UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission File Number - 33-42498
SUN NETWORK GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 65-024624
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1515 University Drive, Suite 111-C, Coral Springs, FL 33065
----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 360-4080
-------------
Securities registered pursuant to Section 12 (b) of the Act: None.
-----
Securities registered pursuant to Section 12 (g) of the Act: Common Stock.
-------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
21,665,399 shares of common stock, $.0001 par value, were issued and outstanding
on December 31, 2001.
The aggregate market value of the Registrant's common stock held by
nonaffiliates of the Registrant as of the close of business on December 31,
2001(an aggregate of 9,730,399 shares out of a total of 21,665,399 shares
outstanding at that time) was $00.00 computed by reference to the closing bid
price of $00.00 on December 31, 2001.
Explanatory Note
The purpose of this amendment to the company's annual report on Form
10-K and 10-K/A Amendment No. 1, is to incorporate certain certifications
pursuant to Section 906 and Section 302 of the Sarbanes-Oxley Act of 2002.
PART I
ITEM 1. BUSINESS
(a) DEVELOPMENT OF BUSINESS
(a) Sun Network Group, Inc., formerly Sun Express Group, Inc (the "Company") was
formed in 1992 and owned and operated Destination Sun Airlines. In 1994 the
Company sold its Airline assets to Air Tran Holdings, Inc and the Company's
executives were constrained under non-compete agreements until September 2000.
After an extensive search for appropriate businesses, on July 16, 2001 the
Company acquired all of the assets of the RadioTV Network, Inc ("RTV"), as more
fully described herein, by means of a merger with its wholly owned subsidiary,
Sun Merger Corp, which RTV is the surviving entity and which will be operated as
a wholly owned subsidiary. RTV shareholders received 13,333,333 shares of the
Company common stock, in the exchange, which resulted in a change of control of
the Company. Shareholders holding 5% or more of the Company are Alchemy Media,
LLC (28%), RTV Media Corp (17%) and the Coleman Family Trust (11%).
(b) FINANCIAL INFORMATION AB0UT OPERATING SEGMENTS
Information about the Company's operating segments is included in the Notes to
the Consolidated Financial Statements at Item 14.
2
(c) NARRATIVE DESCRIPTION OF BUSINESS
RTV is a new television network that produces and broadcasts television
adaptations of top rated radio programs. RTV, while not a "development stage
company" is in the early stages of development of its concept. Founded in 1998,
RTV intends to create a new television network that will produce and distribute
television versions of certain radio programs.
RTV has test marketed its business concept in the Pittsburgh and Chicago markets
and has had agreements with some of the most successful radio personalities in
the United States. RTV intends to initially broadcast its programs in the
originating, local markets and via syndication and the Internet. Once several
programs are established, RTV will aggregate the shows for distribution via
prospective national digital and analog carriers.
EMPLOYEES
As of December 31, 2001 the Company had one (1) employee.
ITEM 2. DESCRIPTION OF PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 16, 2001 the Board of Directors and a majority of the Company's
shareholders voted to approve the merger of the Company with RTV, a reverse
split of the Company's outstanding shares on a 1 for 3 basis and to change the
name of the Company. The Board of Directors, on this date, also accepted the
resignation of Directors Guy T. Lindley. Robert Munson and Edward L. Reid and
elected, as new Directors, Richard Wellman, T. Joseph Coleman and William H.
Coleman.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) In August 2001, Equitrade Securities Corporation ("Equitrade"), on behalf of
the Company, filed a Form 211 application with the National Association Of
Securities Dealers ("NASD") to begin trading the Company's stock on the Bulletin
Board in the Over the Counter market. Equitrade received a "clearance letter"
from the NASD in late December 2001 and anticipates making a market for the
Company's common stock in early 2002.
(b) As of December 31, 2001 the approximate number of holders of record of the
Company's common stock was 367.
3
(c) The Company has never paid cash dividends on its common stock. The Company
presently intends to retain any future earnings to finance the expansion of its
business and does not anticipate that any cash dividends will be paid in the
foreseeable future. Future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial conditions, and other
relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
The tables below set forth, in summary form, selected financial data of the
Company. This data, which is not covered by the independent auditors' report,
should be read in conjunction with the consolidated financial statements and
notes thereto which are included elsewhere herein.
Year Ended December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
-------- --------- --------- -------- --------
Selected Operating Results:
Net sales $0 $43,903 $127,992 $0 $0
Operating expenses $200,135 $139,390 $304,739 $75,382 $0
Settlement Income $ 35,200 $0 $0 $0 $0
Loss from operations ($200,135) ($95,487) ($176,747) ($75,382) $0
-------- --------- --------- -------- --------
Net loss ($164,935) ($113,483) ($222,028) $75,382 $0
======== ========= ========= ======== ========
Basic and diluted loss
per common share: ($0.01) ($0.01) ($0.02) ($0.01) $0
-------- --------- --------- -------- --------
Net loss $0 $0 $0 $0 $0
======== ========= ========= ======== ========
Selected Balance Sheet Data as of December 31, 2001
2001 2000
--------- ---------
Current assets $5,321 $3,773
Current liabilities $107,950 $4,249
Total assets $40,521 $8,360
Total liabilities $107,950 $4,249
Accumulated deficit ($575,828) ($410,893)
Stockholders' equity $67,429 $4,111
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. The Company
intends to further develop and expand RTV and is also planning on acquiring and
affiliating with other media related entities, which are presently being
identified. The Company requires capital for these purposes and anticipates
completing several Private Placements to raise equity capital in 2002, which the
Company believes sufficient to fund its initial business plans. The RTV
operational expenses for fiscal 2001 reflect revised operations from the prior
years pending this funding.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 In fiscal
2001 the Company's subsidiary, RTV, reduced operational, film and exploitation
expenses as it discontinued the broadcast and syndication of its principal
program in anticipation of changing broadcast outlets and its merger with Sun.
Sun had no continuing operations and financial results for the year reflect
these changes.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
In fiscal 2000 the Company's subsidiary, RTV, continued to develop its
programming concept and converted its principal program into a "weekly" which
resulted is less operating revenues and operational expenses for the year. Sun
had no continuing operations for the year and financial results for the year
reflect these changes.
LIQUIDITY AND CAPITAL RESOURCES
None.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are included under
Item 14(a)(l) and (2) of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Richard Wellman (Chairman) has been a Director of the Company since July 16,
2001. Since 1994 Mr. Wellman has been the President and CEO of Creative Air
Transport, Inc a US flag cargo carrier for the US Post Office, Federal Express
Company, Lufthansa Airlines and other air cargo customers. From 1986 to 1994 Mr.
Wellman was the CEO of International Airline Support Group, Inc (NASDAQ:IASG) a
major airline parts business. Prior to IASG Mr. Wellman served in the US Air
Force and subsequently he was a Flight Engineer and Pilot for several
International airlines.
5
T. Joseph Coleman has been a Director of the Company since July 16, 2001. Mr.
Coleman is President and CEO of the Company. Mr. Coleman was the founder and CEO
of the Atlantic Entertainment Group from its inception in 1974 until it sale in
1989. Atlantic was one of the leading and largest independent
producer/distributors of motion pictures in the world. Subsequent to Atlantic
Mr. Coleman was the founder and Chairman of the Independent Telemedia Group
(NASDAQ"INDE) a national market public company that acquired and developed
emerging businesses in the entertainment sector. Since resigning as Co-Chairman
of INDE, Mr. Coleman has pursued several entertainment and media related
businesses.
William H. Coleman has been a Director of the Company since July 16, 2001. Mr.
Coleman is the Company's Secretary. Mr. Coleman is Trustee of the Coleman Family
Trust and Chairman of the Coleman Media Group, which has interests in several
media related businesses including radio syndication. Mr. Coleman is a Director
and Treasurer of Egolf.com Incorporated, an online retail golf business and he
has formerly held executive positions at Atlantic Entertainment Group and the
Independent Telemedia Group.
ITEM 11. EXECUTIVE COMPENSATION
Compensation to T. Joseph Coleman is accrued at an annual rate of $150,000 since
July 16, 2001 pursuant to an employment agreement resulting in compensation
expense of $68,750. Prior to July 16, 2001 compensation paid was $33,018.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
T. Joseph Coleman is an officer of a Corporation, which owns 3,617,500 shares of
the Company's common stock. William H. Coleman is a Trustee of a Trust, which
controls 2,350,000 shares of the Company's common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 AND 2. CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and financial statement schedule listed on
the index to consolidated financial statements on page F-l are filed as part of
this Form l0-K.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
Exhibit Description
------- -----------
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned; thereunto duly authorized, on the 8th day of
May, 2003.
SUN NETWORK GROUP, INC.
By: /s/ T. Joseph Coleman
-------------------------
T. Joseph Coleman
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the date indicated.
Signatures Title Date
/s/ T. Joseph Coleman Director, President and CEO May 8, 2003
/s/ William H. Coleman Director and Secretary May 8, 2003
7
CERTIFICATION
I, T. Joseph Coleman, CEO and Acting CFO, certify that:
1. I have reviewed this annual report on Form 10-K and Form 10-K/A Amendment No.
1 of Sun Network Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
May 8, 2003
/s/ T. Joseph Coleman
Chief Executive Officer
Index to Consolidated Financial Statements
Page
Independent Auditors' Report ............................................... F-2
Financial Statements:
Consolidated Balance Sheet as of December 31, 2001 ........................ F-3
Consolidated Statements of Operations for the years ended
December 31, 2001 and 2000 ............................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2001 and 2000 ......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 2000 ............................................... F-6
Notes to Consolidated Financial Statements ................................ F-7
All other schedules have been omitted as the required information is
inapplicable or the information required is presented in the consolidated
financial statements or the notes thereto.
F-1
Independent Auditors' Report
Board of Directors and Stockholders of:
Sun Network Group, Inc.
We have audited the accompanying consolidated balance sheets of Sun Network
Group, Inc. and Subsidiary as of December 31, 2001 and 2000 and the related
consolidated statements of operations, changes of stockholders' equity
(deficiency) and cash flows for the years ended December 31, 2001, 2000 and
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated financial position of Sun
Network Group, Inc. and Subsidiary as of December 31, 2001 and 2000 and the
consolidated results of its operations and its cash flows for the years ended
December 31, 2001, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States of America.
As more fully described in Note 12, subsequent to the issuance of the Company's
2001 consolidated financial statements and our report thereon dated March 15,
2002, we became aware that those consolidated financial statements did not
reflect certain accrued compensation and related compensation expense. In our
related report, we expressed an unqualified opinion with an explanatory
paragraph describing conditions that raised doubt about the Company's ability to
continue as a going concern. Our opinion on the revised consolidated financial
statements, as expressed herein, remains unqualified with an explanatory
paragraph describing conditions that raised doubt about the Company's ability to
continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company's accumulated deficit of
$575,828 at December 31, 2001, net losses in 2001 of $164,935, cash used in
operations in 2001 of $91,617, working capital deficit of $102,629 at December
31, 2001 and the need for additional cash to fund operations over the next year
raise substantial doubt about its ability to continue as a going concern.
Management's Plan in regards to these matters is also described in Note 10. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 15, 2002 (except for Note 12 as to which
the date is September 2, 2002)
F-2
Sun Network Group, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
December 31,
2001 2000
--------- ---------
Restated
(Note 12)
---------
Current Assets
Cash ................................................... $ 5,321 $ 3,088
Accounts receivable .................................... - 300
Prepaid expenses ....................................... - 385
--------- ---------
Total Current Assets ................................... 5,321 3,773
--------- ---------
Other Assets
Prepaid advertising .................................... 35,200 -
Due from officer ....................................... - 4,587
--------- ---------
Total Other Assets ..................................... 35,200 4,587
--------- ---------
Total Assets ........................................... $ 40,521 $ 8,360
========= =========
Liabilities and Stockholders Equity (Deficiency)
Current Liabilities
Accounts payable ....................................... $ 9,937 $ 4,249
Accrued compensation, related party .................... 68,750 -
Due to stockholder/officer ............................. 29,263 -
--------- ---------
Total Current Liabilities .............................. 107,950 4,249
--------- ---------
Stockholders' Equity (Deficiency)
Common stock, $0.001 par value,
100,000,000 shares authorized 21,665,399 and
11,935,000 issued and outstanding, respectively ..... 21,665 11,935
Additional paid-in capital ............................. 486,734 403,069
Accumulated deficit .................................... (575,828) (410,893)
--------- ---------
Total Stockholders' Equity (Deficiency) ................ (67,429) 4,111
--------- ---------
Total Liabilities and Stockholder' Equity (Deficiency) . $ 40,521 $ 8,360
========= =========
See accompanying notes to consolidated financial statements
F-3
Sun Network Group, Inc. and Subsidiary
Consolidated Statements of Operations
December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
Restated
(Note 12)
------------
Revenues ............................. $ - $ 43,903 $ 127,992
------------ ------------ ------------
Operating Expenses
Bad debt expense ..................... - - 780
Compensation ......................... 101,768 26,230 9,000
Contract labor ....................... - 1,167 25,445
Consulting ........................... 33,395 - -
Depreciation ......................... - 25,795 18,214
Exploitation costs ................... 10,329 4,252 47,187
Film costs ........................... - 57,979 178,051
General and administrative ........... 30,140 23,967 26,062
Professional fees .................... 24,503 - -
------------ ------------ ------------
Total Operating Expenses ............. 200,135 139,390 304,739
------------ ------------ ------------
Loss from Operations ................. (200,135) (95,487) (176,747)
Other Income (Expenses)
Settlement income .................... 35,200 - -
Interest expense ..................... - (17,996) (11,432)
Settlement expense ................... - - (33,849)
------------ ------------ ------------
Total Other Income (Expenses) ........ 35,200 (17,996) (45,281)
------------ ------------ ------------
Net Loss ............................. $ (164,935) $ (113,483) $ (222,028)
============ ============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.01) $ (0.02)
============ ============ ============
Weighted average shares outstanding .. 16,946,324 13,261,111 13,261,111
============ ============ ============
See accompanying notes to consolidated financial statements
F-4
Sun Network Group, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
Years Ended December 31, 2001, 2000 and 1999
Common Stock Additional Accumulated
Shares Amount Paid-In Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ........... - $ $ - $ (75,382) $ (75,382)
Stock issued to founders for cash .... 13,261,111 13,261 209,717 - 222,978
Net loss, 1999 ....................... - - - (222,028) (222,028)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ........... 13,261,111 $ 13,261 $ 209,717 $ (297,410) $ (74,432)
Contributed capital .................. - - 103,375 - 103,375
Conversion of promissory note and
accrued interest to equity ......... - - 204,490 - 204,490
Exchange of equity for equipment ..... (1,326,111) (1,326) (114,513) - (115,839)
Net loss, 2000 ....................... - - - (113,483) (113,483)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 ........... 11,935,000 11,935 403,069 (410,893) 4,111
Issuance of stock for cash ........... 898,333 898 59,102 - 60,000
Issuance of stock for services ....... 500,000 500 32,895 - 33,395
Recapitalization ..................... 8,332,066 8,332 (8,332) - -
Net loss, 2001, as previously reported - - - (96,185) (96,185)
Effect of restatement (Note 12) ...... - - - (68,750) (68,750)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 ........... 21,665,399 $ 21,665 $ 486,734 $ (575,828) $ (67,429)
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-5
Sun Network Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
2001 2000 1999
--------- --------- ---------
Restated
(Note 12)
---------
Cash Flows from Operating Activities:
Net loss ...................................... $(164,935) $(113,483) $(222,028)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................. - 25,795 18,214
Stock based consulting expense ................ 33,395 - -
Settlement income ............................. (35,200) - -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ........................... 300 2,700 (3,000)
Prepaid expenses .............................. 385 904 (1,290)
Increase (decrease) in:
Accounts payable .............................. 5,688 (7,999) 12,248
Accrued compensation, related party ........... 68,750 - -
--------- --------- ---------
Net Cash Used in Operating Activities ......... (91,617) (92,083) (195,856)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment ............ - (4,846) (155,001)
(Loan to) repayment from officer .............. 4,587 (4,587) -
--------- --------- ---------
Net Cash Provided by (Used in)
Investing Activities ........................ 4,587 (9,433) (155,001)
--------- --------- ---------
Cash Flows from Financing Activities
Loan proceeds from officer .................... 29,263 - 129,108
Proceeds from sale of common stock ............ 60,000 103,375 222,978
--------- --------- ---------
Net Cash Provided by Financing Activities ..... 89,263 103,375 352,086
--------- --------- ---------
Net increase in cash .......................... 2,233 1,859 1,229
Cash at beginning of year ..................... 3,088 1,229 -
--------- --------- ---------
Cash at End of Year ........................... $ 5,231 $ 3,088 $ 1,229
========= ========= =========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During 2000, a stockholder surrendered its entire interest in exchange for all
equipment owned by the Company with a net book value of $115,839.
During 2000, stockholders contributed advances and related accrued interest
totaling $204,409 to stockholders' equity.
See accompanying notes to consolidated financial statements.
F-6
Sun Network Group, Inc.
Notes to Consolidated Financial Statements
December 31, 2001
Note 1 Nature of Operations and Summary of Significant Accounting Policies
(A) Nature of Operations, Organization, and Reorganizations
Sun Network Group, Inc., formerly known as Sun Express Group, Inc. (the
"Company"), was incorporated under the laws of Florida on May 9, 1990
and was inactive in the last several years.
On July 17, 2001, RadioTV Network, Inc. was merged into Sun Express
Merger Corp., a subsidiary of Sun Express Group, Inc. The transaction
was accounted for as a recapitalization of Radio TV Network, Inc. Radio
TV Network, LLC, the predecessor to Radio TV Network, Inc., had an
inception year of 1998 and acted as a Defacto company until its
formation in 1999. Effective on January 1, 2001, RadioTV Network, LLC
sold its assets and certain liabilities to a newly formed corporation,
RadioTV Network, Inc., under common control of the remaining two
members of the LLC. The transaction was treated as a recapitalization
of Radio TV Network, LLC.
Pursuant to the merger into Sun Express Merger Corp. discussed above,
all shares of RadioTV Network, Inc. were exchanged for 13,333,333
shares or 61.57% of Sun Express Group, Inc. In accordance with APB 16,
the transaction was accounted for as a recapitalization of RadioTV
Network, Inc. at historical cost and the historical results of
operations in the accompanying consolidated financial statements are
those of RadioTV Network, Inc, and its predecessor Radio TV Network,
LLC, with the operations of Sun Express Group, Inc., included from the
July 17, 2001. Sun Express Group, Inc. then changed its name to Sun
Network Group, Inc. Concurrent with the merger, on July 17, 2001, the
Company authorized a 1-for-3 reverse split of its outstanding common
stock.
All amounts in the accompanying consolidated financial statements have
been retroactively restated to reflect the recapitalizations and the
reverse stock split. In addition, for comparative purposes, for
transactions, which occurred during the period the Company was an LLC,
the members are referred to in the accompanying consolidated financial
statements as stockholders.
Sun Network Group, Inc. acts as a holding company for Radio TV Network,
Inc. Radio TV Network, Inc. produces and broadcasts television versions
of top rated radio programs.
(B) Principles of Consolidation
The consolidated financial statements include the accounts of Sun
Network Group, Inc. and its wholly-owned subsidiary, Radio TV Network,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(C) Use of Estimates
In preparing consolidated financial statements, management is required
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 revenues and
expenses during the reported period. Actual results may differ from
these estimates.
F-7
(D) Cash Equivalents
For the purpose of the consolidated cash flow statement, the Company
considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents.
(E) Long-Lived Assets
The Company reviews long-lived assets and certain identifiable assets
related to those assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying
amounts may not be recoverable. If the non-discounted future cash flows
of the enterprise are less than their carrying amount, their carrying
amounts are reduced to fair value and an impairment loss is recognized.
(F) Revenue Recognition
The Company accounts for revenues 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").
The Company generally produces episodic television series and generates
revenues from the sale of broadcast licenses. 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.
The Company recognizes 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. The Company recognizes only the net revenue due to the Company
pursuant to the formulas or amounts stipulated in the customer
contracts.
The Company recognizes 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.
(G) Costs and Expenses of Producing Films
The Company accounts for costs and expenses of producing a film and
bringing that film to market in accordance with SOP 00-2 as follows:
Film costs include all direct negative costs incurred in the production
of a film as well as allocations of production overhead and capitalized
interest costs. Film costs are capitalized and amortized as the Company
recognizes revenue from each episode. If reliable estimates of
secondary market revenue are established, any subsequent costs are
capitalized and amortized using the individual-film-forecast method,
which amortizes costs in the same ratio as current revenues bears to
estimated unrecognized ultimate revenues.
F-8
Participation costs which consist of contingent payments based on film
financial results or based on other contractual arrangements, are
expensed and accrued, when a film is released, using the
individual-film-forecast method, if the obligation is probable.
Exploitation costs include advertising, marketing, and other
exploitation costs. Advertising costs are accounted for in accordance
with SOP 93-7, "Reporting on Advertising Costs." All other exploitation
costs, including marketing costs, are expensed as incurred.
(H) Income Taxes
During 2000 and 1999, the Company was structured as a limited liability
company and elected to be taxed as a partnership under the Internal
Revenue Code. In lieu of paying corporate income taxes, the members
were taxed individually on their proportionate share of the Company's
taxable income. Therefore, no provisions or liability for income taxes
during 2000 and 1999 has been included in the accompanying consolidated
financial statements.
Starting from January 1, 2001, income taxes are accounted for under the
asset and liability method of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes ("SFAS 109")." Under
SFAS 109 deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(I) Net Loss Per Common Share
Basic net income (loss) per common share (Basic EPS) excludes dilution
and is computed by dividing net income (loss) available to common
stockholder by the weighted-average number of common shares outstanding
for the period. Diluted net income per share (Diluted EPS) reflects the
potential dilution that could occur if stock options or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Company. At December 31, 2001, there were no common
stock equivalents outstanding, which may dilute future earnings per
share.
(J) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate that value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
F-9
The carrying amounts of the Company's short-term financial instruments,
including accounts payable and due to officer, approximate fair value
due to the relatively short period to maturity for these instruments.
(K) New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements, which may apply, to the Company.
Statement No. 141 "Business Combinations" establishes revised standards
for accounting for business combinations. Specifically, the statement
eliminates the pooling method, provides new guidance for recognizing
intangible assets arising in a business combination, and calls for
disclosure of considerably more information about a business
combination. This statement is effective for business combinations
initiated on or after July 1, 2001. The adoption of this pronouncement
on July 1, 2001 did not have a material effect on the Company's
financial position, results of operations or liquidity.
Statement No. 142 "Goodwill and Other Intangible Assets" provides new
guidance concerning the accounting for the acquisition of intangibles,
except those acquired in a business combination, which is subject to
SFAS 141, and the manner in which intangibles and goodwill should be
accounted for subsequent to their initial recognition. Generally,
intangible assets with indefinite lives, and goodwill, are no longer
amortized; they are carried at lower of cost or market and subject to
annual impairment evaluation, or interim impairment evaluation if an
interim triggering event occurs, using a new fair market value method.
Intangible assets with finite lives are amortized over those lives,
with no stipulated maximum, and an impairment test is performed only
when a triggering event occurs. This statement is effective for all
fiscal years beginning after December 15, 2001. The Company believes
that the future implementation of SFAS 142 on January 1, 2002 will not
have a material effect on the Company's financial position, results of
operations or liquidity.
Statement No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" supercedes Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121"). Though it retains the basic requirements of
SFAS 121 regarding when and how to measure an impairment loss, SFAS 144
provides additional implementation guidance. SFAS 144 excludes goodwill
and intangibles not being amortized among other exclusions. SFAS 144
also supercedes the provisions of APB 30, "Reporting the Results of
Operations," pertaining to discontinued operations. Separate reporting
of a discontinued operation is still required, but SFAS 144 expands the
presentation to include a component of an entity, rather than strictly
a business segment as defined in SFAS 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS 144 also eliminates the
current exemption to consolidation when control over a subsidiary is
likely to be temporary. This statement is effective for all fiscal
years beginning after December 15, 2001. The Company believes that the
future implementation of SFAS 144 on January 1, 2002 will not have a
material effect on the Company's financial position, results of
operations or liquidity.
Note 2 Film Costs and Exploitation Costs
As of December 31, 2001, there were no capitalized film costs. Film costs
expensed during the year 2000 and 1999 were $57,979 and $178,051, respectively.
There were no film costs incurred during 2001.
F-10
There were no advertising costs expensed and included in exploitation costs
during 2001, 2000, and 1999. Other exploitation costs totaled $10,329, $4,252,
and $47,187 during 2001, 2000 and 1999, respectively.
Note 3 Due to Stockholder
Amounts due to stockholder are non-interest bearing open advances with no stated
due dates.
Note 4 Commitments
On July 16, 2001, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The agreement stipulated annual salary of
$120,000, $30,000 of a guaranteed bonus plus certain expenses. The Company has
accrued $68,750 as of December 31, 2001.
Note 5 Related Party Transactions
In 2000, an affiliate of a stockholder provided 33% of revenues (see Note 9).
In 2000, a stockholder exchanged their entire equity interest for equipment (see
Note 5).
During 2001, the Company paid $12,018 of personal expenses of the chief
executive officer. This amount was included as compensation expense in 2001.
At December 31, 2001, the Company has amounts due to stockholder and accrued
compensation due to that stockholder who was the Chief executive officer of the
Company.
Note 6 Stockholders' Equity (Deficiency)
On January 1, 2000, a stockholder converted a promissory note of $200,000 plus
$4,490 of accrued interest to contributed capital. The note had been executed in
July 1999 to account for equipment with original cash basis of $155,003 and
advances of $44, 997 provided to the Company.
On December 31, 2000, the stockholder who previously converted the note
discussed above surrendered its entire 10% equity interest in the Company in
exchange for the equipment, which at that time had net book value of $115,839.
This transaction was considered a related party transaction and accordingly
equity was reduced by $115,839 and no gain or loss was recognized.
In February 2001, the Company issued, after its reorganization into a
corporation, 898,333 common shares to an investor for $60,000 and 500,000 common
shares to a service provider valued at the contemporaneous cash offering price
of $0.0668 per share or $33,395, The shares for services was recorded as a
consulting expense for past services rendered.
On July 17, 2001, 8,332,066, common shares were deemed issued in a
recapitalization transaction. (See Note 1(A))
Note 7 Revenues
In May 2001, the Company settled some disputes with a customer licensee by
accepting barter advertising time valued at its estimated fair market value of
$35,200.
F-11
The Company recorded the advertising time as revenues at the settlement date and
an asset to be amortized on a usage basis. Through December 31, 2001, none of
the advertising time had been used.
Note 8 Income Taxes
There was no income tax expense or benefit for federal and state income taxes in
the consolidated statement of operations due to the Company's net loss and
valuation allowance on the resulting deferred tax asset.
The actual tax expense differs from the "expected" tax expense for the years
ended December 31, 2001 (computed by applying the blended U.S. Federal Corporate
tax rate of 35 percent to income before taxes) as follows:
2001
----------
Computed "expected" tax expense (benefit) $ (70,047)
Established deferred tax asset valuation allowance 70,047
----------
$ -
==========
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2001 are as follows:
Deferred tax assets: 2001
----------
Net operating loss carryforward $ 70,047
----------
Total Gross Deferred Assets 70,047
Less valuation allowance (70,047)
----------
Net Deferred Tax Asset $ -
==========
At December 31, 2001, the Company had useable net operating loss carryforwards
of approximately $96,185 for income tax purposes, available to offset future
taxable income expiring in 2021.
There was no valuation allowance at January 1, 2001. The net change in the
valuation allowance during the year ended December 31, 2001 was an increase of
$33,665.
Note 9 Concentrations
During 2001, one customer provided 100% of the revenue, which was all barter
revenue (See Note 4). During 2000, two customers provided 55% and 42% of the
revenues, respectively. During 1999, one customer provided 62% of the revenues
and an affiliate of a stockholder provided 33% of revenues.
Note 10 Segment Information
The Company has a single reportable segment. All revenues as of December 31,
2001, 2000, and 1999 are derived from customers in the United States of America.
F-12
Note 11 Going Concern
As reflected in the accompanying consolidated financial statements, the Company
had an accumulated deficit of $575,828 at December 31, 2001, net losses in 2001
of $164,935; cash used in operations in 2001 of $91,617, a working capital
deficit of $102,629 at December 31, 2001 and needs additional cash to fund
operations over the next year. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise additional funds, further
implement its business plan, and generate revenues. The consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
Management is in process of seeking additional financing. Management believes
that the actions presently being taken to further implement its business plan
and generate additional revenues provide the opportunity for the Company to
continue as a going concern.
Note 12 Restatement
Subsequent to the issuance of the Company's fiscal 2001 consolidated financial
statements management became aware that those consolidated financial statements
did not include $68,750 of accrued compensation expense pursuant to a July 16,
2001 employment agreement with the Company's chief executive officer. The
inclusion of this item in the revised consolidated financial statements has the
effect of increasing current liabilities by $68,750 and increasing net loss by
$68,750. Net loss per share, basic and diluted did not change.
F-13