Hier der Bericht,für alle :
Form 10KSB for SUN NETWORK GROUP INC
--------------------------------------------------
15-Apr-2004
Annual Report
ITEM 6. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company acquired all of the assets of RadioTV Network, Inc (" RTV" ) on July 16, 2001 in a transaction treated as a recapitalization of RTV. RTV has been developing and operating, for the past few years, a new television network that produces and distributes TV adaptations of top rated radio programs and also produces and distributes radio programs through a partnership with an established radio network.
RECENT DEVELOPMENTS
On June 27, 2002 the Company entered into agreement with four (4) institutional investors to provide the Company \$750,000 in capital through a Secured Convertible Debenture Offering (" Debenture" ). The Company has filed and withdrawn a SB-2 Registration Statement and, subsequently, a SB-2/A amended Registration Statement and a new SB-2 Registration Statement in connection with the Debenture. On October 30, 2003, the SB-2 was declared effective by the SEC.
On June 28, 2002 the Company entered into an Option Agreement and Plan of Merger (" Agreement" ) to acquire all of the assets of Live Media Enterprises, Inc (" Live" ), a west coast based independent producer of consumer lifestyle events. On September 3, 2002 the Company elected to terminate the Agreement with Live and will not proceed with the acquisition even on modified terms. In connection with the Agreements the Company has loaned Live the sum of \$56,000. This loan is documented in two Promissory Notes and is collateralized by substantially all of the assets of Live and personally guaranteed by Live`s principal shareholder and officer. The Company is presently attempting to collect its debts from Live in the Los Angeles Superior Court.
On September 5, 2002, the Company entered into agreement with Sports Byline USA, L.P. to own and operate a new, national radio network, Radio X. Radio X intends to develop, produce, license, broadcast and distribute radio programs, targeted to young males that will be distributed via traditional terrestrial stations, via satellite and over the Internet. The Company has contributed the sum of \$100,000 to this business plus certain management services. Our partnership interest is 50%, however, we have an overriding voting control over all matters of the partnership. Radio X currently has three radio programs in distribution.
The Company intends to use the net proceeds from the Debenture to develop, operate and expand the businesses of RTV and Radio X and to continue to seek other opportunities for the Company. The Company believes that upon completion of additional funding, it will have sufficient capital to operate through the end of 2004. The Company will, however, continue to seek additional capital to fund further development, expansion and operation of its businesses. Upon conversion of the Debentures into the Company common stock there will be substantial shareholder dilution.
On March 8, 2004, we entered into a redemption agreement with our debenture holders, whereby we agreed to pay \$150,000 per week for five weeks commencing on March 22, 2004 until such time as the Company has paid \$750,000. Upon final payment, we will deliver 20,000,000 shares of common stock to the debenture holders as full satisfaction of liabilities under the debenture agreements. Through April 5, 2004, \$450,000 was repaid to the debenture holders.
In March, 2004, we entered into loan agreements to borrow approximately \$273,000 and \$217,000. The loans bear interest at a rate equal to the prevailing 30-day LIBOR rate plus 100 basis points. Interest on the loans is computed on the basis of 360-day year for the number of actual days elapsed and is due and payable quarterly commencing June 2, 3004. The loans are due in March 2006. If the loans are not paid by the close of business on the due date in March 2006, the Company shall pay the lender a late charge equal to five percent of the outstanding principal balance. The Company paid a cash fee equal 10% of the amount borrowed which is deducted directly from the proceeds by the lender. The loans are collateralized by 28,000,000 shares of the Company`s common stock. In addition, we issued an additional 38,000,000 common shares into escrow as collateral during March 2004 in anticipation of future borrowings. The collateral shares are not considered outstanding for accounting purposes and do not have voting rights until and unless they are foreclosed upon due to any future default as stipulated in the agreements.
RESULTS OF OPERATIONS
Year ended December 31, 2003 compared to the year ended December 31, 2002
REVENUES
Revenues for the year ended December 31, 2003 were \$42,398 as compared to revenues for the year ended December 31, 2002 of \$3,566. Of the \$42,398 of revenue in 2003, \$30,000 was derived from video production and \$12,398 revenues were derived from our consolidated subsidiary, Radio X Network. Revenues in 2002 were from our Radio X Network subsidiary.
OPERATING EXPENSES
Compensation was \$153,486 for the year ended December 31, 2003
compared to \$165,261 for the comparable period in 2002. Compensation in 2003 and
2002 relates solely to compensation under our employment agreement with our
president aggregating \$150,000 plus payment of certain of his personal expenses
totaling \$3,486 and \$15,261, respectively. On December 30, 2002 the Board
authorized the issuance of 5,000,000 common shares of the Company`s stock to the
president in exchange for \$120,000 of that accrued Compensation. Accrued
Compensation due to the president, under an employment agreement at December 31,
2003, was \$188,492.
Amortization of radio programs of \$10,192 and \$7,052 for the year ended December 31, 2003 and 2002, respectively, results from amortizing the radio programs intangible assets that resulted from the investment by our subsidiary, RadioTV Network, Inc, in the Radio X Network. The intangible asset was being amortized using the straight-line method over the expected useful life of the program of one year. Amortization in the comparable period in 2002 was lower since the investment was made in September 2002.
For the year ended December 31, 2003, bad debt expense amounted \$6,600 as compared to \$112,580. In 2003, bad debt consisted of a provision on interest receivable relating to interest income recognized on notes receivable previously reserved. In 2002, bad debt consisted of \$58,755 of loan principal and interest due from Live Media Enterprises, Inc, \$43,501 in connection with the Company`s investment in Radio X Network and \$10,324 for the Company`s investment in Nexxray, LLC. Although the Company believes all of these investments are viable and collectible it is taking the reserve at the suggestion of its auditors.
Consulting expense for the year ended December 31, 2003 was \$162,177 compared to \$193,918 for the year ended December 31, 2002, and included \$127,000 and \$106,700 of non-cash consulting expense in 2003 and 2002, respectively, from the issuance of common stock for services.
The Debenture penalty of \$485,245 and \$31,233 for the year ended December 31, 2003 and 2002, respectively, represents the accrued penalty under the provisions of the Convertible Debentures. The penalties relate to the deadlines associated with the Company filing a Registration Statement in connection with the Convertible Debentures of \$99,616 and \$31,233, liquidated damages penalty for not having enough authorized shares to allow for the issuance of all dilutive securities based on a formula as stipulated in the Debenture agreement of \$\$206,137 and \$0, and a default penalty on the June 28, 2003 and August 8, 2003 maturity of \$500,000 of debentures of \$179,492 and \$0 for the years ended December 31, 2003 and 2002, respectively.
For the year ended December 31, 2003, the Company had an impairment loss of \$20,910 as compared to \$32,756 for the year ended December 31, 2002. In 2003, the impairment relates to certain capital stock received in a German private company in lieu of a refund of a prepaid expense paid to a service provider. Since there was no objective valuation data supporting the value of the capital stock received, the Company elected to impair this asset. In 2002, the Company recorded a \$50,000 investment differential of its Radio X partnership investment to the facilities usage rights, management services and the radio programs based upon fair market valuations of \$35,000 to facilities and management and \$15,000 to the radio programs. The facility usage rights of \$32,756 (\$35,000 net of accumulated amortization of \$2,244) were impaired at December 31, 2002 since the Company could not reliably project positive future cash flows due to the development stage nature of the Radio X business.
Professional fees for the year ended December 31, 2003 were \$74,387 compared to \$65,001 for the year ended December 31, 2002. The increase is primarily related to accounting and legal, audit and registration statement related services regarding our filing a SB-2 and our quarterly and annual reports.
Other selling, general and administrative expenses were \$135,799 for the year ended December 31, 2003 as compared to \$117,838 for the year ended December 31, 2002 summarized as follows:
Advertising \$ -- \$ 36,074
Production and talent expenses 32,600 4,600
Travel and entertainment 50,188 8,783
Other 53,011 68,381
-------- --------
Total \$135,799 \$117,838
======== ========
The increased advertising expense in 2002 is primarily due to the amortization of \$35,200 of pre-paid advertising used in 2002. In 2003 we have an increase in production and talent expense primarily due to the amortization of \$20,000 of prepaid production fees. Travel and entertainment increased primarily due to increased corporate travel related to increased marketing activities and activities related to investor relations and the seeking of funding opportunities.
On February 4, 2003, the Company settled a lawsuit by issuing 1,000,000 common shares and \$6,500 in cash. The shares were valued at the quoted trading price of \$0.03 per share on the settlement date resulting in a total settlement expense of \$36,500.
Interest expense was \$329,965 for the year ended December 31, 2003 compared to \$515,279 for the year ended December 31, 2002. Interest expense for the years ended December 31, 2003 and 2002 is attributed to the Convertible Debenture offering and includes accrued interest of the Convertible Debentures and amortization of the debt discount as well as accrued interest on the Convertible Debentures due to the default on payment. For the year ended December 31, 2003 and 2002, \$246,500 and \$475,795 of interest expense was recognized relating to an imbedded beneficial conversion feature on the convertible debentures, respectively.
As a result of these factors, we reported a net loss of \$1,355,037 or \$(.04) per share for the year ended December 31, 2003 as compared to a net loss of \$1,237,497 or (\$.06) per share for the year ended December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, we had a stockholders` deficit of \$1,412,368. Our operations have been funded by an equity investor in our common stock where we issued 183,088 common shares for \$82,390 cash during 2002 and by the sale of convertible debentures of \$750,000 through December 31, 2003. These funds were used primarily for working capital, capital expenditures, advances to third parties in anticipation of entering into a merger or acquisition agreement and to pay down certain related party loans. The cash balance at December 31, 2003 was \$101,879. As of April 10, 2004 the Company had minimal cash on hand and will have to minimize operations until it receives additional cash flows from its businesses or completes its Debenture financing.
We have no other material commitments for capital expenditures except for the anticipated launch of a RadioTV Network program in 2004. We may also receive financing from the exercise of 500,000 outstanding warrants, which would provide a maximum funds of \$75,000.
Other than a minimal amount of funds generated from our advertising sales from the broadcast of our initial program on the Radio X Network, debenture proceeds and warrant exercise proceeds we have no external sources of liquidity. Although we believe we will have sufficient capital to fund our anticipated operations through fiscal 2004, we are not currently generating meaningful revenues and, unless we raise additional capital, we may not be able to continue operating beyond fiscal 2004.
In addition, we intend to develop programming for our RTV and Radio X subsidiaries and then to distribute the programs and seek sponsorships and other forms of income for the programs. If we can successfully generate revenue for our programming we will be able to continue as a going concern without additional, new capital, into fiscal 2004 and beyond. If we cannot generate revenues, through ad sales, sponsorships or other revenue sources, we will require the infusion of additional capital to continue our operations. We estimate that, if minimum revenue targets are not met, we will require an additional infusion of \$500,000 in new capital to continue in business.
Net cash used in operations during the year ended December 31, 2003 was \$252,630 and was substantially attributable to net loss of \$1,355,037 offset primarily by non-cash stock based expenses of \$163,500, impairment loss of \$20,910, non-cash debt discount amortization of \$13,211, amortization of deferred debt issuance costs of \$13,000, Interest expense on beneficial conversion feature of \$246,500, and net changes in operating assets and liabilities of \$633,591. In the comparable period of 2002, we had net cash used in operations of \$300,438 primarily relating to the net loss of \$1,237,497 primarily offset by a change in accrued compensation of \$110,000, stock based expenses of \$106,700 and non-cash interest expense from the beneficial conversion feature of \$475,795.
Net cash used in investing activities during the year ended December 31, 2002 was \$159,501 relating to a loan to a potential acquiree of \$56,000, a convertible loan of \$10,000 and a \$93,501 investment in Radio X partnership.
Net cash provided by financing activities for the year ended December 31, 2003 was \$272,758 as compared to net cash provided by financing activities of \$536,369 for the year ended December 31, 2002. During the year ended December 31, 2003, we received net proceeds from a loan from our joint venture partner of \$50,000 and net proceeds from convertible debt of \$226,000 offset by payments on loans from officers of \$3,242. The loan from our joint venture partner came from funds held by that partner and due to our controlled subsidiary, Radio X. In the comparable period of 2002, we received equity proceeds from stockholders of \$82,390, net proceeds from convertible debt of \$480,000 offset by payment on loans to officers of \$26,021.
For the fiscal year ended December 31, 2003, our auditors have issued a going concern opinion in connection with their audit of the Company`s financial statements. As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of \$3,168,362 and a working capital deficit of \$1,374,241 at December 31, 2003, net losses in 2003 of \$1,355,037 and cash used in operations in 2003 of \$252,630. In addition, revenues were nominal. These conditions raise substantial doubt about our ability to continue as a going concern if sufficient additional funding is not acquired or alternative sources of capital developed to meet our working capital needs.
CRITICAL ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 1 to the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the United States Securities and Exchange Commission. We believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.
ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
REVENUE RECOGNITION
We follow the guidance of the Securities and Exchange Commission`s Staff Accounting Bulletin 104 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:
We account for revenues from its Radio TV Network, Inc operations in accordance with the AICPA Accounting Standards Executive Committee Statement of Position No. 00-2, " Accounting by Producers or Distributors of Films" (" SOP 00-2" ).
We generally produces episodic television series and generates revenues from the sale of broadcast licenses and advertising sales. The terms of the licensing arrangement may vary significantly from contract to contract and may include fixed fees, variable fees with or without nonrefundable minimum guarantees, or barter arrangements.
We recognize monetary revenues when evidence of a sale or licensing arrangement exists, the license period has begun, delivery of the film to the licensee has occurred or the film is available for immediate and unconditional delivery, the arrangement fee is fixed or determinable, and collection of the arrangement fee is reasonably assured. We recognize only the net revenue due to the Company pursuant to the formulas or amounts stipulated in the customer contracts.
We recognize revenues from barter arrangements in accordance with the Accounting Principles Board Opinion No. 29 " Accounting for Non-Monetary Exchanges," (" APB 29" ) as interpreted by EITF No. 93-11 " Accounting for Barter Transactions Involving Barter Credits." In general, APB 29 and it related interpretation require barter revenue to be recorded at the fair market value of what is received or what is surrendered, whichever is more clearly evident.
We recognize revenues from the sale of radio program advertising in its Radio X Network operations when the fee is determinable and after the commercial advertisements are broadcast. Any amounts received from customers for radio advertisements that have not been broadcast during the period are recorded as deferred revenues until such time as the advertisement is broadcast.
We recognize radio program license fee revenues when evidence of a licensing arrangement exists, the license period has begun, delivery of the program to the licensee has occurred or is available for immediate and unconditional delivery, the arrangement fee is fixed or determinable, and collection of the arrangement fee is reasonably assured.
STOCK BASED COMPENSATION
We account for stock transactions with employees in accordance with APB Opinion No. 25, " Accounting for Stock Issued to Employees." In accordance with Statement of Financial Accounting Standards No. 123 (" SFAS 123" ), " Accounting for Stock-Based Compensation," we adopted the pro forma disclosure requirements of
SFAS 123.
|
Thread abonnieren
