SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________________
Commission file number 333-34283
CHRONICLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of incorporation or organization)
58-2235301
(I.R.S. Employer Identification No.)
140 FIRST AVENUE N.E, CAIRO, GEORGIA 31728
(Address of principal executive offices) (Zip Code)
(912) 377-2111
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 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 ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's classes of common
stock, as of July 31, 1998, was 2,527,790 shares, all of one class, no
par value.
Transitional Small Business Disclosure Format (check one);
Yes ___ No X
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
Chronicle Communications, Inc.
Balance Sheet
June 30, 1998
(unaudited)
<S> <C>
Assets
Current assets:
Accounts receivable $82,801
Prepaid expenses 8,962
Other current assets 10,573
---------
Total current assets 102,336
---------
Property and equipment, net of
accumulated depreciation 370,835
Advances to stockholders, 339,516
---------
Total $812,687
=========
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $25,159
Notes payable and current maturities
of long term debt 73,780
Notes payable stockholders 134,792
Accounts payable 86,000
Accrued payroll liabilities 209,554
Other accrued liabilities 42,776
---------
Total current liabilities 572,061
---------
Long term debt, net of current maturities 108,736
---------
Stockholders' equity:
Common stock, no par value; 35,000,000 authorized
2,076,191 issued ; 2,021,191 outstanding 1,749,786
Accumulated deficit <1,562,896>
-----------
186,890
Less treasury stock, at cost; 55,000 shares <55,000>
-----------
Total stockholders' equity 131,890
-----------
Total $812,687
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Chronicle Communications, Inc.
Statement of Operations
(unaudited)
Three months Nine months
ended June 30, ended June 30,
--------------- ----------------
1998 1997 1998 1997
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $121,944 $171,883 $430,143 $505,714
Cost of sales 170,043 273,837 638,733 690,341
----------- ---------- ---------- ---------
Gross profit <loss> <48,099> <101,954> <208,590> <184,627>
----------- ---------- ---------- ---------
Operating expenses
General and administrative 106,335 50,951 340,857 178,843
Interest 15,310 7,521 25,728 12,163
----------- ---------- ---------- ---------
121,645 58,472 366,585 191,006
----------- ---------- ---------- ---------
Net loss $<169,744> $<160,426> $<575,175> $<375,633>
=========== ========== ========== ==========
Net loss per common share $ <.08> $ <.10> $ <.30> $ <.27>
=========== =========== ========== ==========
Basic
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Chronicle Communications, Inc.
Statement of Statement of Changes in Stockholders' Equity
(unaudited)
Accumulated Treasury
Shares Amount Deficit Stock
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
September 30, 1997 1,748,708 $1,291,824 <987,721>
----------------------------------------------------
Common stock issued:
For cash, net of
offering cost
of $52,587 217,313 $238,913
For consulting fees
and services 75,625 85,000
For repayment of
notes payable and
interest 34,545 27,299
Contribution of
services 106,750
Acquisition of
treasury stock 55,000
Net loss $<575,175>
----------------------------------------------------
Balance, June 30, 1998 2,076,191 $1,749,786 $<1,562,896> 55,000
====================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Chronicle Communications, Inc.
Statement of Cash Flows
(unaudited)
Nine months ended June 30,
----------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating activities
Net loss $<575,175> $<375,633>
----------------------------------------
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 59,922 32,477
Interest paid with stock 16,299
Contributed services 106,750 74,550
(Increase) decrease in:
Accounts receivable 8,215 <49,764>
Other assets <4,148> <37,776>
Increase (decrease) in:
Accounts payable 32,998 <39,373>
Accrued liabilities 77,347 2,425
-----------------------------------------
Total adjustments 297,383 <17,461>
-----------------------------------------
Net cash used by operating activities <277,792> <393,094>
-----------------------------------------
Investing activities
Purchase of property and equipment <25,215> <249,240>
-----------------------------------------
Financing activities
Net advances to stockholders <24,441> <134,459>
Bank overdraft 21,738 <12,611>
Proceeds from issuance of notes
payable and long-term debt 14,000
Payments on notes payable
and long- term debt <5,203>
Proceeds from issuance of
stock net of brokerage commissions 238,913 792,727
Net proceeds from stockholder loans 72,000
-----------------------------------------
Net cash provided by
financing activities 303,007 654,657
-----------------------------------------
Net increase (decrease) in cash 0 12,323
Cash at October 1 0 2,988
-----------------------------------------
Cash at June 30 $0 $15,311
=========================================
Supplemental disclosure of cash
flow information and noncash
investing and financing activities
Cash paid during the
period for interest $9,429 $6,941
-----------------------------------------
</TABLE>
During the nine months ended June 30, 1998:
The Company issued 75,000 shares of stock valued at $75,000 to consultants
for future services. During the quarter ended June 30, 1998, the Company
then terminated the agreement and received 55,000 shares of the stock which
was recorded as treasury stock.
The Company issued 25,000 shares of stock to a consultant to provide EDGAR
filing services. These services were valued at $10,000 and have been
recorded as a prepaid asset. The Company recognized a $2,500 amortization
expense in the current quarter.
The Company repaid $27,299 of notes payable and interest to a stockholder
through issuance of 34,545 shares of common stock.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
1. Background information
Chronicle Communications, Inc. (the Company), a Georgia corporation, was
incorporated on April 5, 1996 as JMAR Communications, Inc. The Company
subsequently changed its name to Chronicle Communications, Inc. on July 30,
1997. The Company is a publisher of two weekly shopper-style tabloid
newspapers that are distributed to customers in Crisp County and Grady
County, Georgia.
2. Going concern
As shown in the financial statements, the Company has incurred net losses
of approximately $1,563,000 since inception and current liabilities exceed
current assets by approximately $470,000 at June 30, 1998. These factors,
combined with the fact that the Company has not generated positive cash
flows from operating activities since its inception and is past due on bank
debt in an amount of approximately $55,000, raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded assets or the amounts and classification of
liabilities that might be necessary in the event the Company cannot
continue in existence. Management of the Company is currently seeking
additional bank and investor financing to mitigate the above factors.
Additionally, on February 8, 1998, the Company published the last issues of
The Sunday South Georgia Chronicle in both Grady County and Crisp County,
Georgia. The Sunday South Georgia Chronicle was the Company's only general
newspaper product. Management believes the termination of the Sunday paper
will result in the following savings, however, no assurance can be given
that the Company will, in fact, achieve these results. Actual results
could differ materially from these estimates. In connection with this
termination, the Company terminated its membership in Associated Press
which management believes will result in annual savings to the Company of
$24,000, and returned equipment to that association, resulting in a
reduction of $12,000 in fixed assets and accounts payable related to the
equipment. The Company also terminated five full-time employees and part-
time employees effective February 8, 1998, eliminating a combined annual
payroll expense and contract labor expense which management believes will
approximate $218,000. Management believes termination of the Sunday
editions also resulted in a reduction in printing expense of approximately
$124,000 per year.
3. Significant accounting policies
The significant accounting policies followed are:
In the opinion of management, all adjustments, consisting only
of normal recurring adjustments necessary for a fair
presentation of (a) the results of operations for the nine-
month and three-month periods ended June 30, 1998 and 1997, (b)
the financial position at June 30, 1998, and (c) cash flows for
the nine-month periods ended June 30, 1998 and 1997, have been
made.
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
3. Significant accounting policies (continued)
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 could differ from those
estimates.
The Company capitalizes cosigning fees relating to notes payable. These
fees are amortized by the straight-line method over the life of the
original note. Amortization expense amounted to $14,167 and $3,541 for the
nine-month and the three-month periods ended June 30, 1997. No
amortization expense was charged to operations for the nine-month or the
three-month periods ended June 30, 1998, as the fees were fully amortized.
Property and equipment are recorded at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of the assets,
ranging from five to thirty-nine years. Additions to and major
improvements of property and equipment are capitalized. Maintenance and
repair expenditures are charged to expense as incurred. As property or
equipment is sold or retired, the applicable cost and accumulated
depreciation are eliminated from the accounts and any gain or loss is
recorded. For income tax purposes, the Company uses accelerated methods of
depreciation for certain assets. For the nine-month periods ended June 30,
1998 and 1997, depreciation expense amounted to $24,300 and $18,283,
respectively. For the three-month periods ended June 30, 1998 and 1997,
depreciation expense amounted to $8,100 and $13,793, respectively.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their
respective income 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. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized as income in the period that included the enactment
date.
The Financial Accounting Standards Board issued Statement 123 (SAFS 123),
"Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. This statement provides that expense
equal to the fair value of all stock-based awards on the date of the grant
be recognized over the vesting period. Alternatively, this statement
allows entities to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation expense is recorded on the date the
options are granted equal to the excess of the market price of the
underlying stock over the exercise price. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide pro
forma disclosure of the provisions of SAFS 123.
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
3. Significant accounting policies (continued)
The Company issues stock in lieu of cash for certain transactions.
Generally, the fair value of the stock, based on comparable cash purchases,
is used to value the transactions.
During the period ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share."
This statement requires dual presentation of basic and diluted earnings per
share (EPS) for complex capital structures on the face of the income
statement. Basic EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock. The June 30, 1997
earnings per share have been restated to give effect to the application of
SFAS 128 and does not differ from EPS as previously reported under APB
Opinion No. 15, "Earnings Per Share."
Subscription revenue is deferred at the time of sale. A proportionate
share of the gross subscription price is credited to revenue monthly.
Costs connected with the procurement of subscriptions are expensed as
incurred.
Advertising revenue is billed and recognized into revenue as incurred.
Advertising costs are charged to expense when incurred. For the nine-month
periods ended June 30, 1998 and 1997, advertising expense amounted to
$3,055 and $3,256, respectively. For the three-month periods ended June
30, 1998 and 1997, advertising expense amounted to $1,327 and $281,
respectively.
The Company records as an expense and as additional capital the estimated
fair value for all services provided to it by its majority stockholders in
accordance with Securities and Exchange Commission Staff Accounting
Bulletin 1:B.
4. Property and Equipment
<TABLE>
<CAPTION>
Property and equipment consist of:
June 30, 1998
-------------
<S> <C>
Buildings and improvements $186,234
Furniture and fixtures 25,334
Computer equipment 121,555
Camera and publishing equipment 80,882
Vehicles 4,490
----------
418,495
Less accumulated depreciation 47,660
----------
$370,835
==========
<PAGE>
</TABLE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
4. Property and Equipment (continued)
Substantially all of the Company's property and equipment is pledged as
collateral on notes payable and long-term debt.
5. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
June 30, 1998
---------------------
<S> <C>
Mortgage note payable; bearing interest
at 8.0%; monthly payments of principal
and interest of $1,142 through July 7,
2012; secured by mortgage deed to
real estate; guaranteed by the Company's
president and majority stockholder 113,629
Note payable to bank; bearing interest
at 11.0%; entire unpaid balance of
principal and interest due June 18,
1998 and is past due; secured by equipment, trade
accounts receivable, and 42,500
shares of the Company's common
stock; co-signed by four stockholders
of the Company 54,887
Note payable to stockholder;
bearing interest at 11.0%;
entire unpaid balance of
principal and interest due
on demand; secured by all
property of the Company 25,000
Note payable to individual;
bearing interest at 10.5%;
monthly payments of interest
only through December 1, 1998;
secured by mortgage deed to
real estate 14,000
</TABLE>
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<S> <C>
5. Notes Payable and Long-Term Debt (continued)
Notes payable to stockholders:
bearing interest at 10%;
payable on demand; unsecured 61,000
---------
268,516
Less amounts currently due 73,780
Less amount due to stockholders 86,000
---------
$108,736
=========
</TABLE>
A written demand for repayment of a $10,000 stockholder loan, included in
notes payable to stockholders, has been received. The loan has no fixed
maturity or other terms, is not represented by a note and has interest
paid in full by issuance of common stock.
The following is a schedule by year of the principal payments required
under these notes as of June 30, 1998:
<TABLE>
<S> <C>
1999 $159,780
2000 4,911
2001 5,319
2002 5,761
2003 6,239
Thereafter 86,506
---------
$ 268,516
==========
</TABLE>
There were no outstanding notes payable to stockholders at September 30,
1997.
6. Income Taxes
The Company has tax loss carryforwards of approximately $1,300,000 that may
be applied against future taxable income. These losses give rise to a
deferred tax asset at June 30, 1998. Management has established a
valuation allowance equal to the amount of the deferred tax asset due to
the uncertainty of the Company's realization of this benefit.
<TABLE>
<S> <C>
Loss carryforward $ 195,000
Less valuation allowance 195,000
-----------
Net deferred tax asset $ 0
===========
</TABLE>
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
6. Income Taxes (continued)
The loss carryforwards expire as follows:
<TABLE>
<S> <C>
Year of
Expiration
2011 $ 68,400
2012 739,800
2013 491,800
----------
$ 1,300,000
============
</TABLE>
7. Lease Commitments and Related Party Transactions
The Company leases part of its operating facilities and various office
equipment under operating leases with terms of less than one year. Rent
expense relating to these leases amounted to $7,636 and $6,865 for the
nine-month periods ended June 30, 1998 and 1997, respectively. Rent
expense for these leases amounted to $2,075 and $2,865 for the three-month
periods ended June 30, 1998 and 1997, respectively.
The Company has advanced two stockholders/employees approximately $339,500
as of June 30, 1998. These advances have no specific terms, are non-
interest bearing, and are unsecured.
On April 22, 1998, the Company entered into an agreement with a certain
individual to provide financial consulting services to the Company in
exchange for 12,500 shares of the Company's common stock. As of June 30,
1998, no shares had been issued under this agreement.
On May 1, 1998, the Company entered into an employment agreement with its
president and chairman expiring September 30, 1998. The agreement
obligates the Company to pay him an annual salary of $120,000. In
addition, upon termination by the Company, the president and chairman is
entitled to payment of all accrued and unpaid salary to the date of
termination, as well as the same salary for a period of twenty-four months
following the termination.
The above related party transactions are not necessarily indicative of the
amounts which would have been incurred had comparable transactions been
entered into with independent parties.
8. Stock Options
The Company issues stock options to its directors on an annual basis
beginning September 30, 1997 as compensation for their services as
directors. The exercise price of each option is equal to the price at
which the Company last sold shares of its common stock. The lives of the
options are five years.
The Company applies APB Opinion 25 in accounting for its stock options.
Accordingly, no compensation cost has been recognized for the options
because the estimated exercise price equaled the fair market value on the
date of the grant. No options were granted during the nine-month and
three-month periods ended June 30, 1998.
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
8. Stock Options (continued)
Following is a summary of stock option activity for the period ended June
30, 1998:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
-----------------------------------
<S> <C> <C>
Outstanding and exercisable at
October 1, 1997 5,000 $ 2.00
===========================
Outstanding and exercisable at
June 30, 1998 5,000 $ 2.00
===========================
</TABLE>
Following is a summary of the status of stock options outstanding and
exercisable at June 30, 1998:
<TABLE>
<CAPTION>
Weighted Weighted
Average Remaining Average
Exercise Price Number Contractual Life Exercise Price
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
$2.00 5,000 4.25 Years $2.00
</TABLE>
The weighted average fair value of the options at their grant date during
1997 was $1.68. The estimated fair value of each option granted is
calculated using the Black-Scholes option-pricing model. The following
summarizes the weighted average of the assumptions used in the model:
Risk-free interest rate 5.84%
Expected years until exercise 3.25
On May 18, 1998, the Company granted to the President perpetual and self-
renewing common stock purchase options. These options will enable such
person to maintain ownership of 21.805% of the Company's total issued and
outstanding shares of the common stock. The percentage is reduced by the
number of shares sold by such person after December 1, 1997. The exercise
price of the options is based on the average bid quotation on the day prior
to exercise.
9. Equity
On October 24, 1996, the Board of Directors approved the implementation of
an Employee Stock Fund (the Fund). At June 30, 1998, 6,250 shares of the
Company's common stock had been reserved for issuance to the Fund.
[Remainder of page left blank.]
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
9. Equity (continued)
On October 24, 1996, the Board of Directors approved an increase in the
number of common stock shares authorized from 100,000 to 12,000,000. In
connection with this increase, the Board of Directors authorized a 60 for 1
stock split to stockholders of record on October 24, 1996. On March 11,
1997, the Board of Directors authorized a 2 for 1 stock split to
stockholders of record on June 6, 1997. On June 6, 1997, the Board of
Directors approved an additional increase in the number of common stock
shares authorized from 12,000,000 to 35,000,000. On November 15, 1997, the
Board of Directors approved a reverse split on outstanding common stock,
without a change in par value or total number of authorized shares, in a
ratio of one new share for each two outstanding shares. On July 1, 1998,
the Board of Directors approved a reverse split on outstanding common stock
without a change in the par value or total number of authorized shares, in
a ratio of one new share for each four outstanding shares. All references
in the accompanying financial statements to the number of shares have been
restated to reflect these transactions.
On March 11, 1997, the Board of Directors authorized the Company to issue
up to 7,500,000 shares of $.001 par value convertible voting preferred
stock. The preferred stock has a liquidation preference over the common
stock equal to par value and has the right to receive dividends in an
amount of $.001 per share prior to the payment of any dividends on the
common stock. Each share of convertible preferred stock is convertible
into one share of the Company's common stock, subject to the fulfillment of
certain conditions specified by the Board of Directors.
During the year ended September 30, 1997, the 7,500,000 shares of preferred
stock were issued to the Company's president and his wife at par value.
However, the preferred shares were surrendered to the Company on September
29, 1997. In connection with the tender and acceptance of the surrender,
the Board of Directors approved cancellation of the series of preferred
stock.
The Company entered into a financial consulting agreement in the quarter
ended March 31, 1998. Under the agreement, the consulting firm was to
provide investor relations and financial consulting services to the
Company. The Company issued 75,000 shares under the agreement valued at
$75,000 was recorded as a prepaid asset. As of March 31, 1998, the Company
has expensed $16,200 as consulting expense which includes $12,000 in cash
paid prior to March 31, 1998. During the quarter ended June 30, 1998, the
Company terminated its relationship with the consulting firm. The
consulting firm returned 55,000 of the Company's shares issued to it. The
remaining balance in prepaid consulting of $15,800 was expensed for
services provided up to the date of termination.
<PAGE>
Chronicle Communications, Inc.
Notes to Financial Statements
For the nine months ended June 30, 1998 and 1997
(unaudited)
10. Earnings Per Share
The following data shows the amounts used in computing earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
----------------------------------------------
<S> <C> <C> <C> <C>
Net loss $(169,744) $(160,426) $(575,175) $(375,633)
=================================================
Weighted average
number of common
shares used in basic
and diluted EPS 1,905,552 1,397,032 2,053,111 1,546,232
====================== ======================
</TABLE>
Options on 5,000 shares of common stock were not included in computing
diluted net loss per share at June 30, 1998, as their effect would be anti-
dilutive due to the losses incurred. No options were outstanding at June
30, 1997.
11. Subsequent Events
During July 1998, the Company issued 451,600 shares of its common stock,
340,100 shares for services of investor relations consultants and 111,500
shares for cash in the aggregate amount of $49,500.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This MD&A contains some forward looking information. Except for
historical data, the matters discussed in this Form 10-QSB contain forward-
looking statements which involve risk and uncertainty.
Liquidity and capital resources.
The Company's working capital position declined from September 30,
1997 to June 30, 1998, with an increase in negative working capital to
$469,725 at June 30 from $137,418 at September 30. This condition is the
result of a decline in total current assets to $102,336 from $227,025,
significantly as a result a payment of advances to stockholders in the
amount of $115,000 and an aggregate decline in prepaid and other current
items of $10,381, coupled with an increase in total current liabilities,
significantly as a result of increases in bank overdraft by $21,738, notes
payable and current maturities of long term debt by $14,535, notes payable
stockholders by $86,000, accounts payable by $32,998, accrued payroll
liabilities by $77,347 and other accrued liabilities by $4,600. Both the
Company's total current assets and total current liabilities, as well as
operating expenses, have been adversely impacted by the costs associated
<PAGE>
with registration of the Company's common stock for sale by selling
stockholders on Form SB-2 under the Securities Act of 1933, as amended, and
the Company's efforts to encourage the development of an active public
market for its common stock, principally audit fees and fees paid to
investor relations consultants. The Company does not have any credit lines
and is dependent upon sales of common stock in a continuing private
placement for liquidity until such time as net loss can be eliminated
through improvement in sales, of which there is no assurance. The
Company's interest only note payable to a bank matured June 18, 1998 and
will not be renewed. See, Part II, Item 3 and Note 5 to the Financial
Statements. The Company's management is committed to increasing the number
of products published by both initial starts and acquisitions in new
markets. The program of expansion by addition of new starts and by
consolidation by acquisition within its market territory envisioned by
management will require additional equity funding, of which there is no
assurance.
The nine-month periods ended June 30, 1998 and 1997.
The results of operations for the nine months ended June 30, 1998
reflect revenues and expenses related to publication of the South Georgia
Chronicle in Grady County, The Sunday South Georgia Chronicle-Grady County
Edition from the beginning of the period to February 8, 1998, The Sunday
South Georgia Chronicle-Crisp County Edition beginning October 5, 1997 and
ending February 8, 1998 and the South Georgia Chronicle in Crisp County.
Results of operation for the corresponding nine months ended June 30, 1997
reflects revenues and expenses related to the publication of the South
Georgia Chronicle in Grady County, The Sunday South Georgia Chronicle-Grady
County Edition beginning November 10, 1996 and the Crisp Area Penny Saver
(now named, the South Georgia Chronicle-Crisp County Edition). Significant
changes have occurred since February 8, 1998 when both editions of The
Sunday South Georgia Chronicle ceased publication. Revenues have decreased
$75,571 for the nine months ended June 30, 1998 compared to 1997. The
entire decrease can be attributed to the closure of both editions of The
Sunday South Georgia Chronicle. Certain operating expenses decreased for
the period for the same reason. Printing expense was decreased by $87,152,
Sunday syndicated expense, included in cost of sales decreased by $19,897
and payroll attributed to cost of goods sold decreased 27.3% between
February 1, 1998 to June 30, 1998. Net loss for the nine-month period
ended June 30, 1998 increased to $575,175 compared to $375,633 in 1997.
This loss is partially attributable to other expense items included in
general and administrative expense, such as legal & professional services,
stock transfer costs, depreciation expense, directors fees, president's
compensation (booked but not paid) and consulting fees, and to interest
expense rose to $25,728 for the nine-month period ended June 30, 1998
compared to $12,163 for the period in 1997. Net cash used by operating
activities improved by $115,302 and, although the loss per share rose to
$.30 for the nine months ended June 30, 1998 compared to $.27 for the same
period in 1997. The Company continued to incur certain costs associated
with the Sunday news products through the second quarter, despite
discontinuance of those editions after February 8, 1998, and into the third
quarter. Management believes the expenses attributed to existing
properties will continue to demonstrate improvement while revenue growth
for the fourth quarter are expected to improve the Company's
operating results for the year ending September 30, 1998. It should be
noted that future revenues which can be generated from the Company's two
existing products are expected to be insufficient to absorb fully the
expenses associated with ongoing compliance with the reporting requirements
Section 15(d) of the Securities Exchange Act of 1934, as amended, and
<PAGE>
related but necessary investor relations programs. Management believes
that growth in the Company's product base through initial starts and
acquisitions in new markets is essential to the Company's ability to enjoy
net profits adequate to provide a return to its stockholders.
Three month periods ended June 31, 1998 and 1997.
The results of operations for the three-month period ended June 30,
1998 reflects revenues and expenses related to publication of the South
Georgia Chronicle in Grady County, and the Crisp Area Penny Saver (now
named, the South Georgia Chronicle-Crisp County Edition). Results of
operations for the three-month period ended June 30, 1997 reflects revenues
and expenses related to publication of the South Georgia Chronicle in Grady
County, the Crisp Area Penny Saver (now named the South Georgia Chronicle-
Crisp County Edition) and The Sunday South Georgia Chronicle-Grady County
Edition. Sales for the comparable period fell $49,939; but, the cost of
sales improved to $170,043 in the three-month period ended June 30, 1998
from $273,837 in the comparable 1997 period. Significant reduction in
expense items resulted in decrease to gross loss to $48,099 for the three-
month period ended June 30, 1998 compared to $101,954 for the same period
in 1997. Non-recurring expense items were taken in the three-month period
ended June 30, 1998 compared to 1997. The one time charges included
$32,000 in legal and professional expense due to additional services
performed by outside auditors, one time consulting fees of $20,550 and
Interest expense of $25,728, most of which was related to short term loans
from stockholders which are expected to be repaid during the Company's
fourth quarter, subject to additional funding. Management believes
improvements to net income will continue into the fourth quarter of 1998,
with seasonal peak revenue months beginning in August and lasting through
fiscal year end and all expenses associated with the discontinued Sunday
products having been incurred during the first three quarters. Net loss
per share for the comparable periods improved to $.08 from $.10. The
decrease in net loss per share is expected to continue into the peak
revenue months, with the seasonal low revenue months of June, July and
early August having passed. Management believes the Company can improve
its operating results by more aggressive sales and special promotion
programs in its existing markets.
Growth plan
As noted above, Management is committed to an expansion program,
subject to available funding. Management believes the Company must expand
its products into new markets, with initial starts and consolidation within
its industry by acquisition of existing shopper and news specialty
products, as well as small weekly and daily newspapers. A recent edition
of the Bithlo-Cribb report recommends that daily newspaper companies
broaden their base with the addition of weekly publications, suggesting
that weekly newspapers are a bargain at seven to nine times cash flow
compared to the limited number of daily newspapers available for
acquisition which command ten to sixteen times cash flow. The report
states: "the geographic hub and spoke or cluster approach has consistently
proven a winner." The report goes on to reflect that large media groups
are beginning to recognize the shopper publication industry as solid and
profitable, with founders of older shopper publications bringing in younger
management or selling out. Management believes the Company is positioned
to benefit from these trends. Beginning at the Company's founding,
<PAGE>
management has developed the Company"s infrastructure for the hub and spoke
structure, with a view to expansion and acquisitions. Subject to available
funding, management intends to pursue an aggressive expansion and
acquisition program. There is no assurance any or adequate funding will be
available and, if available, that the terms will be acceptable to the Company.
PART II--OTHER INFORMATION
Item 2. Changes in Securities.
During the three-month period ended June 30, 1998, the Company continued
its private placement of its common stock in reliance upon Section 3(b) of
the Securities Act of 1933 and Rule 505 promulgated thereunder
(a) Dates of offering-June 1, 1997 to present
Securities sold-Common Stock
Amount sold- 178,620 shares, as adjusted for stock split
(b) Sold to nine investors who had a personal relationship with the
founder or with a directors or with a consultant to the Registrant or with
an existing stockholder of the Registrant and to three consultants for
services.
(c) $95,500 sold for cash and $46,250 sold for consulting services.
Item 3. Defaults Upon Senior Securities.
The Company's interest only note payable to the First National Bank of
Grady County with a current outstanding principal balance of $54,887
matured in full on June 18, 1998 and is unpaid. The bank has declined to
renew the note. The Company is current in its interest payment which the
bank is accepting, while the Company seeks an alternate lender or equity
financing to pay the principal balance due. See, Note 5 to the Financial
Statements presented elsewhere herein.
The Company has received a written demand for repayment of a stockholder
loan in the principal amount of $10,000. The loan has no fixed maturity or
other terms, is not represented by a promissory note and has interest paid
in full by issuance of common stock. See, Note 5 to the Financial
Statements presented elsewhere herein.
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Chronicle Communications, Inc.
(Registrant)
Date: August 14, 1998
/s/ John V. Whitman, Jr.
John V. Whitman, Jr., President and Chief Operating Officer
Date: August 14, 1998
/s/ Ronald L. Mallett
Ronald L. Mallett, Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 82,801
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,336
<PP&E> 418,495
<DEPRECIATION> (47,669)
<TOTAL-ASSETS> 812,687
<CURRENT-LIABILITIES> 572,061
<BONDS> 108,736
0
0
<COMMON> 1,749,786
<OTHER-SE> (1,562,896)
<TOTAL-LIABILITY-AND-EQUITY> 812,687
<SALES> 430,143
<TOTAL-REVENUES> 430,143
<CGS> 638,733
<TOTAL-COSTS> 638,733
<OTHER-EXPENSES> 340,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,728
<INCOME-PRETAX> (575,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (575,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (575,175)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
