operated
the same properties, except for radio station WOWW-FM in Pensacola, Florida.
Gross revenues for this period in 1997 decreased 4.5% or $183,872 from the
same period in 1996. This decrease is attributable to the sale of radio
station WOWW-FM on July 2, 1996. Excluding the Pensacola radio station sold,
revenues for the period increased $314,264 or 7.7% . This increase is due to
a larger portion of national advertising and a slight increase in local
advertising and miscellaneous income. Network income has been flat in 1997.
Agency commission as a percentage of gross sales for the second
quarter was approximately 11.1% in 1997 versus 10.7% in 1996. The increase is
attributable to the larger amount of national advertisements which originate
through agencies.
Technical and programming expense decreased 9.3% in the same period
of 1997 from 1996. The majority of this decrease is due to the sale of
Station WOWW-FM. Excluding the Pensacola radio station, such expense
decreased $207,000 or 9.1%. 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 $117,000 or 4.3%. The decrease is due to the sale of
the Pensacola radio station. Fewer of the Corporation's general managers hit
their monthly and quarterly bonus targets during the first half of 1997 as
opposed to 1996. Bonus compensation is generally tied to budgeted financial
performance which is typically higher than the prior year's actual results.
Interest expense decreased 7.7% or $11,000. 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 $6,000 in 1997 versus $2,000
in 1996. This consists of interest income.
The Corporation had no extraordinary items in 1997 as compared to
extraordinary items totaling $1,342,000 in 1996. The 1996 gain was
attributable to the Corporation treating as canceled several notes issued in
July, 1986, consisting of unpaid principle of $975,000 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 one of its subsidiaries, RadioSunGroup 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.
Page 8 of 11
<PAGE>
RadioSunGroup 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 late in the third
quarter of 1997.
In April, 1997, KKYS-FM, owned by RadioSunGroup of Louisiana, 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 RadioSunGroup of Texas, Inc., which previously 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, and the changed
format during the second quarter of 1997 resulted in positive cash flow from
this radio station 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 six months of 1997, the
Corporation was able to meet its primary cash need for debt service ($330,000)
with its stations' operating cash flow of approximately $630,000.
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 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.
Page 9 of 11
<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.
Currently, KKSS-FM, owned by RadioSunGroup of New Mexico, Inc., a
subsidiary of the Corporation, has been sued by a previous employee for
wrongful discharge. The Corporation expects to be successful in its defense
of this lawsuit.
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 first quarter of 1997.
Page 10 of 11
<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.
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(Registrant)
August 10, 1997 /S/ JOHN W. BIDDINGER
- --------------- ----------------------------------------
Date John W. Biddinger
Principal Executive Officer
August 10, 1997 /S/ JAMES A. HOETGER
- --------------- ----------------------------------------
Date James A. Hoetger, Vice President/Treasurer
Principal Accounting and Financial Officer
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD
ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 359
<SECURITIES> 0
<RECEIVABLES> 1,765
<ALLOWANCES> (62)
<INVENTORY> 0
<CURRENT-ASSETS> 2,439
<PP&E> 3,821
<DEPRECIATION> 2,192
<TOTAL-ASSETS> 9,907
<CURRENT-LIABILITIES> 3,614
<BONDS> 7,212
0
0
<COMMON> 3,770
<OTHER-SE> (4,787)
<TOTAL-LIABILITY-AND-EQUITY> 9,904
<SALES> 4,391
<TOTAL-REVENUES> 4,397
<CGS> 0
<TOTAL-COSTS> 3,676
<OTHER-EXPENSES> 327
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 213
<INCOME-TAX> 0
<INCOME-CONTINUING> 213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213
<EPS-PRIMARY> 0.016
<EPS-DILUTED> 0.016
</TABLE>
