As filed with the Securities and Exchange Commission on December 8, 1999
Registration No. 333-90503
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CHRONICLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 2711 58-2235301
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification
Code Number)
2601 Second Avenue, Tampa, Florida 33605 (813) 248-0100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Mr. John V. Whitman, Jr., President
2601 Second Avenue
Tampa, Florida 33605
Telephone: (813) 248-0100 Facsimile: (813) 247-2133
(Address, including zip code, and telephone number, including area code, of
registrant's agent for service)
COPIES OF COMMUNICATIONS TO:
Jackson L. Morris, Esq.
3116 West North A Street
Tampa, Florida 33609
Telephone: (813) 874-8854 Facsimile: (813) 873-9628
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of securities Amount to be Maximum Maximum Amount of
to be registered registered offering price per aggregate registration
share fee
Common Stock,
no par value 13,584,172 $.2065 $2,805,132 $780
----------------------------------------------------------
Total: 13,584,172 $.2065 $2,805,132 $780
*Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933 (the "Securities
Act"). This estimate is based upon the average of the bid and asked
quotations for the Common Stock on the OTC Bulletin Board on the day prior to
filing this Registration Statement, $.20 and $.213, respectively.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
CROSS REFERENCE SHEET
This table sets forth the location in the prospectus of the information
required to be included in the prospectus in response to the items in Form SB-
2.
Item of Form SB-2 Location in Prospectus
- ------------------ -----------------------
Item 1. Front of registration statement Outside front cover of prospectus
and outside front cover of prospectus.
Item 2. Inside front and outside back Inside front cover and outside
cover pages of prospectus. back cover of prospectus and
Additional Information.
Item 3. Summary information Risk Factors.
and risk factors.
Item 4. Use of proceeds. Use of Proceeds
Item 5. Determination of offering price. Distribution of Shares
Item 6. Dilution. Not applicable.
Item 7. Selling security holders. Selling Stockholders.
Item 8. Plan of distribution. Distribution of Shares.
Item 9. Legal proceedings. The Business-Legal Proceedings.
Item 10. Directors, executive officers, The Company, Management,
promoters and control persons Principal Stockholders.
Item 11. Security ownership of certain Principal Stockholders.
beneficial owners and management.
Item 12. Description of securities. Description of Securities.
Item 13. Interest of named experts and Interest of Counsel, Experts.
counsel.
Item 14. Disclosure of Commission Management.
position on indemnification for
Securities Act liabilities.
Item 15. Organization within last The Company.
five years.
Item 16. Description of business. The Business.
Item 17. Management's discussion and Management's Discussion and
analysis or plan of operation. Analysis of Results of
Operations and Financial
Condition For Years
Ended September 30,
1998 And 1997,And For
The Nine Months
Ended June 30, 1999
Item 18. Description of property. The Business-Description of
Property
Item 19. Certain relationships and Certain Transactions with
related transactions. Management and Others.
Item 20. Market for common equity Market Price of and Dividends
and related stockholder matters. on Common Stock and Related
Stockholder Matters.
Item 21. Executive compensation. Management-Management
Compensation.
Item 22. Financial statements. Financial Statements.
Item 23. Changes In and Disagreements Not applicable
With Accountants on Accounting and
Financial Disclosure.
<PAGE>
SUBJECT TO COMPLETION. PRELIMINARY PROSPECTUS DATED DECEMBER 8, 1999.
Chronicle Communications, Inc.
6,484,172 SHARES OF COMMON STOCK OFFERED BY SELLING STOCKHOLDERS
7,100,000 SHARES OF COMMON STOCK OFFERED BY THE COMPANY
6,484,172 shares of Common Stock of Chronicle Communications, Inc. (the
"Company") offered hereby are being offered and sold by selling stockholders
("Selling Stockholders") for their own account in open market or block
transactions. See, "Selling Stockholders". The Company will not receive any
proceeds from the Offering made by the Selling Stockholders. Selling
Stockholders may sell Shares to or through broker-dealers and the broker-
dealers' compensation may be in the form of discounts, concessions or
commissions from the Selling Stockholders and commissions from or mark ups
charged to purchasers. The Selling Stockholders and participating broker-
dealers may be deemed to be "underwriters" as that term is defined in the
Securities Act of 1933, as amended, (the "Securities Act"), in which event any
discounts, concessions or commissions they receive, or any profit on resales
of the Shares by them, may be deemed to be underwriting commissions or
discounts under the Securities Act. The Company believes none of the Selling
Stockholders have underwriting or selling arrangements for their Shares. See
"Distribution of Shares".
7,100,000 shares of Common Stock of the Company offered hereby are being
offered and sold by the Company. The Shares offered by the Company will be
offered by the Company's officers who will not be paid any compensation
therefore. The Shares offered by the Company are expected to be sold in
negotiated transactions to investors and used to pay liabilities at values
negotiated with creditors. In all cases, the price at which the Company will
sell the Shares is expected to be related to the then current bid and asked
quotations for the Common Stock on the OTC Bulletin Board. There is no
assurance the Company will be able to sell any of the Shares which it is
offering. See, "Distribution of Shares".
The Common Stock offered by both the Selling Stockholders and by the Company
is referred to herein as "Shares" and the offering thereof as the "Offering".
The Company's Common Stock is quoted on the OTC Bulletin Board under the
trading symbol of CRNC.
The Company operates a commercial web-offset printing business and a newsprint
paper recycling business located in Tampa, Florida and is the publisher New
Homes Register which published and distributed in both, Maryland and Virginia.
The Company also owns a custom computer builder located in Houston, Texas,
which sells both hardware and software to retail customers and through its e-
commerce web site.
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. See "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________, 1999
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sales of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
such State.
<PAGE>
REPORTS TO SECURITY HOLDERS
The Company intends to furnish to security holders annual reports containing
audited financial statements and unaudited financial statements for each of
the first three quarters of each fiscal year. In addition, the Company may
from time to time furnish to security holders additional information about the
Company and its business as deemed appropriate by Management.
TABLE OF CONTENTS
Page
The Company
Risk Factors
Use of Proceeds
Capitalization
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations and
Plan of Operations For Years Ended September 30, 1998 And 1997,
And For The Nine Months Ended June 30, 1999
The Business
Management
Management Compensation
Employee Bonus Plan
Certain Transactions with Management and Others
Principal Stockholders
Description of Securities
Selling Stockholders
Distribution of Shares
Market Price of and Dividends on
Common Stock and Related Stockholder Matters
Shares Available for Future Sale
Legal Matters
Experts
Additional Information
Index to Financial Statements
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Shares in a jurisdiction to
any person to whom it is not lawful to make any such offer or solicitation in
such jurisdiction or in which the person making such offer or solicitation is
not qualified so to do. Neither delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the dates as of which
information is given in this Prospectus.
Until December 15, 1999 (40 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may by required to deliver a Prospectus.
This Requirement is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
THE COMPANY
Chronicle Communications, Inc., (the "Company") was incorporated in Georgia on
April 5, 1996, under the name of JMAR Communications, Inc., and changed its
name to Chronicle Communications, Inc., effective July 30, 1997. The
Company's founder is John V. Whitman, Jr., the Company's chairman. The
Company was organized for the purpose of establishing and operating a shopper
style tabloid newspaper in the Crisp County, Georgia market area which
included several contiguous counties. The Company later expanded operations
to include a second shopper style tabloid newspaper, including community news
features, serving the Grady County, Georgia market area which included several
contiguous counties. Subsequently, the Company added a two-edition broadsheet
(full sized) Sunday newspapers serving those markets, with a full membership
in the Associated Press. In February 1998, the Company terminated publication
of the Sunday newspapers. The Company entered the commercial printing
business with the acquisition on September 30, 1998 of Bright Now, Inc., doing
business as United Printing and Publishing in Tampa, Florida, a company which
had been in business since 1992. See "The Business-Bankruptcy of Bright Now,
Inc." In the same transaction, the Company acquired Southern Paper and
Converters, Inc. which principally recycles newsprint paper which had been
in business since 1994. In February 1999, the Company terminated publication
of all shopper style tabloid newspapers and became a holding company with its
operations located entirely in its subsidiary companies. All references
herein to the Company's business includes the business of its subsidiary
companies. Also in February 1999, the Company relocated its headquarters
to the United Printing and Publishing facility in Tampa. In January 1999,
the Company acquired Bartow Communications, Inc., a publisher of new-home
real estate guides in the metropolitan District of Columbia area, including
Maryland and Virginia. Also in January 1999, the Company acquired RKN
Enterprises, Inc., which acts as a contract publisher for organizations and
associations which publish home builder association trade publications in
South Florida. On October 1, 1999, the Company discontinued activities
related to RKN Enterprises, Inc. and terminated all employees related to
the business. In July 1999, the Company acquired seventy percent of
Gotcashback.com, Inc., which is a development stage company embarking on
providing services to home buyers and sellers on the Internet and which
will initially serve the metropolitan District of Columbia area,
including Maryland and Virginia. In August 1999, the Company
acquired Americomp Computers, Inc., which is a business selling personal
computers and related services, networking, web site development and web
hosting and which has operated profitably since 1994. In August 1999, the
Company initiated the first of its five planned advertising coupon books
planned for distribution in strategic markets in Central Florida.
The Company's executive and production offices are located at 2601 Second
Avenue, Tampa, Florida 33605, its telephone number is (813) 248-0100 and its
telephone facsimile number is (813) 247-2133. The Company's Web site is at
www.chronicleinc.com.
RISK FACTORS
Investment in the Shares involves a high degree of risk. The following risk
factors should be considered carefully in evaluating the Company, its
business, condition and prospects (financial and otherwise) before purchasing
any of the Shares. These risk factors are not necessarily exhaustive and
additional risk factors, if any, may be material or have significance to an
individual investor. Many investment opportunities involve risk factors or a
risk of loss, including the existence of the normal and extraordinary risks.
The existence of these risk factors and possibly others should not necessarily
be the sole determining factor in whether or not to purchase Shares. All of
the information in this Prospectus should be carefully considered in
connection with the risk factors described below.
This prospectus contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended, and is subject to the safe
harbors created by those sections. These forward-looking statements are
subject to significant risks and uncertainties, including information included
under Parts I and II of this prospectus, which may cause actual results to
differ materially from those discussed in such forward-looking statements. The
forward-looking statements within this prospectus are identified by words such
as "believes", "anticipates", "expects", "intends", "may", "will" and other
similar expressions regarding the Company's intent, belief and current
expectations. However, these words are not the exclusive means of identifying
such statements. In addition, any statements which refer to expectations,
projections or other characterizations of future events or circumstances and
statements made in the future tense are forward-looking statements. Readers
are cautioned that actual results may differ materially from those forcasted
in the forward looking statements as a result of various factors, many of
which are beyond the control of the Company. The accompanying information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors", "Management's Discussion and Analysis
of Financial Condition and Results of Operations", "Plan of Operations" and
"Business", identifies important factors which could cause or contribute to
such differences. The Company undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements which may be
made to reflect events or circumstances occurring subsequent to the filing of
this annual with the SEC. Readers are urged to carefully review and consider
the various disclosures made by the Company in this prospectus.]
Risks Related To Business And Operations:
Limited operating history. The Company began operations April 5, 1996 with a
shopper product in one market. Subsequently, the Company expanded operations
with introduction of a shopper product in a second market and later a
traditional Sunday newspaper in both markets. Beginning October 1998, the
Company acquired a commercial printing company. More recently the Company has
acquired Bartow Communications, Inc., a publisher of new-home real estate
guides in the metropolitan District of Columbia areas of Maryland and
Virginia. Also in January 1999, the Company acquired RKN Enterprises, Inc.,
which acts as a contract publisher for organizations and associations which
publish home builder association trade publications in South Florida. On
October 1, 1999, the Company discontinued activities related to RKN
Enterprises, Inc. and terminated all employees related to the business. In
July 1999, the Company acquired seventy percent of Gotcashback.com, Inc.,
which is a development stage company embarking on providing services to home
buyers and sellers on the World Wide Web which will initially serve the
metropolitan District of Columbia areas, including Maryland and Virginia. The
Company has terminated publication of the shopper products and both editions
of the Sunday South Georgia Chronicle. The Company has financed its
operations to date with sales of Common Stock for cash, services and in
payment of debts, including part of the Shares offered by the Selling
Stockholders, contributions of property and money from its founder, proceeds
of a bank loan and collections of accounts receivable.
Unprofitable operating history. Since the Company began operations in April
1996, the Company has not earned a profit in any period. The Company has
incurred a $1,427,511 loss from operations for the year ended September 30,
1997, and a $1,813,577 loss from operations for the year ended September 30,
1998. The Company has also incurred an estimated loss from operations of
$2,800,000 for the year ended September 30, 1999. There is no assurance the
Company will be able to generate sufficient revenues to become profitable in
future periods or to successfully continue its acquisition and growth plans.
Without sufficient revenues, the Company will be unable to create value in
its equity securities which includes the Shares and to pay dividends. The
Company is subject to many risks. See "Management's Discussion and Analysis"
and "Description of Business." The Company has limited liquidity as a result
of negative cash flows and its liquidity has been limited to the sale of
Common Stock, proceeds of a bank loan, collections of accounts receivable and
generation of additional accounts receivable, primarily from commercial print
sales and computer hardware, software and related services. The Company
expects limited liquidity to continue until the Company's operations generate
a positive cash flow, of which there is no assurance. The Company plans to
sell additional Shares of its Common Stock pursuant to this Prospectus in
order to provide capital needed to relocate its facilities and to replace
existing press equipment; but, there is no assurance additional Common Stock
can be sold or that any other financing will be available in the amount needed
for these purposes or, if it is available, that the terms thereof will be
acceptable to the Company. The Company will not receive any of the proceeds
from the sale of the Shares by the Selling Stockholders.
Dependence on key personnel. The Company is dependent upon the knowledge,
efforts and abilities of John V. Whitman, Jr., its founder, chairman and chief
executive officer, with respect to the conduct of its current operations and
implementation of the Company's plan to improve its sale performance and to
achieve profitability, of which there is no assurance. The Company is
dependent upon Mr. Whitman because of his extensive involvement with the
development of the Company's business and prior publishing experience. The
Company's dependence on Mr. Whitman is particularly important during the
period prior to the Company reaching a level of operations at which it has the
financial ability to attract and retain executive officers at market rates of
compensation and benefits who are not founders and major stockholders of the
Company. The termination of employment by Mr. Whitman for any reason in the
near future could be expected to have a materially adverse effect on the
Company because the Company may not be able to find a replacement for Mr.
Whitman who has his level of dedication to the Company, except for a person
who would require a salary and benefits package which at the present time
would exceed the Company's financial resources. Mr. Whitman does not have an
employment agreement with the Company, but is the Company's single largest
stockholder and the Company's board of directors has unanimously approved a
five year employment agreement for Mr. Whitman which is planned to be prepared
in writing in the near future. The Company is depending upon Mr. Whitman as
the Company's founder and major stockholder for his dedication, commitment and
financial interest in the Company as a basis for his continuing employment
with the Company, regardless of its financial condition at any particular time
and the existence of a written employment agreement.
Risks associated with expansion of commercial printing activities. There is no
assurance the Company will be able to successfully implement its plan to
expand its commercial printing activities. This risk is associated with
availability of capital or revenues to fund the costs of such expansion and to
some extent with the Company's ability to identify and employ sales personnel
who are capable of carrying out the Company's plan under the direction of
management.
Competition. The Company's commercial printing business competes against
better established, larger and more financially stable commercial printers in
Central Florida. The Company's computer sales and service business competes
against many sellers of computer hardware, software and service, many of which
are much larger, well established and in some cases national and international
companies. There is no assurance that the Company will be able to compete
successfully in its market segments.
Lack of dividends. The Company has not declared or paid dividends on its
Common Stock, which includes the Shares, and may elect to retain all or most
of its net profits, if any, in the foreseeable future to provide operating
capital and funding for capital investment in the Company's business. The
Company cannot predict if or when it will have current and retained earnings
or surplus from which to legally declare and pay dividends. There is no
assurance as to if or when the Board of Directors will declare a dividend on
the Common Stock, which includes the Shares.
Voting control by management stockholders. Mr. Whitman, who is a director and
an executive officer of the Company, and Mrs. Whitman jointly and individually
own an aggregate of 3,146,743 shares of the Company's Common Stock (750,000 of
which are included for sale pursuant to this Prospectus). In addition, Mr.
Whitman holds Common Stock Purchase Options for 2,054,256 shares of Common
Stock at the date of this Prospectus. The shares of stock and options
represent approximately 20.87 percent of the voting stock outstanding, before
sale of any the 750,000 shares and 17.86 percent, assuming the sale of all
750,000 shares by Mr. and Mrs. Whitman and the Company sells all 7,100,000
offered by this Prospectus. In addition, Jackson L. Morris, a director and
secretary of the Company owns shares and Common Stock Purchase Options for 4.43
percent before the offering made hereby and 5.0 percent, assuming the Company
sells all 7,100,000 shares offered hereby. See, "Management Compensation-
Common Stock Purchase Options" and "Principal Stockholders". Each issued and
outstanding share of the Common Stock is entitled to one vote on each nominee
for a directorship. The Company's Articles of Incorporation do not authorize
cumulative voting for the election of directors. Any person who controls or
can obtain more than fifty percent of the votes cast for the election of each
director will control the election of all directors. Accordingly, it is
likely the stockholders who are also the directors and management of the
Company hold a sufficient number of votes to elect all of the directors of the
Company and other Selling Stockholders who have not sold all their Shares and
the purchasers of those Shares which are sold will not be able to elect any
directors.
Risks Related To The Offering:
No assurance of active public market for Shares; Volatility. At times prior
to the date of this Prospectus, the public trading market for the Shares has
been limited. Development and continuation of a sustained and active trading
market for the Company's Common Stock may depend upon the interest in the
Company of securities market makers, the investing public and institutional
investors, which may depend in turn on the Company's revenues, profits and
prospects. The public market price of the Company's Common Stock has been
volatile. Furthermore, the Company's Common Stock is quoted on the OTC
Bulletin Board, instead of the NASDAQ Small Cap Market or a regional exchange.
That quotation medium is believed to have an adverse impact on the interest of
some securities brokerage firms and of public investors for the securities
quoted there.
Possible negative effect of Common Stock available for future sale. 4,450,021
shares of the Company's Common Stock owned by "affiliates", as defined in Rule
144 under the Securities Act of 1933, are not registered for sale by such
affiliates under that Act and are subject to the restrictions and limitations
provided by that rule. 1,143,170 of these shares have been owned for more
than two years and 371,245 of these shares have been owned for more than one
year, but less than two years. An additional 3,306,851 shares have been owned
by the Company's affiliates for less than one year and the affiliates have
Common Stock Purchase Options covering an additional 2,531,324 shares at the
date of this Prospectus, assuming the sale of all Shares offered by the
Company hereby are sold. The 1,514,415 shares held for more than one year are
eligible for sale by each such holder pursuant to and subject to the
requirements of Rule 144. Under the rule affiliates may sell a limited number
of shares during each three month period pursuant to the requirements of Rule
144 or affiliates may sell larger numbers of shares if registered under that
Act. The offer of a significant number of such shares of Common Stock by
affiliates in the future in the public trading market at or about the same
time pursuant to Rule 144 or pursuant to a subsequent registration statement
under that Act could have a depressive effect on the public market price of
the Shares.
Trading limitations on stock at a market price of less than $5 per share.
The quotations for the Company's Common Stock on the OTC Bulletin Board have
been less than $5 per share at all time since the Common Stock first began
trading in August 1998. Management cannot predict the market price of the
Common Stock in the public securities market at any time in the future. At
any time the quoted bid price is less than $5 per Share, certain larger stock
brokerage firms may prohibit purchase or sale of the Common Stock in their
customers' accounts. All securities brokerage firms effecting purchase orders
for new clients in the Shares at a time when the Shares have a market bid
price of less than $5 per share are required by federal law to send a
standardized notice to such new clients regarding the risks of investing in
"penny stocks", to provide additional bid, asked, broker compensation and
other information to the new customer, to make a written determination that
the Shares are a suitable investment for the new client and to receive the new
client's written agreement to the transaction, unless the client is an
established client of the firm, prior to effecting a transaction for the
client. These business practices may inhibit the an active public trading
market for the Common Stock during periods that the price is less than $5 by
both limiting the number of brokerage firms which may participate in the
market and increasing the difficulty in selling the Common Stock. Management
cannot predict if or when the Company will qualify to have its Common Stock
traded on NASDAQ or a regional or national securities exchange, which would,
if admitted to trading in any such market, exempt transactions in the Common
Stock, regardless of the market price, from the procedures and safeguards
mandated by the "penny stock" regulations summarized above.
USE OF PROCEEDS
There is no assurance as to if or when the Company may receive net proceeds
from the sale of the 7,100,000 Shares offered by the Company by this
Prospectus. Furthermore, the price or prices at which the Company sells the
Shares, if any are sold, cannot be predicted; nor, can the Company predict the
uses and needs it may have for the net proceeds at the time of such sale or
sales. Accordingly, the Company cannot predict either the total amount of the
actual net proceeds, if or when they may be received or how they may be used.
In general, the Company anticipates using the net proceeds for relocating and
re equipping its commercial printing operation, sales and marketing expenses
and for general working capital purposes. The Company may use a portion of
the Shares offered by the Company pursuant to this Prospectus to pay
liabilities. See, "Business" and " Distribution of Shares".
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1999. This table should be reviewed in conjunction with the financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus.
At June 30, 1999
Long term debt, net of current maturities: $140,011
Equity: (1)
Common stock, no par value, 35,000,000 shares authorized
10,196,604 shares issued 4,992,088
Accumulated earnings <deficit> (5,891,842)
Total stockholders' equity (899,754)
Total capitalization (759,743)
Subsequent to June 30, 1999, through November 2, 1999, the Company has issued
an additional 2,616,154 shares, including 1,599,957 shares of its Common
Stock issued upon exercise of Common Stock Purchase Options by Messrs. Whitman
and Morris.
SELECTED FINANCIAL DATA
The following table presents selected financial data at the dates and for the
periods indicated. The table should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus.
Statement of Operations Data:
Nine months ended
Year ended September 30, June 30,
1998 1997 1999 1998
------------------ ------------ ----------- -----------
Sales $1,748,026 $2,421,931 $1,427,138 $1,440,915
Cost of sales 1,691,021 2,198,196 1,434,454 1,459,984
Gross profit 57,005 223,735 <7,316> <19,069>
Operating expenses 1,870,582 1,740,238 2,207,941 968,645
------------------ ------------ ----------- -----------
Net loss $<1,813,577> $<1,516,503> $ <2,215,256 > $<987,714>
Loss per
common share: $ <.70> $ <.68> $ <.25> $ <.38>
Weighted
average common
shares
outstanding: 2,589,632 2,113,131 8,701,964 2,589,632
Chronicle Communications and Affiliates, Inc.
Balance Sheets
(Unaudited)]
Balance Sheet Data:
At June 30,
1999 1998
Working capital <deficiency> <2,959,431> <2,235,519>
Total assets $ 2,460,885 $2,071,312
Long-term obligations,
less current portion 140,011 108,735
Total stockholders' equity <899,754> <527,311>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997,
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
The Company completed an acquisition of Bright Now, Inc. and Southern Paper
and Converters Inc. on September 30, 1998. This acquisition of the two
related companies was treated as a "pooling" under generally accepted
accounting principles. As a result of the pooling, the operations of the
parent company only and the acquired subsidiaries have been consolidated for
the fiscal years ended September 30, 1997 and 1998. The Company's previously
reported financial statements for the fiscal year ended September 30, 1997 has
been restated to reflect the pooling. At September 30, 1997 and 1998, the
Company, on both a parent only and consolidated basis, and its subsidiaries,
considered individually, were technically insolvent. The Company operates a
commercial web-offset printing business and a newsprint paper recycling
business located in Tampa, Florida and during part of the reported periods was
the publisher of two free weekly shopper-style tabloid newspapers and two full
size Sunday Newspapers. The Company's revenues were generated through sales
of commercial printing services, sales of display advertising in its own
publications, sales of classified advertising and sales of recycled newsprint
to the packaging and shipping
The Company's operating activity for the year ended September 30, 1998 reflect
forty-four weeks of The South Georgia Chronicle - Crisp County Edition, fifty-
two weeks of The South Georgia Chronicle - Grady County Edition, nineteen
weeks of The Sunday South Georgia Chronicle - Crisp County Edition and
nineteen weeks of The Sunday South Georgia Chronicle - Grady County Edition.
The Company operated its commercial printing plant and its paper recycling
business for the entire 1998 fiscal year. The Company's operating activity
for the year ended September 30, 1997 reflects one full year of operations
with the South Georgia Chronicle and The Crisp Area Penny Saver, shopper style
tabloid newspapers, and a full year of operations from it's commercial
printing plant and it's paper recycling business.
The Company incurred operating losses of $1,813,577 and $1,516,503 for the
years ended September 30, 1998 and 1997, respectively. At September 30, 1998
current liabilities exceeded current assets by $2,824,648 and the Company was
in default on substantially all its debts -- See note 5 to the financial
statements appearing elsewhere herein. Additionally, major vendors had placed
the Company on a COD basis for purchases.
The decline in revenues for the 1998 fiscal year compared to the 1997 fiscal
year and the losses for the fiscal year ended September 30, 1998, were
directly related to closure of the Company's Sunday edition newspapers and one
of the shopper publications in South Georgia. Additionally, the acquired
companies were technically insolvent at September 30, 1998 and had suffered
huge revenue losses as a result of no operating capital, vendors dropping
credit terms and requiring payment on delivery, and further deterioration of
printing equipment resulting in loss of customer base.
Significant revenues, as well as the losses for the fiscal year ended
September 30, 1997 were associated with the Company's entry into the Sunday
newspaper market with publication of the Sunday South Georgia Chronicle, both
Crisp and Grady County Editions, subcontracting printing services for each of
the Company's publications, editorial overhead, including costs related to
Associated Press membership, a general downturn in the economy in South
Georgia leading to a drop in display advertising revenue, lack of cash to
purchase bulk newsprint from mill direct sources and substandard equipment at
the printing plant which restricted many potential customers from printing
with the Company, and finally the high costs associated in building a public
market for the Company's common stock, including audit costs. The Company's
management believes if it had been better capitalized during the period it
could have offset the losses by opening more markets to its shopper products
which would have spread fixed costs over a broader revenue base.
Additionally, the Company's management believes that, if the Company had been
properly capitalized, the Company would have made capital equipment purchases
and repairs that would have improved efficiency and drastically increased its
commercial printing revenues.
Since September 30, 1998, The Company has been reducing debt, primarily
through the issue of common stock to its creditors, slowly making necessary
equipment repairs and attempting to mend relationships with its vendors. The
closure of the Company's products in South Georgia and the elimination costs
associated with production in rural markets which were served by the Company
have a positive impact on the Company's operating performance in subsequent
periods. The Company's acquisitions of additional companies in January and
August 1999 and have negatively impacted the Company's operating performance.
These 1999 acquisitions are expected to triple revenues and allow the Company
to spread the costs associated with building a market for its common stock
over a larger revenue base.
Limited liquidity and financial resources:
During the 1998 and 1997 fiscal years, the Company funded much of its working
capital needs through the sale of its common stock. Approximately $1,570,000
in capital was raised in connection with these stock sales. The Company's
continued ability to operate is dependent on its ability to either refinance
its existing debt or raise additional capital.
The Company's working capital position declined to a negative $2,824,648 at
September 30, 1998 from a negative $968,196 at September 30,1997. This
condition is the result of a decline in total current assets to $222,809 from
$552,789, coupled with an increase in total current liabilities by $1,526,472,
partially as a result of defaults on long-term liabilities. The Company
significantly decreased bank overdrafts between fiscal year ends by $23,599.
The Company experienced an increase from period to period in notes payable and
current maturities of long-term debt by $971,914, accounts payable by
$232,487, accrued payroll liabilities by $119,986 and other accrued
liabilities by $225,684. Both the Company's total current assets and total
current liabilities, as well as operating expenses, have been adversely
impacted by the costs associated with the partial discontinuance of several of
the Company's South Georgia publications, it's 1998 acquisitions, which had
considerable debt and costs associated with building a market for it's common
stock.
The Company had limited liquidity as a result of negative cash flows during
the reported periods and its liquidity was limited to the sale of common
stock, proceeds of a bank loan, collections of accounts receivable and
generation of additional accounts receivable, primarily from sales of
commercial display advertising in its products and revenues generated from the
commercial web printing business. The Company anticipated several periods of
capital formation and operating losses which management believes are normal
for a new and expanding business. The Company's management believes the
Company can improve its gross margins by expanding operations and increasing
revenues, thereby spreading fixed costs over a broader revenue base.
Management cannot predict how long it will be able to continue to operate with
negative working capital, a technically insolvent condition and with its major
properties subject to a judgment of foreclosure. Subsequent to September 30,
1998, the Company has reduced total indebtedness and obtained services by
issuance of its common stock to certain creditors and is significantly
dependent upon forbearance of collection and foreclosure sale by its remaining
trade creditors and its major judgment creditor, respectively. The Company
requires and is aggressively seeking primarily debt financing in order to
satisfy the delinquencies in its trade credits, satisfy its judgment creditors
and reestablish commercially reasonable trade credit arrangements with
suppliers. The Company intends to aggressively seek equity financing for the
purpose of restoring solvency. Furthermore, the Company intends to continue
its program of acquiring businesses, primarily through the issuance of common
stock, which are solvent, profitable and have a positive cash flow. There is
no assurance the Company will be able to obtain debt or equity financing, or
if such financing is available, that it will be on terms acceptable to the
Company. There is no assurance the Company will be able to make additional
acquisitions which satisfy the Company's requirements. See Note 11 to the
Financial Statements included elsewhere herein.
The Company's nine months' results covered in this Prospectus began on October
1, 1998, and ended on June 30, 1999. The Company completed an acquisition of
Bright Now, Inc. and Southern Paper and Converters Inc. on September 30, 1998.
This acquisition of the two related companies was treated as a "pooling" under
generally accepted accounting principles for periods prior to the acquisition
date, including the comparative quarterly periods ended December 31, 1998,
March 31, 1999, and June 30, 1999. At June 30, 1999 and 1998, the Company, on
both a parent only and consolidated basis, and its subsidiaries, considered
individually, were technically insolvent.
The Company's operating activity for the nine months ended June 30, 1999
reflect twelve editions each of New Homes Register which included the Maryland
and Virginia editions, six editions of Business Builder, two editions of
Bonded Builder News, and the Company operated its commercial printing plant
and its paper recycling business for the entire nine months. The Company's
operating activity for the nine months ended June 30, 1998, reflect thirty-
nine weeks of the South Georgia Chronicle Thomas County Edition, thirty-nine
weeks of the South Georgia Chronicle Crisp County Edition, and revenues from
its commercial printing plant and its paper recycling business.
The Company incurred operating losses of $2,215,256 for the nine months ended
June 30, 1999, against operating losses of $987,714 for the nine months ended
June 30, 1998. At June 30, 1999, current liabilities exceeded current assets
by $2,959,431 and the Company was in default on substantially all its debts --
See note 5 to the financial statements appearing in this prospectus for the
period ended September 30, 1998. At June 30, 1998, current liabilities
exceeded current assets by $2,235,519 and the Company was in default on
substantially all its debts -- See note 5 to the financial statements
appearing in this prospectus for the period ended September 30, 1998.
Additionally, major vendors had placed the Company on a COD basis for
purchases.
The decline in revenues for the nine months ended June 30, 1999, compared to
the nine months ended June 30, 1998, and the losses for the nine months ended
June 30, 1999, were directly related to commercial printing jobs dropped at
the Company's printing facility that did not meet the Company's minimum profit
standards and seasonal downturn in the commercial printing business.
Additionally, the Company suffered revenue losses as a result of no working
capital, vendors declining credit terms and requiring payment on delivery, and
further deterioration of printing equipment resulting in loss of customer
base.
The Company showed a decrease in cost of good sold for the nine months ended
June 30, 1999, over the same period in 1998. Revenues were $1,427,138 and
$1,440,915 respectively for the periods ended June 30, 1999, and 1998. Cost
of sales as a percent of revenue was 100.5% for the nine months ended June 30,
1999, verses 101.3% for the same nine months ended 1998. Net loss per common
share, basic was ($.25) and ($.38) for the nine months ended 1999 and 1998,
respectfully. Net operating loss declined to $2,215,256 for the period ended
June 30, 1999, against a loss of $987,714 for the same period ended 1998.
The Company's management believes if it had been better capitalized during the
period it could have offset the losses by making capital equipment purchases
and repairs that would be expected to have improved efficiency and increased
its commercial printing revenues.
The Company's acquisitions of additional companies in January and August 1999
have negatively impacted the Company's operating performance. Management
expects these 1999 acquisitions to triple revenues and allow the Company to
spread the costs associated with building a market for its common stock over a
larger revenue base.
Limited liquidity and financial resources:
During the nine months ended June 30, 1999 and 1998, the Company funded much
of its working capital needs through the sale of its common stock. The
Company continued ability to operate is dependent on its ability to either
refinance its existing debt or raise additional capital.
The Company's working capital position declined to a negative $2,959,431 at
June 30, 1999, from a negative $2,223,519 at June 30, 1998. This condition is
the result of an increase in total current liabilities by $730,740, partially
as a result of defaults on long-term liabilities. The Company experienced an
increase from period to period in notes payable and current maturities of
long-term debt by $247,569. Accounts payable decreased by $167,539. Accrued
payroll liabilities increased by $143,775 and other accrued liabilities by
$269,346.
Year 2000 considerations:
Many companies will face potentially serious issues associated with the
inability of existing data processing hardware and software to appropriately
recognize calendar dates beginning in the year 2000. The Company believes it
has identified its software applications and hardware devices which could be
impacted by the Year 2000 issue. All of the Company's computer systems are
personal computer based. The Company's general ledger system has been
upgraded and is Year 2000 compliant. The Company's management believes all of
its desktop publishing software is Year 2000 compliant. A Year 2000 compliant
version of the Company's primary database application for sales order
management and billing has been installed and successfully tested; with
implementation expected to occur by October 1, 1999. The Company has
scheduled other system upgrades that are either on hand or readily available
and it expects all of its information technology (IT) systems, including its
internal telephone system, to be Year 2000 compliant on or before October 1,
1999. When completed, the Company estimates that its total costs in obtaining
Year 2000 compliance will have been less than $25,000.
Generally, the goods and services the Company purchases from its vendors and
suppliers are not considered to be directly vulnerable to Year 2000 issues;
additionally, these goods and services are not unique and are available from
numerous alternative sources. Reliable telephone service is critical,
particularly to the Company's sales of advertising. Disruption of telephone
service could have a material adverse effect on the Company's results of
operations and, depending on the duration of interruption, its financial
condition. The Company has not yet contacted its large vendors in an effort
to assess their compliance with Year 2000 readiness issues; it intends to make
these contacts and assessments in late-1999, but well in time to switch to
alternative suppliers if necessary. The Company does not believe it is
practicable to contact many of its advertising clients with regard to
assessing their Year 2000 compliance. No single client represents as much as
one percent of the Company's overall revenues; therefore, the Company believes
that it would not be materially adversely affected by the impact of Year 2000
upon any individual client.
THE BUSINESS
The Company operates a commercial web-offset printing business and a
newsprint paper recycling business located in Tampa, Florida and is the
publisher New Homes Register which published two editions, Maryland and
Virginia. The Company also owns a custom computer builder located in Houston,
Texas, which sells both hardware and software to retail customers and through
its E-commerce site. The Company's revenues were generated through sales of
commercial printing services, sales of display advertising in its own
publication, and sales of computer hardware and software and recycled
newsprint to the packaging and shipping industries.
Commercial Printing:
Bankruptcy of Bright Now, Inc.
On November __, 1999, Bright Now, Inc. filed for protection under chapter
11 of the bankruptcy code: Bright Now, Inc. doing busines as United Printing
and Publishing, case n. 99-18814 in the US Bankruptcy court in the Middle
District of Florida, Tampa Division. The Company expects Bright Now, Inc.
to file a plan of reorganization in due course. At the date of this prospectus,
the Company is uncertain regarding the business and prospects of Bright Now,
Inc., which are highly dependent upon the ability of the company to provide
funding to Bright Now, Inc., which depends in turn upon the Company's ability
to sell the shares offered hereby. Most of the company's publishing activities
are conducted directly, so a possible loss of Bright Now, Inc. is expected
to increase the Company's cost of goods sold by requiring the Company to have
its publications printed by others.
The Company's commercial printing business in Tampa, Florida operates one
eight color cold set web press and one seven color cold set web press, both
manufactured by Harris Heidelberg, and has a complete pre-press facility,
including disk to film capability. The Company prints primarily specialty
newspapers, advertiser products and house organs for others. The Company's
customers are located principally in the Tampa Bay Area and Central Florida,
but the Company also has customers in South Florida. Commercial printing
accounts for approximately seventy-four percent of the Company's revenues.
The Company's commercial printing business is seasonal, with a decline of
approximately thirty-five percent in revenues in the summer months from the
peak revenues during the winter months. The Company's revenues are generated
over a broad base of customers with no one single customer comprising over ten
percent of annual print revenues. The Company does not maintain contracts
with any of its customers for commercial printing. Commercial printing is
highly competitive in the Tampa Bay and Central Florida markets. Competition
is significantly based upon price, but quality of printing and timeliness of
delivery are also factors. There are approximately four other commercial
printers who have capacity to print color cold set work with whom the Company
competes. The Company's major competitor is Web Offset which operates two
printing plants, one in Tampa and one in Clearwater. Web Offset has over nine
cold set presses and currently dominates the commercial offset web business in
West Central Florida. The Company believes that a number of these competitors
have been in business longer and have greater financial resources than the
Company. Commercial printing opportunities can be significantly influenced by
advertising, equipment upgrades, additional capital equipment purchases and a
qualified sales force. The Company has been hampered by insufficient funds to
maintain the quality and efficiency of its equipment, an aggressive
advertising program or a qualified sales force. Even with the Company's
limited capital resources, it maintains a larger percentage of the available
customer base which can be printed on the type of equipment the Company
operates. The Company's raw materials, principally newsprint and ink, are
available from numerous suppliers. The printing industry infrequently
experiences shortages in paper supplies. The Company employs thirty-five
personnel in its commercial printing operations, including executive
personnel.
The Company maintains a small business recycling damaged roles and butt end
or dink roles of newsprint. The Company purchases these roles from other
printers, primarily major daily newspapers in Florida and South Georgia. The
salvageable newsprint is cut into sheets and sold for a variety of purposes,
primarily for packing. The unsalvageable waste is sold to paper mills for
reprocessing. This operation comprises an insignificant part of the Company's
operations.
Description of Property:
The Company's executive offices and printing facilities are located in a
40,000 square foot office/warehouse/industrial facility which the Company
owns in the historic Ybor City district of Tampa. This facility is
adequate for the Company's headquarters, commercial printing and
publishing needs.
The Company generally runs one shift five days a week, but when necessary
can increase to two or three shifts and extend printing schedules up to
seven days a week. The The Company has excess capacity on its existing
press equipment. The facility is in need of significant maintenance and
capital improvements. The property, as well as the printing presses and
certain other equipment, is subject to a foreclosure judgment in favor of
the Company's mortgage lender. The Lender is forbearing on sale of the
property due to discovery of environmental problems. Although the Company
holds a quitclaim deed to the property which could be filed at any time, it
has not filed the deed as of the date of this Prospectus. There is no
assurance of how long the Company's lender will continue forbearing. See,
"Legal Proceedings".
The Company has made a major commitment to state-of-the-art computer
hardware and publishing software. The Company owns a sixteen work station
computer network and a central file server expandable to fifty user work
stations with a 10-T based ether talk INA system. Installed technology
allows full pagination of all products with simplified transport by "zip
disk" to the printer. Color proofing and scanning equipment has been
installed which eliminates most darkroom procedures. The Company has
installed a computer hard drive array which has the capacity for storing
of years' worth of customer advertising materials for future use.
The Company's operations in suburban Washington, D.C. and in Houston,
Texas are located in leased general office space which is suitable for
The Company's needs.
Legal Proceedings:
For information about the filing by Bright Now, Inc. under Chapter 11 of
the Bankruptcy Code, see "Bankruptcy of Bright Now, Inc."
One of the Company's subsidiaries is a defendant in a suit alleging
racial discrimination in which the plaintiff seeks unspecified damages.
The suit, Holloway vs. Bright Now, Inc., Case No. 98-1246 in the U.S.
District Court for the Middle District of Florida, Tampa Division,
alleges discrimination before the Company acquired its subsidiary and
seeks unspecified damages. The Company believes the allegations have no
merit and is vigorously defending the action.
One of the Company's subsidiaries is a defendant in a foreclosure
action against the Company's printing plant and equipment based upon a
first mortgage and security interest. Judgment has been entered against
the subsidiary in NationsBank, N.A. vs. Bright Now, Inc., et al., Case
No. 98-7658 in the Hillsborough County, Florida Circuit Court. The
plaintiff has not proceeded with the foreclosure sale based upon the
Company's efforts to obtain refinancing. There is no assurance how long
the plaintiff will be willing to delay the foreclosure sale. A loss of
the Company's plant and equipment would have a materially adverse effect
on the Company's operations and financial condition.
One of the Company's subsidiaries is a defendant in a foreclosure
action against the Company's printing plant based upon a second mortgage.
The case is Second 26 Corp. vs. Bright Now, Inc., Case No. 189-0880 in
the Hillsborough County, Florida Circuit Court.
The Company's subsidiaries are defendants in the following
litigation with vendors:
Prestige Paper, Inc. and Midsouth Pulp and Paper, Inc. vs. Bright
Now, Inc., Case No. 98-3417 in the Hillsborough County, Florida Circuit
Court seeks recovery of $230,000. The Company has issued common stock in
payment of this claim and has stipulated to entry of judgment.
Kimberly-Clark Corp. vs. Bight Now, Inc., Case No. 98-4905 in the
Hillsborough County, Florida Circuit Court seeks recovery of
approximately $130,000.
AT&T Capital Leasing Services, Inc. vs. Bright Now, Inc., Case No.
98-7681 in the Hillsborough County, Florida Circuit Court seeks recovery
of approximately $35,248.
Ryder Transportation Services vs. Southern Paper and Converters,
Inc., Case No. 97-19164 in the Hillsborough County, Florida Circuit Court
sought recovery of approximately $10,000. Judgment has been entered in
favor of the plaintiff.
Unisource Worldwide, Inc. vs. Bright Now, Inc., Case No. 99-3686 in
the Hillsborough County, Florida Circuit Court seeks recovery of
approximately $14,000.
Anderson & Orcott vs. Bright Now, Inc., Case No. 98-3807 in the
Hillsborough County, Florida Circuit Court seeks recovery of
approximately $10,000.
The Company is a defendant in the following litigation with
vendors:
Tech Squared vs. Chronicle Communications, Inc., Case No. 98-SV-029
in the Grady County, Georgia Superior Court seeks recovery of
approximately $24,000.
The Tallahassee Democrat, Inc. vs. Chronicle Communications, Inc.,
Case No. 98-V-411 in the Grady County, Georgia Superior Court sought
recovery of approximately $30,000. Judgment has been entered in favor of
the plaintiff.
Larry S. Hyman vs. Chronicle Communication, Inc., Case No. 98-5547 CI 7
This action is for breach of contract in the acquisition of a printing
plant and seeks $739,371.70 in damages. The company believes it has
defense to this claim and intends to vigorously defend.
The Company has been named as the defendant in Patken Leasing
Company, Inc. vs. Chronicle Communications, Inc., Case No. 99014163 in
the Dade County, Florida Circuit Court seeks recovery of approximately
$108,000 for sums advance to Bright Now, Inc. The Company plans to move
to dismiss in that the corporate veil cannot be pierced. Bright Now,
Inc., the Company's subsidiary, will likely be named as a defendant by
the plaintiff in a subsequent suit, in the event the Company is
successful in obtaining a dismissal or summary judgment in this suit.
The Company's subsidiaries are also involved as defendants in
additional litigation with vendors, none of which exceeds a claim of
approximately $10,000. The Company's subsidiary was a defendant in
several additional suits which were resolved prior to September 30, 1998
and are reflected in the financial statements elsewhere herein.
Publications And Publishing Activities:
The Company publishes The Register, a bimonthly guide to new homes in the
Washington, D.C. metropolitan area, including Maryland and Virginia. The
Register principally serves real estate brokers and their agents. The Company
is the only supplier of new homes information to the six state Metropolitan
Regional Information System, the regional multi-list system, which covers
Washington, D.C., Maryland, and Virginia. The Company is the only supplier of
comprehensive new homes information to the real estate brokerage industry in
its market area. The Company prints The Register at its plant in Tampa. To
the Company's knowledge, there are no direct competitors with The Register.
In August 1999, the Company began publication of the first of five coupon
books planned to serve major markets within the Central Florida area. The
coupon book is a 5.5 by 8 inch format, with the first issue being twenty-four
pages and fifty thousand copies. The books are distributed free of charge at
high traffic retail location. The Company is now utilizing existing staff to
sell the coupon advertising and is printing the books on butt end rolls left
over from jobs for its commercial print customers. These practices are
expected to result in above normal gross margins. The introduction of the
books in additional markets may require addition of sales personnel, which can
also sell the Company's other printing services. The Company competes for
advertising sales in its coupon books with many products including Val-Pak
Direct Marketing Systems and all other shopper oriented print advertising to
consumers.
Internet Services:
The Company has acquired seventy percent of a development stage Internet
business operating under Gotcashback.com, Inc. That company plans to generate
revenues from home buyers and sellers who register with the company to use its
referral services real estate brokers, title insurance, moving assistance,
furniture, and mortgage services. At the closing of their real estate
transaction, the buyer or seller using Gotcashback.com will receive a rebate
on total fees and costs. Gotcashback.com, Inc., through its own subsidiaries
engaged in providing these services, earns revenues based upon its
participation in the various elements of real estate transactions. That
company expects to begin generating revenues in November 1999 and is beta
testing it's concept in the greater Washington, DC, Virginia and Maryland
markets. Gotcashback.com can be accessed at www.gotcashback.com on the World
Wide Web. That company's Web services were initiated subsequent to the fiscal
year covered by this annual report. The Company is not aware of anyone
offering services similar to Gotcashback.Com. The Company is unclear about
the future of Gotcashback.com, due to delays in obtaining funding through a
now pending private placement of that company's common stock.
Computer And Software Services:
The Company is a seller of custom-built personal computers, network
solutions, Web site design and hosting services in the Greater Houston, Texas
market area. The Company operates an e-commerce site through which it offers
36,000 computers, computer components and accessories. The business was
founded 1994 and has enjoyed profitable operations since inception. The
Company supplies custom built PC's to several Houston area community colleges
and has contracts with the Houston Area School System, as well as an active
individual customer base. The Company maintains one retail store at which it
generates revenues from walk in traffic. The Company's Web site can be
accessed at www.acionline.net. The Company's sales and services operations
were acquired subsequent to the fiscal year covered by this annual report.
The Company expects the acquisition to be treated as a pooling under generally
accepted accounting principles first reflected in its financial statements for
fiscal 1999 and earlier years. The Company competes with Dell, Gateway,
CompUSA and hundreds of other local, regional and national vendors of personal
computers, components and software.
MANAGEMENT
The names, ages and terms of office of directors and executive officers of the
Company are set forth in the following table:
Name Age All positions with Company Director since
- ---------------------------------------------------------------------------
Jackson L. Morris 55 Director, General Counsel
and Secretary 1996
John V. Whitman, Jr. 41 Director and President 1996
Each director is elected by holders of a majority of the Common Stock to
serve for a term of one year and until his successor is elected and qualified,
which is generally at the annual meeting of stockholders. Non-management
directors are paid an annual cash fee of $500 and Common Stock purchase
options for their services as directors. See, "Common Stock Purchase
Options". Officers serve at the will of the board. The Company may indemnify
directors and officers against damages which qualify, in the opinion of the
disinterested members of the board, for indemnification under Georgia law and
the Company's Bylaws. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Company pursuant to Georgia law, the Company has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Jackson L. Morris, Esq., a director and general counsel of the Company since
inception and corporate secretary since August 23, 1998, is an attorney in
private practice since 1992. He practiced law in Tampa and St. Petersburg,
Florida with the law firm of Harris, Barrett, Mann & Dew in 1991 and 1992.
Mr. Morris was a founding member of the St. Petersburg, Florida law firm of
Greene & Mastry, P.A. in 1984, practicing law with that firm until 1991 and
with its predecessor from 1982 to 1984. Mr. Morris' law practice has been
primarily in the areas of general corporate, securities and contract law. Mr.
Morris is a member of The Florida Bar, The State Bar of Georgia (inactive) and
The District of Columbia Bar. He is admitted to practice before the United
States Tax Court and Supreme Court of the United States of America. Mr.
Morris earned a B.A. degree in economics (1966) and a Juris Doctor degree
(1969) from the Emory University in Atlanta, Georgia and a L.L.M. degree in
federal taxation (1974) from Georgetown University Law Center. The U.S.
Securities and Exchange Commission has brought a civil suit against Mr. Morris
and others alleging that he sold 50,000 shares common stock in violation of
the registration requirements of the Securities Act. Mr. Morris received the
shares as compensation for services rendered in connection with a shell
company reverse merger. The suit seeks an injunction and penalty against Mr.
Morris.
John V. Whitman, Jr., is the founder, director and president of the Company
since inception. In February and March 1996, Mr. Whitman was planning for a
business which became the Company. From September 1, 1995 into February 1996,
Mr. Whitman was the President of Southwest Georgia Shoppers, Inc., a
subsidiary of Gray Communications Systems, Inc., a New York Stock Exchange
listed company, (trading symbol GCS) which had purchased the assets of
Phillips Publishing, Inc. owner of the Tallahassee Advertiser, The Add Sheet,
The South Georgia News and Shopper and The Gadsden News and Shopper. During
his brief tenure with Southwest Georgia Shoppers, Inc., Mr. Whitman was
assigned the additional responsibilities of president of the Rockdale Citizen
Publishing Company, the owner of the Gwinnett Daily Post and The Rockdale
Citizen. Mr. Whitman was the vice president and publisher of Phillips
Publishing, Inc. from October 1992 to August 1995. Mr. Whitman founded The
South Georgia News and Shopper and The Gadsden News and Shopper for Phillips
Publishing, Inc. Mr. Whitman managed thirty-eight full time and forty-three
part time employees and exercised full management and financial responsibility
for Phillips Publishing, Inc.'s operations. He also served as a consultant
and motivational speaker to other Phillips publishing divisions. For seven
months in 1992, Mr. Whitman was employed by Southeast Publishing Ventures in
the capacity of District Manager, in which he launched a new housing guide for
the Treasure Coast of Florida and turned around a new housing guide for the
Orlando, Florida market. In 1991 and 1992, Mr. Whitman was engaged in
consulting in the publishing industry and efforts to acquire a print media
company for his own account. Mr. Whitman attended Hillsborough Community
College and the University of South Florida.
Management Compensation:
Name Fiscal Year Position(s) Salary(1)
- --------------------- ----------- -------------- -----------
John V. Whitman, Jr. 1997 President $ 99,400
1998 President $ 125,000
1999 President $ 175,000
(1) Mr. Whitman has taken advances from the Company during the respective
periods. See, Note 10 to Financial Statements appearing elsewhere herein.
The following table sets forth certain information about common stock purchase
options granted to Mr. Whitman during the 1998 and 1999 fiscal years.
As % of
Number of total granted to Exercise Grant Date
Name Shares all employees price Expiry value
- ------------ ----------- ---------------- -------- ------ -----------
JV Whitman, Jr. 1,250 25% (1) 10/01/02 $.50
343,902 77.35% (2) none $.50
1,033,453 73.48 (2) none $.38
(1) The exercise price is seventy percent of the average bid and asked
quotation (or closing price) on the day prior to exercise.
(2) The exercise price is during the respective years following date of grant
is a percentage of the average bid and asked quotation (or closing price) on
the day prior to exercise, as follows: first year - 25%; second year - 30%;
third year - 40%; thereafter - 50%. This option entitles Mr. Whitman to
maintain 21.55% ownership of the Company's total issued and outstanding common
stock at any time, less an adjustment for shares sold by Mr. Whitman. The
exercise of options by Mr. Whitman and Mr. Morris results in an increase on
total issued and outstanding shares of Common Stock against which the option
percentage is then applied in the future. Mr. Whitman and Mr. Morris have
recently recognized this effect of the option formula and have agreed to
eliminate this effect in the future by the exclusion from then current issued
and outstanding shares of the shares issued to them for purposes of options
computation.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
See Item 10, above, and Note 7 to the Financial Statements included elsewhere
herein for advances made by the Company to Mr. Whitman, its President and
Chairman.
PRINCIPAL STOCKHOLDERS
The names of directors and officers and the name of each person who owns
legally and beneficially more than five percent of the Company's issued and
outstanding Common Stock at the date of this Prospectus, the address of each
such person, the number of shares which each owns and the percentage of the
Common Stock represented by such shares (assuming in each case the exercise of
Common Stock Purchase Options held by all such persons), before and after the
Offering (assuming all Shares are sold) is set forth in the following table.
All ownership is both legal and beneficial unless otherwise indicated. See,
"Selling Stockholders".
Name Number of Shares Number of Shares
Before sale of After sale of % %
Shares shares Before After
- ------------------------ ---------------- ----------------- -----------
Jackson L. Morris (1)(3)(5) 768,710 768,710 4.43 4.43
John V. Whitman, Jr. (1)(2)(4) 2,382,983 1,882,983 13.76 10.874
All directors and officers 3,151,693 2,651,693 18.19 15.304
as a group (3 persons)
(1) Messrs. Morris and Whitman's address is the address of the
Company.
(2) Number of shares and percentage does not include 2,054,256 shares which
Mr. Whitman may acquire at any time by exercise of common stock purchase
options. Mr. Whitman shares beneficial ownership of 763,760 shares with his
wife.
(3) Number of shares and percentage does not include 477,068 shares which Mr.
Morris may acquire at any time by exercise of common stock purchase options.
(4) Mr. Whitman Shares legal ownership of 3,146,743 with his wife. 3,596,743
of the shares listed above are legally owned by Mr. Whitman's children who
live in his home. Does not include 1,946,605 options which would become
effective assuming the sale of all 7,100,000 Shares offered by the company by
this prospectus
(5) Does not include 452,068 options which would become effective assuming
the sale of all 7,100,000 Shares offered by the Company by this prospectus
DESCRIPTION OF SECURITIES
The Company is authorized to issue 169,904 shares of Series A Zero Coupon
Preferred Stock ("Series A Preferred"), all of which has been issued and has
been converted into common stock prior to the date of this Prospectus. Each
share of the Series A Preferred has a par value and liquidation preference of
$.10 per share, has a redemption value of $.175233661, is not entitled to
payment of a dividend, is not entitled to vote on matters submitted to a vote
of or approval by the holders of the Common Stock and has a conversion
privilege into one share of the Company's Common Stock at the election of the
holder, the conditions to demand for redemption and election of conversion
being subject to negotiation and agreement between the Company and the holder.
Having been issued and converted, the Company does not have any Series A
preferred available for issuance in the future.
Common Stock:
The authorized Common Stock of the Company consists of thirty-five million
shares, no par value per share, which include the Shares offered by this
Prospectus. A total of 10,196,604 shares of Common Stock were outstanding at
June 30, 1999 and 7,118,963 additional shares were issued between that date
and the date of this Prospectus, for a total outstanding of 17,315,567 shares
at the date of this Prospectus. Holders of the Common Stock, which includes
the Shares, (i) have equal and ratable rights with all holders of issued and
outstanding Common Stock to dividends from funds legally available therefor,
when, as and if declared by the Board of Directors of the Company; (ii) are
entitled to share ratably with holders of issued and outstanding Common Stock
in all of the assets of the Company available for distribution to holders of
Common Stock, after distribution of the liquidation preference on the
Preferred Stock, upon liquidation, dissolution or winding up of the affairs of
the Company; (iii) do not have preemptive, subscription or conversion rights;
(iv) have no redemption or sinking fund provisions applicable thereto; and (v)
have one vote on election of each director and other matters submitted to a
vote of stockholders. All shares of Common Stock outstanding are, and those
sold pursuant to this Prospectus when issued and delivered against payment
therefore, will be, duly authorized, legally issued, fully paid and non-
assessable. Each holder of Common Stock has a preemptive right to purchase
such number of shares in any offering, which is subsequent to the offering in
which he or she acquired his or her shares, as is determined by dividing the
number of his or her shares by the number of shares issued and outstanding at
the beginning of such subsequent offering. The initial holders of the
Company's Common Stock have not exercised their preemptive rights with respect
of subsequent offerings. The holders in the second offering by the Company
may have the right to exercise their preemptive rights; except all such
holders have been afforded an opportunity to purchase shares in the third
offering and have purchased either a limited number of shares or declined to
purchase any additional shares. The Board of Directors is expected to
recommend an amendment to the Articles of Incorporation, as amended, which if
approved, will eliminate preemptive rights.
Series A Zero Coupon Preferred Stock
The Company is authorized to issue 169,904 shares of Series A Zero Coupon
Preferred Stock ("Series A Preferred"), all of which has been issued and has
been converted into common stock prior to the date of this Prospectus. Each
share of the Series A Preferred has a par value and liquidation preference of
$.10 per share, has a redemption value of $.175233661, is not entitled to
payment of a dividend, is not entitled to vote on matters submitted to a vote
of or approval by the holders of the Common Stock and has a conversion
privilege into one share of the Company's Common Stock at the election of the
holder, the conditions to demand for redemption and election of conversion
being subject to negotiation and agreement between the Company and the holder.
Having been issued and converted, the Company does not have any Series A
preferred available for issuance in the future.
Transfer Agent. The Company has engaged Atlas Stock Transfer Corporation,
Salt Lake City, Utah to act as its transfer agent and registrar for the Common
Stock.
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder who owns
less than one percent of the issued and outstanding Common Stock of the
Company and who has Shares included in this Offering. Assuming all such
Shares are sold, none of these selling stockholders will own any stock in the
Company. The total number of Shares included in this Offering by the following
Selling Stockholders is 1,312,912 Shares. The Company will not receive any
proceeds from the sale of the Common Stock by the following Selling
Stockholders.
Name of Selling Number of Shares to be
Stockholder sold in this Offering
Butler, Meaghan E.* 150,000
Butler, Michael D. * 150,000
Ecomcom, Inc. 20,000
Gambino, Charles 20,000
Gambino, Josephine 20,000
Gassner, Mary 25,000
Holly, John 100,000
Johnson, Robert H. 100,000
Nathan, Marc H. 10,000
Nathan, Michael K. 10,000
Nguyen, Long H. 152,778
Paru, Victor A. 30,000
Riker, David 10,000
Riscile, Lori ** 20,000
Robertson, Hugh 100,000
Robinson, Christina 13,667
Shibley, Jeanne 50,000
Shibley, Jeffery L 16,667
Thomas, David Reed 70,000
Trapp, Steven 25,000
Twait, Jeffrey 20,000
Watkins, J. Scott 20,000
West Florida Yachts 29,800
Whitman, Sarah E. * 150,000
*Mr. Whitman's child.
**Employee of the Company.
The following table sets forth the name of each Selling Stockholder who owns
more than one percent of the issued and outstanding Common Stock of the
Company before the Offering, the number of Shares included in the Offering
made by this Prospectus and the percentage of Common Stock the Selling
Stockholder owns before this Offering and will own after the Offering,
assuming the sale of all the Shares included in this. The total number of
Shares included in the offering by these Selling Stockholders is 5,171,260
Shares. The Company will not receive any of the proceeds from the sale of the
Common Stock by the following Selling Stockholders. The Company believes that
some or all of the following persons may have purchased additional shares of
the Company's Common Stock in the public market, which Shares may be
registered in street name and are not reflected in the following table.
Percent of Class
Name of Selling Stockholder Number of Shares Before After
Shares owned to be sold Offering Offering
Ameri-First Financial 500,000 500,000 2.887% 0.000%
Color Ink Corporation 567,800 567,800 3.279% 0.000%
Generation Capital Assoc. (1) 975,904 975,904 5.000% 0.000%
Jacob International, Inc. 500,000 200,000 2.887% 1.732%
Johnson, C. Bart 225,000 225,000 1.299% 0.000%
Lam, Michael 281,250 281,250 1.624% 0.000%
Lam, Sandra 343,750 343,750 1.985% 0.000%
Lennox, David 166,667 166,667 0.096% 0.000%
Lennox, David H. 138,889 138,889 0.080% 0.000%
Rapid Release Research 592,000 247,000 3.478% 1.992%
Riker, Ron 225,000 225,000 1.299% 0.000%
Salmon, David E.,
Irrevocable Trust* 100,000 100,000 2.021% 0.000%
Salmon, David* 250,000 250,000 2.021% 0.000%
Shunta, Joseph 200,000 200,000 1.155% 0.000%
Whitman, John V.* & Marsha B. 763,760 250,000 4.410% 2.967%
Whitman, John V. Jr.* 2,382,983 500,000 13.760% 10.87%
*Employee of the Company.
(1) Includes up to 169,904 shares to be issued upon conversion of 169,904
shares of convertible preferred stock and up to 500,000 shares to be issued
upon conversion of a convertible note. Generation Capital Associates may not
convert either the preferred stock and/or the convertible note to the extent
such conversion would result in it owning more than 5% of the outstanding
common stock.
DISTRIBUTION OF SHARES
Distribution by the Company:
The Company is offering 7,100,000 shares of its authorized but unissued
Common Stock for sale by this Prospectus in a "self underwritten" public
offering. The Company's Chairman, Mr. Whitman, will offer the 7,100,000
Shares on behalf of the Company. See, "Management". Mr. Whitman will not
receive any compensation for sales of the Shares which he may make. The
Company will rely on Rule 3(a)4-11 in that Mr. Whitman has never been either a
registered securities broker-dealer or an affiliate or associated person
thereof. The Company will receive the net proceeds from the sale of the
7,100,000 Shares. There is no assurance the Company will be able sell all or
any of these Shares. The Shares offered by the Company are expected to be
sold in negotiated transactions to investors.
In sales to investors the price at which the Company sells the Shares is
expected to be related to the bid and asked quotations for the Common Stock on
the OTC Bulletin Board at the date of such sale.
The Company may also issue Shares to creditors in payment of the Company's
liabilities. The Company does not have agreements with any of its creditors
to accept Shares in payment of amounts due to them. There is no assurance the
Company will be able to pay any of its debts with the Shares. The value at
which any creditor may accept Shares in payment of amounts due is expected to
be negotiated between the Company and the individual creditor and is expected
to be related to the bid and asked quotations for the Common Stock on the OTC
Bulletin Board at the date of such acceptance.
Distribution by Selling Stockholders:
The Selling Stockholders are offering 5,984,172 Shares for their own
accounts. The Company has prepared the registration statement and is paying
the costs of the registration statement of which this Prospectus is a part.
The Company will not receive any proceeds from the sale of the Common Stock by
the Selling Stockholders. The Company is solely responsible for the content
of the registration statement and of this Prospectus. The Company has not
engaged an underwriter for the Offering made by the Selling Stockholders. The
Selling Stockholders have advised the Company that none of them have engaged
an underwriter for the Offering. Generally, the Company expects the
individual Selling Stockholders to place their respective Shares in their
individual accounts at their own securities brokers and request the entry of
sell orders against their stock positions.
The Selling Stockholder may sell the Shares in open market or block
transactions or otherwise in accordance with the rules of the OTC Bulletin
Board, or in private transactions, at prices related to the prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling Shares to or through broker-dealers, and such broker-
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders for whom such broker-dealers may act
as agent or to whom they sell as principal or both. Upon any sale of Shares
offered hereby, the Selling Stockholders and participating broker-dealers or
selling agents may be deemed to be "underwriters" as that term is defined in
the Securities Act, in which event any discounts, concessions or commissions
they receive, which are not expected to exceed those customary in the types of
transactions involved, or any profit on resales of the Shares by them, may be
deemed to be underwriting commissions or discounts under the Securities Act.
Any Selling Stockholder or any affiliate of a Selling Stockholder or any
Selling Stockholders who are acting in concert may violate Regulation M
promulgated by the U.S. Securities and Exchange Commission pursuant to the
Securities Exchange of Act of 1934, as amended, in the event any such person,
directly or indirectly, places a bid to purchase, purchases, or attempts to
induce another person to bid for or purchase shares of the Common Stock in the
public market before the time such Selling Stockholder or all the Selling
Stockholders who are acting in concert, as the case may be, have sold all of
their shares of Common Stock which are covered by this Prospectus.
Accordingly, no Selling Stockholder and no affiliate of a Selling Stockholder
and no Selling Stockholders who are acting in concert should place bids for
the purchase of, purchase or attempts to induce another person to bid for or
purchase shares of the Common Stock in the public market for the Common Stock,
in the event a public market develops, until such person has sold all of his
shares covered by this Prospectus. Any person who, directly or indirectly,
bids for or effects any purchase of the Common stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock (known as
"stabilizing"), which bid or purchase does not comply with Regulation M, will
be in violation of the regulation. Furthermore, no stabilizing is permitted at
a price that the person stabilizing knows or has reason to know does not
comply with Regulation M or which is the result of activity that is
fraudulent, manipulative, or deceptive under the federal securities laws and
regulations.
Pursuant to the provisions under the Securities Exchange Act of 1934, as
amended, ("Exchange Act") and the rules and regulations thereunder, any person
engaged in a distribution of the Shares offered by this Prospectus may not
simultaneously engage in market making activities with respect to the Shares
during the applicable "cooling off" period prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder including, without limitation, Regulation
M, which provisions may limit the timing of purchases and sales of Shares by
the Selling Stockholders.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market quotations:
The National Association of Securities Dealers, Inc, quotes the Company's
Common Stock under the stock symbol "CRNC" on the OTC Bulletin Board. The
following table sets forth the approximate high and low bid quotations for the
Company's Common Stock for each calendar quarter during the twelve months
ended September 30, 1999. These quotations are inter-dealer quotations
without retail markup, markdown or commissions and may not represent actual
transactions.
Quarter ended High Bid Low Bid
December 31, 1998 $.50 $.50
March 31, 1999 $.875 $.875
June 30, 1999 $.29 $.29
September 30, 1999 $.46 $.33
The high and low bid quotations for the Company's Common Stock on December 7,
1999 were $.16 and $.17 and the closing price on that date for the Company's
Common Stock on the OTC Bulletin Board was $.22
Number of stockholders:
At September 30, 1999, the Company had 200 stockholders of record and as of
June 30, 1999, the company had an estimated 446 stockholders with Shares held
in brokerage accounts ("street name").
Dividends:
Dividends on the Common Stock can be paid lawfully only out of current and
retained earnings and surplus of the Company, when, as and if declared by the
Board of Directors. The Company has not declared or paid any dividends on the
Common Stock or the Preferred Stock and there is no assurance dividends will
be paid in the foreseeable future. The payment of dividends in the future
rests within the discretion of its Board of Directors and will depend, among
other things, upon the Company's earnings, its capital requirements and its
financial condition, as well as other factors which the board of directors
deems relevant. The Company does not expect to pay cash dividends within the
next five years based upon its plan to invest its profits, if any, in
expansion of the Company's shopper products and community news products.
SHARES AVAILABLE FOR FUTURE SALE
Sale of a substantial number of additional shares of Common Stock into the
public trading market following the Offering could adversely affect the
prevailing market prices for the Common Stock, as a result of an increased
supply in the number of shares available for trading.
Following completion of this Offering, assuming the sale of all the Shares
offered by the Company, the Company will have outstanding an aggregate of
24,915,567 shares of Common Stock. In addition, if all the outstanding Common
Stock Purchase Options were to be exercised, totaling 2,531,324 shares of
Common Stock, the Company would have a total of 27,446,891 shares issued and
outstanding.
Of the total shares which would be outstanding, assuming the sale of all the
Shares offered by the Company pursuant to this Prospectus and exercise of all
outstanding common stock purchase options, 2,531,324 of those shares are
subject to the requirements of Rule 144 by virtue of being either issued
within the last twelve months in a transaction not involving a public offering
(a "restricted security") or being owned by "affiliates" of the Company and
not being included in a registration statement for resale by those affiliates.
In general under Rule 144 as currently in effect, a person who is an affiliate
of the Company or has owned a "restricted security" for more than twelve
months is entitled to sell in "broker's transactions" or to market makers,
within any three month period, a number of shares that does not exceed the
greater of (i) one percent of the then issued and outstanding shares of Common
Stock (274,468 shares, assuming the sale by the Company of the Shares offered
hereby) or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with the Commission
with respect to the proposed sale (68,543 shares, at the date of this
Prospectus). Sales under Rule 144 and sales by affiliates are subject to the
filing of a Form 144 with respect to such sale and certain other limitations
and restrictions. The Company may, at any time, file a registration statement
covering shares held by the Company's affiliates and shares which are a
restricted security, in which event the holder thereof would be able to
immediately sell such shares into the public trading market upon the effective
date of such registration statement.
INTEREST OF COUNSEL
The Company will rely on an opinion given by Jackson L. Morris, Esq.,
Tampa, Florida, as to the legality of the Shares. Mr. Morris is a director of
the Company and the holder of 768,710 shares of the Company's Common Stock,
none of which are offered for sale by this Prospectus, and Common Stock
Purchase Options to acquire 477,068 shares at the date hereof. See
"Management Compensation-Common Stock Purchase Options" and "Principal
Stockholders".
EXPERTS
The Company's financial statements at and for the period ended September 30,
1998 and 1997 included in this Prospectus and the related Registration
Statement have been audited by BELLA, HERMIDA, GILLMAN, HANCOCK & MUELLER,
independent certified public accountants, as stated in their report appearing
herein, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, ("Exchange Act") and, in accordance
therewith, files reports and other information with the U.S. Securities and
Exchange Commission ("Commission") in Washington, D.C. pursuant to Section
15(d) of the Exchange Act. These reports and other information may be
inspected without charge at the principal office of the Commission, at
Judiciary Plaza, 450 Fifth Street N.W., Room 1024, Washington, D.C. 20549, and
at the Northeast Regional Office of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10049. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street N.W., Room 1024, Washington, D.C. 20549, upon payment of prescribed
fees. The Commission maintains a web site that contains such material filed
electronically with the Commission at http://www.sec.gov. The Commission's
web site can also be accessed through the Company's web site at
http://www.chronicleinc.com.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditor's Report on Financial Statements
Balance Sheets at June 30, 1999 (Unaudited) And September 30, 1998 and 1997
(Audited)
Statements of Operations for at June 30, 1999 (Unaudited) And September 30,
1998 and 1997 (Audited)
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
<PAGE>
August 6, 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Chronicle Communications, Inc.
We have audited the accompanying consolidated balance sheets of Chronicle
Communications, Inc., (a Georgia Corporation) and subsidiaries as of
September 30, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years
then ended. 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.
The financial statements as of September 30, 1997, and for the year then
ended have been restated to reflect the pooling of interests with Bright
Now, Inc. as described in Note 3 to the consolidated financial
statements. We did not audit the individual financial statements of
Chronicle Communications, Inc., which statements reflect total assets of
$797,020 as of September 30, 1997 and total revenues of $645,051 for the
year then ended. Those statements were audited by other auditors whose
report, dated February 20, 1998, on those statements included an
explanatory paragraph describing conditions that raised substantial doubt
about the Company's ability to continue as a going concern. Our opinion,
insofar as it relates to the amounts included for the individual
financial statements of Chronicle Communications, Inc. as of September
30, 1997, and for the year ended, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial
statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Chronicle
Communications, Inc. and subsidiaries as of September 30, 1998 and 1997,
and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2, the
Company's significant operating losses, negative cash flows and debt
position raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Respectfully submitted,
/s/ BELLA, HERMIDA, GILLMAN, HANCOCK & MUELLER
Certified Public Accountants
Plant City, Florida
<PAGE>
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997, AND
THE (UNAUDITED) NINE MONTHS ENDED
JUNE 30, 1999 AND 1998
ASSETS
September June 30
1998 1997 1999 1998
Unaudited
-------- --------- -------- -------
CURRENT ASSETS:
Cash $ 14,457 $ 1,455 $ 6,672 $3,451
Accounts Receivable 123,055 312,806 120,105 168,938
Inventory 85,297 101,384 45,280 60,078
Other Current Assets 22,144 89,140 21,902
Advances to Stockholders,
Current Portion 115,000
-------- --------
Total Current Assets 222,809 552,789 261,197 254,369
PROPERTY AND EQUIPMENT,
Net of Accumulated
Depreciation of
$504,453 (1998) and
$338,344 (1997) 1,496,990 1,662,512 1,369,955 1,563,427
ADVANCES TO STOCKHOLDERS 160,021 200,075 562,280 253,516
OTHER ASSETS 6,417 12,764 267,453 -
---------- --------- --------- ----------
TOTAL ASSETS $1,886,237 $2,428,140 $2,460,885 $2,071,312
========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank Overdraft $ 5,014 $ 28,613 $ 195,880 $ 25,159
Short-Term Notes 304,270 181,897 128,867 62,000
Current Maturities of
Long-Term Debt 1,030,331 180,790 1,176,485 928,916
Accounts Payable 1,084,637 852,150 868,845 1,036,384
Accrued Payroll
Liabilities 324,967 204,981 353,329 209,554
Other Accrued Liabilities 298,238 72,554 497,221 227,875
----------- ---------- -------- --------
Total Current
Liabilities 3,047,457 1,520,985 3,220,628 2,489,888
LONG-TERM LIABILITIES 849,715 140,011 108,735
----------- ---------- --------- ---------
Total Liabilities 3,047,457 2,370,700 3,360,639 2,598,623
STOCKHOLDERS' EQUITY:
Common Stock, No Par
Value, 35,000,000
Shares Authorized,
3,367,785 and 2,388,708
Shares Issued and
Outstanding at
September 30, 1998
and 1997, respectively 2,515,366 1,920,449 4,992,088 2,323,412
Accumulated Deficit (3,676,586) (1,863,009) (5,891,842) (2,850,723)
Total Stockholders'
Equity (1,161,220) 57,440 (899,754) (527,311)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,886,237 $2,428,140 $2,460,885 $2,071,312
=========== =========== ========== ==========
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997, AND
THE (UNAUDITED) NINE MONTHS ENDED
JUNE 30, 1999 AND 1998
For the nine
months ended
June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
SALES $1,748,026 $2,421,931 1,427,138 1,440,915
COST OF SALES 1,691,021 2,198,196 1,434,454 1,459,984
--------- --------- --------- ---------
GROSS PROFIT 57,005 223,735 (7,316) (19,069)
OPERATING EXPENSES:
General and
Administrative 1,567,748 1,559,489 2,040,532 785,463
Interest 302,834 180,749 167,409 183,182
--------- --------- --------- ---------
Total Operating
Expenses 1,870,582 1,740,238 2,207,941 968,645
LOSS FROM OPERATIONS (1,813,577) (1,516,503) (2,215,256) (987,714)
NET GAIN ON SALE OF ASSETS 88,992
--------- ---------
NET LOSS $(1,813,577) $(1,427,511) (2,215,256) (987,714)
========= ========= =========== =========
NET LOSS PER
COMMON SHARE, BASIC $( 0.70) $( 0.68) $( 0.25) $( 0.38)
WEIGHTED-AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 2,589,632 2,113,131 8,701,964 2,589,632
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Common Stock Preferred Stock Accumulated
Shares Amount Shares Amount Deficit
Balance, September
30, 1996, as
Previously
Reported 1,149,750 $158,721 $ $(115,338)
Adjustment for
Pooling of
Interests 640,000 628,625 (320,160)
--------- --------- -------- -------- -----------
Balance, October,
1996 (as Restated) 1,789,750 787,346 - - (435,498)
Common Stock Issued:
For Cash, Net of
Offering Costs
of $181,900 570,083 977,759
For Consulting
Services 2,500 2,500
For Payment of
Directors' Fees 8,750 17,500
For Employee Bonus 17,625 35,944
Preferred Stock Issued for Services 7,500,000 7,500
Surrender and Cancellation of
Preferred Stock Issued (7,500,000) (7,500)
Contribution of Services 99,400
Net Loss for the Year (1,427,511)
-------- -------- ---------- -------- -----------
Balance, September
30, 1997 2,388,708 1,920,449 - - (1,863,009)
Common Stock Issued:
For Cash, Net of
Offering Costs
of $77,451 360,241 283,620
For Commissions
Payable 7,720 22,398
For Interest
on Loans 10,760 16,299
For Employee
Bonuses 3,000 6,600
For Consulting
Services 577,500 255,000
For Debt Repayment 19,856 11,000
Net Loss for the Year (1,813,577)
------- -------- ---------- ------- -----------
Balance,
September 30, 1998 3,367,785 $2,515,366 - $ - $(3,676,586)
---------- -------- ---------- ------- -----------
Common Stock Issued:
(Un-Audited)
For Cash 2,209,992 576,333
For Compensation 2,263,585 1,012,160
For Expense 371,408 117,279
For Receivables 20,000 10,000
For Consulting
Services 932,835 297,274
For Debt Repayment 502,938 276,289
For Officer's Loans 403,061 173,325
For Acquisitions 125,000 14,062
Net Loss for the
Nine Months
(un-audited) $(2,215,256)
---------- -------- ---------- ------- -----------
Balance, June
30, 1999
(un-audited) $ 10,196,604 $4,992,088 $(5,891,842)
========== ========== ========== ======= ===========
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997, AND
THE (UNAUDITED) NINE MONTHS ENDED
JUNE 30, 1999 AND 1998
For the nine
months ended
1998 1997 1999 1998
---- ---- ---- ----
OPERATING ACTIVITIES:
Net Loss $(1,813,577) $(1,427,511) $(2,215,256) $(987,714)
Adjustments to
Reconcile Net Loss to
Net Cash Used in
Operating Activities:
Depreciation and
Amortization 172,456 161,039 127,035 99,085
Gain on the Sale of Assets ( 88,992)
Expenses Paid with Stock 300,297 38,444
Contributed Services 99,400 106,750
Common stock issued for operations 1,658,112 30,000
Increase or Decrease in:
Accounts Receivable 189,751 24,122 2,950 143,868
Inventory 16,087 2,411 40,017 41,306
Other Assets 22,144 70,101 (261,113) 13,006
Accounts Payable 232,487 396,612 (215,792) 184,234
Accrued Payroll Liabilities 28,362 4,573
Accrued Liabilities 345,670 212,129 198,984 155,321
---------- ------------ --------- -------
Net Cash Used in
Operating Activities (534,685) (512,245) (636,701) (209,571)
---------- ------------ ------- ---------
INVESTING ACTIVITIES:
Increase in Investments (50,000) -
Proceeds from Sale
of Assets 119,620
Purchase of Property
and Equipment ( 586) ( 556,261)
---------- ------------
Net Cash Used in
Investing Activities ( 586) ( 436,641) (50,000) -
---------- ------------ -------- -------
FINANCING ACTIVITIES:
Bank Overdraft ( 23,599) ( 26,247) 190,866 (3,454)
Proceeds from
Issuance of Debt 174,004 849,257 164,263 62,000
Principal Payments of Debt ( 40,805) ( 652,825) (2,649) (147,451)
Advances to Stockholders 155,053 ( 215,952) (228,935) 61,559
Proceeds from
Issuance of Stock 283,620 977,759 555,371 238,913
---------- ------------ ------- ---------
Net Cash Provided
by Financing Activities 548,273 931,992 678,916 211,567
---------- ------------ ------- ---------
NET INCREASE (DECREASE)
IN CASH 13,002 ( 16,894) (7,785) 1,996
---------- ----------- -------- --------
CASH AT BEGINNING OF YEAR 1,455 18,349 14,457 1,455
---------- ----------- -------- --------
CASH AT END OF YEAR $ 14,457 $ 1,455 $ 6,672 $ 3,451
========== ========== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid during
the Year for Interest $ 29,172 $ 150,517
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Stock Issued for
Stockholder's advances $ 173,324
Stock issued for investments $ 39,063
Stock Issued for
Payment of Directors' Fees $ 0 $ $17,500
Equipment Purchased
with Notes $ 0 $ 86,799
Stock Issued for
Debt Repayment $11,000 $ 0 $ 50,582 $ 11,000
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 1:ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On September 30, 1998, the Company acquired Bright Now, Inc. and
subsidiaries in a business combination accounted for as a pooling of
interests. The accompanying financial statements for 1998 are based on
the assumption that the companies were combined for a full year, and the
financial statements of the prior year have been restated to give effect
to the combination. The Company published various newspaper and shopper
editions in Georgia during the period covered by the financial statements
and operates a commercial printing plant in Tampa, Florida. Subsequent
to year end, the Company relocated all its publishing operations to Tampa
and ceased publication of its Georgia editions.
Use of 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 reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassification of Financial Statement Presentation
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
Cash Equivalents
For purposes of financial statement presentation, the Company considers
all highly liquid instruments with maturity of three months or less to be
cash equivalents. The Company holds no such instruments at September 30,
1998 and 1997.
Accounts Receivable
The Company considers all accounts receivable to be collectible;
therefore, no allowance for uncollectible accounts has been recorded.
Inventory
Inventories are recorded at the lower of cost (first-in, first-out) or
market. Inventories consist principally of paper and other printing
supplies.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over estimated useful lives ranging from 5 to 40
years. Expenditures for maintenance and repairs are charged to expense
as incurred. Major improvements are capitalized.
Deferred Financing Costs
Cost connected with obtaining and executing debt agreements are
capitalized and amortized on the straight-line basis over the term of the
related debt. Amortization expense charged to operations for the years
ended September 30, 1998 and 1997 amounted to $6,347 and $19,476,
respectively.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 1:ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Deferred Tax Assets and Liabilities
Deferred income taxes are the result of the expected future tax
consequences of temporary differences between the financial statement and
tax bases of assets and liabilities. A valuation allowance is provided
against deferred income tax assets in circumstances where management
believes recoverability of a portion of the asset is not reasonably
assured.
Earnings (Loss) per Share
Basic net earnings (loss) per common share is computed by dividing the
net earnings (loss) by the weighted-average number of common shares
outstanding. Common stock equivalents have not been included in the
computation for these periods because their inclusion would be
antidilutive. Diluted earnings per share are computed to include
potential dilution from the exercise or conversion of securities, such as
stock options or warrants, into common stock. Because the effect of
including these securities is antidilutive, they have been excluded from
the computation and the diluted loss per share is equal to the basic loss
per share.
Stock-Based Compensation
The Company accounts for stock issued to employees as provided in
Accounting Principles Board Opinion No. 25, 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 and
provides pro forma disclosure of the application of Statement of
Financial Accounting Standards No. 123.
NOTE 2:GOING CONCERN
The Company incurred operating losses of $1,813,577 and $1,516,503 for
the years ended September 30, 1998 and 1997, respectively. At September
30, 1998, current liabilities exceeded current assets by $2,824,648, and
the Company is in default on substantially all of its debt (Note 5).
Additionally, major vendors have placed the Company on a COD basis for
future purchases.
These factors, combined with the loss of revenues associated with the
withdrawal from the Georgia market, 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 classifications
of liabilities that might be necessary in the event the Company cannot
continue in existence.
During 1998 and 1997, the Company funded much of its working capital
needs through the sale of its common stock. Approximately $1,570,000 in
capital was raised in connection with these stock sales. The Company's
continued ability to operate is dependent on its ability to either
refinance its existing debt or raise additional capital.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 3:ACQUISITION
On September 30, 1998, the Company acquired Bright Now, Inc. and
subsidiaries in a business combination accounted for as a pooling of
interests. Bright Now, Inc., which operates a commercial printing press
plant, became a wholly owned subsidiary through the exchange of 640,000
shares of the Company's common stock for all of the outstanding stock of
Bright Now, Inc. and subsidiaries. In accordance with generally accepted
accounting principles, the financial statements for 1998 are presented as
if the companies were combined for the entire year, and the prior year's
financial statements have been restated for the effects of the
combination.
Summarized results of operations of the separate companies for the period
from October 1, 1997 through September 30, 1998, the date of acquisition,
are as follows:
Chronicle
Communications, Inc. Bright Now, Inc.
-------------------- ----------------
Net Sales $ 456,246 $ 1,291,780
========== ===========
Net Loss $ 1,363,223 $ 450,354
========== ===========
The summarized assets and liabilities of the separate companies on the
date of acquisition were as follows:
Chronicle
Communications, Inc. Bright Now, Inc.
-------------------- ----------------
Current Assets $ 19,676 $ 203,133
Property and Equipment 325,855 1,171,135
Other Assets 160,946 5,492
----------- ------------
Total Assets $ 506,477 $ 1,379,760
=========== ============
Liabilities $ 970,680 $ 2,076,777
=========== ============
The following is a reconciliation of net sales and net loss as previously
reported for 1997 with restated amounts:
Year Ended
September 30, 1997
------------------
Net Sales:
As previously reported $ 645,051
Bright Now, Inc. 1,776,880
-----------
As Restated $ 2,421,931
===========
Net Loss:
As previously reported $( 872,383)
Bright Now, Inc. ( 555,128)
As Restated $( 1,427,511)
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 4:PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less
accumulated depreciation:
1998 1997
---- ----
Land $ 30,875 $ 30,875
Building and Improvements 721,471 721,471
Machinery and Equipment 1,249,097 1,248,510
----------- -----------
Total 2,001,443 2,000,856
Less, Accumulated Depreciation 504,453 338,344
----------- -----------
Net Property and Equipment $ 1,496,990 $ 1,662,512
=========== ===========
Depreciation expense for the years ended September 30, 1998 and 1997 was
$166,109 and $141,563, respectively.
NOTE 5:NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
1998 1997
---- ----
Mortgage note payable; bearing
interest at 8%; monthly payments
of principal and interest of $1,142;
in default, entire principal plus
interest and fees due immediately;
secured by mortgage on real estate;
guaranteed by the Company's president
and majority stockholder $ 115,965 $ 118,832
Note payable to bank; bearing
interest at 11%; in default,
entire unpaid balance of principal and
interest due immediately; secured by
equipment, trade accounts receivable, and
42,500 shares of the Company's common
stock; co-signed by four stockholders 56,927 54,887
Note payable to stockholder; bearing
interest at 11%; in default, entire
unpaid balance of principal and interest
due immediately; secured by all of the
property of the Company 25,000 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 14,000
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 5:NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
1998 1997
---- ----
Note payable to bank; bearing
interest at 10.95%; monthly payments
of $4,231; in default with entire
principal, plus interest, costs and
fees due immediately; secured by mortgage
on real estate 404,280 404,901
Note payable to bank; bearing
interest at bank prime plus 2.5%;
monthly payments of $5,609; in default
with entire principal, plus interest,
costs and fees due immediately; secured
by blanket lien on all business assets 237,355 247,230
Note payable to financial institution;
bearing interest at 18%; monthly
payments of $3,849; in default with
entire principal, interest, costs and
fees due immediately; secured by lien
on equipment and judgment
entered March 19, 1998 171,000 122,342
Note payable to vendor; payable at a minimum
of $1,500 monthly by applying a portion of
purchases over 36 months; secured by equipment 5,804 43,313
---------- -----------
Total 1,030,331 1,030,505
Less, Current Maturities 1,030,331 180,790
---------- -----------
Net Long-Term Debt $ 0 $ 849,715
=========== ===========
NOTE 6:INCOME TAXES
The Company has tax loss carryforwards of approximately $3,377,866 that
may be applied against future taxable income. These losses create a
deferred tax asset at September 30, 1998 and 1997. Due to the
uncertainty of the Company's realization of this benefit, management has
established a valuation allowance equal to the total amount of the
deferred tax assets.
1998 1997
---- ----
Loss Carryforward $ 612,208 $ 320,509
Less, Valuation Allowance 612,208 320,509
--------- ---------
Net Deferred Tax Assets $ 0 $ 0
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 6:INCOME TAXES (CONTINUED)
The loss carryforwards expire as follows:
Year of Expiration Amount
------------------ ------
2011 $ 68,400
2012 1,385,735
2013 1,923,731
----------
$ 3,377,866
==========
NOTE 7:RELATED PARTY TRANSACTIONS
The Company has made advances to its president and majority stockholder.
These advances have no specific terms, are non-interest bearing, and are
unsecured. The balances of these advances, less the amounts repaid, are
as follows:
1998 1997
---- ----
Advances to Stockholders $ 444,021 $ 315,075
Less, Amount Repaid 284,000
Net Advances to Stockholders $ 160,021 $ 315,075
=========== ==========
NOTE 8:STOCK OPTIONS
The Company issues stock options to its officers and directors as
compensation for their services. The Company has elected to account for
these stock options using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation expense is
measured as the excess of the quoted market price of the stock over the
option price on the measurement date and charged to the period in which
the related services are performed. Compensation charged to operations
amounted to $36,579 and $0 for the years ended September 30, 1998 and
1997, respectively.
FASB Statement No. 123 requires pro forma disclosure of information
regarding net income and earnings per share determined as if the Company
has accounted for these stock options using the fair value method of that
Statement. The pro forma information for September 30, 1998 and
September 30, 1997 is as follows:
1998 1997
---- ----
Pro Forma Net Loss $ 1,823,473 $ 1,440,142
=========== ===========
Pro Forma Net Loss per Common Share $ 0.70 $ .068
=========== ===========
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 8:STOCK OPTIONS (CONTINUED)
The estimated fair value of these stock options was calculated using the
Black-Scholes option pricing model. The weighted average fair value of
the options at their grant date was $.12 at September 30, 1998 and $.21
at September 30, 1997. The following summarizes the weighted assumptions
used in the model:
1998 1997
---- ----
Risk-Free Interest Rate 5.00% 5.84%
Dividend Yield 0 0
Volatility Factor of Expected Market Price 3.22 -
Weighted-Average Expected Life 1 3.25
A summary of the Company's stock option activity and related information
is as follows:
1998 1997
------------------------ ------------------------
Weighted-Average Weighted-Average
Exercise Price Exercise Price
Options Per Share Options Per Share
Outstanding, October 1 5,000 $ .03 $
Granted 390,094 .03 5,000 .03
Exercised
Canceled/Expired ( 5,000) .03
--------- ------ ------- --------
Outstanding,
September 30 390,094 $ .03 5,000 $ .03
All shares outstanding at September 30, 1998 are exercisable at prices
ranging from $.01 to $.06 with estimated remaining lives of less than one
year.
NOTE 9: EQUITY
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. During the year ended September 30, 1997, the shares were issued
to the Company's president at par value. These shares were surrendered
to the Company on September 29, 1997 and canceled by the Board.
On November 18, 1997, the Company approved a one-to-two reverse common
stock split. On July 1, 1998, the Company approved a one-to-four reverse
common stock split. All references to number of shares of common stock
in the accompanying financial statements have been restated to reflect
these transactions.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 10:COMMITMENTS AND CONTINGENCIES
The Company has been involved in litigation resulting from its default on
a bank loan secured by a mortgage on the property on which its plant is
currently operating. As a result of an order resulting from the
plaintiff's motion for final judgment, the court has scheduled
foreclosure sale of the property. The Company has been successful in
postponing the foreclosure while it seeks financing from other sources.
The Company is also a defendant in litigation with numerous other
creditors resulting from the Company's default on debt obligations. Some
of these obligations are secured by the Company's assets. To the extent
the Company is unable to cure these defaults, it may be obligated to
surrender operating assets to satisfy creditors. No estimate of the
amount of resulting loss can be made.
The Company leased part of its operating facilities and various office
equipment under operating leases with terms of less than one year. Rent
expense for these leases amounted to $38,679 for the year ended September
30, 1998 and $45,644 for the year ended September 30, 1997.
NOTE 11:SHORT-TERM DEBT
Short-Term Debt consists of the following:
1998 1997
---- ----
Line of credit payable to bank,
unsecured, bearing interest at bank
prime plus 2.5%,in default entire
principal plus interest,costs and fees
immediately due. $ 25,000 $ 25,000
Note payable to individual, secured by
mortgage on real estate, bearing
interest at 10%, entire principal,
plus interest, in default
and immediately due 46,245 46,245
Note payable to individual, unsecured,
bearing interest at 11%, in default
with entire principal, plus interest,
in default and immediately due 25,000 25,000
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 11: SHORT-TERM DEBT (CONTINUED)
1998 1997
---- ----
Note payable to individual, unsecured,
bearing interest at 11% with entire
principal, plus interest, in default
and immediately due 12,500
Loans payable to individuals,
unsecured, bearing interest at
various rates, with various
repayment terms 195,525 85,652
--------- ---------
$304,270 $181,897
NOTE 12:CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash equivalents and
unsecured trade receivables. The Company's cash equivalents are
maintained with financial institutions located in Florida and Georgia.
The Company holds no cash equivalent in excess of federally insured
limits. The Company grants credit to customers, substantially all of
whom are located in Florida and Georgia. The Company's ability to
collect these receivables is dependent upon economic conditions in
Florida and Georgia and the financial condition of its customers.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
NOTE 13:SUBSEQUENT EVENTS
On May 12, 1999, the board of Directors authorized the Company to issue up to
7,750 shares of preferred stock at a par value of %5.48 per share, redeemable
by the Company on demand for $9.67 per share and convertable at the election
of the holder into 226 shares of common stock. The preferred stock issue is
not eligible for payment of dividends.
Subsequent to September 30, 1998, the Company issued an additional 12,881,414
shares of common stock, including approximately 10,800,000 restricted shares,
for $7,204,610. The shares issued include 3,375,000 common shares for
acquisitions in the amount of $1,534,313 and 9,506,414 common shares for
general corporate purposes in the amount of $3,154,931.
On August 19, 1999, the Company agreed to acquire Americom Computers, Inc.
for 3,125,000 shares of the Company's common stock valued at $1,500,000. The
results of operations of Americom Computers, Inc. will be included with the
result of operations of the Company from the date of acquisition. Assuming
the acquisition had occured on October 1, 1997, the Company's net sales, net
loss, and loss per share for the year ended September 30, 1998 would have
been $3017,704, $1,900,859 and $.33, respectively.
II--INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant may indemnify a director and must indemnify an officer who is
made party to a proceeding because he is or was a director or officer against
liability incurred in the proceeding if he acted in a manner he believed in
good faith to in or not opposed to the best interests of the Registrant and,
in the case of any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. A director or officer's conduct with respect to an
employee benefit plan for a purpose he believed in good faith to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirements of Georgia law regarding indemnification. The
Registrant may not indemnify a director or an officer in connection with a
proceeding by or in the right of the Registrant in which the director or
officer was adjudged liable to the Registrant or in connection with any other
proceeding in which the director or officer was adjudged liable on the basis
that personal benefit was improperly received by him. Indemnification in a
proceeding by or in the right of the Registrant is limited to reasonable
expenses incurred in connection with the proceeding. To the extent a director
or officer is successful on the merits or otherwise in the defense of any
proceeding to which was a party, or in defense of any claim, issue or matter
therein, because he is or was a director of the Registrant, the Registrant
must indemnify the director or officer against reasonable expenses incurred by
him in connection with the proceeding. The Registrant may pay or reimburse
the reasonable expenses incurred by a director or officer in advance of final
disposition of a proceeding, provided the director furnishes the Registrant
with written affirmation of his good faith and a written undertaking to repay
any advances if it is ultimately determined that he is not entitled to
indemnification. The Board or special legal counsel must make a determination
in each case of indemnification of a director, but not of an officer, that
indemnification is permissible in the circumstances because the director has
met the required standard of conduct.
Article XI of the Registrant's Bylaws also contain provisions for
indemnification of directors and officers. See, Exhibit 3.2.
Item 25. Other Expenses of Issuance and Distribution.
Registration fees:
Federal $ 780.00
NASD $ 780.51
Printing $ 500.00
Accounting $3,000.00
------------
Total: $5,744.89
===========
Legal counsel is a director and secretary of the Registrant and is not being
paid any cash fee for preparation of this Registration Statement, prior
registration statements or reports filed under the Securities Exchange Act of
1934, as amended, for other legal services or for services as director and
secretary. In recognition of such services, however, the Registrant has
granted to its legal counsel certain common stock purchase options which legal
counsel exercises from time to time to offset the amount of his fees in
general. See, "Management Compensation-Common Stock Purchase Options" in the
Prospectus included elsewhere in this Registration Statement. The Registrant
is not paying any engraving costs or transfer agent's fees specifically for
the offering covered by this Registration Statement.
Item 26. Recent Sales of Unregistered Securities.
The following information covers the Registrant's unregistered sales of
securities within the three year period ending on September 30, 1999 and the
interim period subsequent thereto.
First Offering:
(a) Dates of offering-September 20, 1996 to May 30, 1997
Securities sold-Common Stock
Amount sold- 454,428 shares as adjusted for stock splits
(b) Granted as bonuses to five employees of the Registrant, sold for cash to
one employee, sold for cash to eighty-three 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 sold for
services to eleven consultants.
(c) $7,100 value of employee bonuses, $555,091 sold for cash and $170,336
value for consulting services in connection with the sale of common stock.
Total cash and value of all stock issued: $822,727
(d) Registrant relies upon Section 3(b) of the Securities Act of 1933 and
Rule 504 promulgated thereunder in that the offering did not exceed $1,000,000
(including securities sold in the six month period preceding the offering in
reliance upon Section 3(b), there having been none).
Second Offering:
(a) Date of offering-August 1, 1997
Securities sold-Convertible, Voting Preferred Stock
Amount sold-7,500,000 shares
(b) Sold to the founder, his wife and both are executive officers, one of
whom is a director (two persons)
(c) $7,500 sold for cash pursuant to subscription receivable from related
party.
(d) The Registrant relies upon Section 4(2) of the Securities Act of 1933 in
that the offering was made by an issuer and did not involve a public offering
due to the investors limited to persons who are the cofounders, directors and
executive officers of the Registrant. The Registrant asserts that the
offering Convertible, Voting Preferred Stock to the founder and his wife, both
of whom are executive officers (2 persons) for a special purpose should not be
integrated with the offering of common stock being made under Rule 504 because
of the difference in the type of securities, the difference in price per
share, the different purpose for which it was issued and possible other
factors. The 7,500,000 shares of Convertible, Voting Preferred Stock were
voluntarily surrendered to the Registrant for cancellation on September 29,
1997.
The shares of Common stock issued in the first, second and fourth offerings
have not been reduced for cancellations of certain shares issued.
Third Offering:
(a) Dates of offering-June 1, 1997 to September 23, 1998
Securities sold-Common Stock
Amount sold- 556,168
(b) Issued as a bonus to three employee and to two new directors for joining
board, sold to thirty-one new investors (seventeen accredited and fourteen
non-accredited) 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, sold to twenty-two existing stockholders and
issued to two consultants, one of whom was already a stockholder.
(c) $6,450 value of employee bonuses, $7,000 value to new directors, $533,111
sold for cash and $271,250 sold for consulting services in connection with the
sale of Common Stock and public relations.
(d) The Registrant relies upon Section 3(b) of the Securities Act of 1933 and
Rule 505 promulgated thereunder in that the Registrant realized in May 1997
that its funding requirements could exceed the $1,000,000 limitation of Rule
504 and it terminated the Rule 504 offering at May 31, 1997 and commenced an
offering under Rule 505 in which it has sold stock to not more than thirty-
five non accredited investors (actual number of non-accredited investors is
fourteen).
Fourth Offering:
(a) Dates of the offering-September 24, 1998 to November 8, 1999
Securities sold-Common Stock
Amount sold-12,812,758 shares (includes 432,861 shares to be canceled which
were issued in error in exercise of executive options)
(b) Issued as compensation for services and as bonuses to five employees of
the Registrant, sold for cash to nine investors (seven accredited and two non
accredited), issued in payments of accounts payable by the Registrant and a
subsidiary to eight creditors, issued upon exercise of options by three
directors and executive officers, issued as payment for consulting services to
eighteen firms and individuals, issued in payment of miscellaneous expenses to
two persons, including one director and executive officer and issued in
acquisitions of five companies to twelve persons.
(c) $271,000 valued at market for employee compensation and bonuses,
$294,786.73 sold for cash, $512,650.86 in amount of accounts payable
liquidated, $1,281,064.98 valued at market for options exercised by directors
and executive officers (net of shares to be canceled), $569,954.50 negotiated
value of consulting fees paid, $10,948 in amount of miscellaneous expenses
liquidated, $1,833,752.50 valued at market in consideration of acquisitions
(d) The registrant relies upon Section 4(2) of the Securities Act of 1933, as
amended, in that the offering did not involve a public offering.
Fifth Offering:
(a) Date of the offering-September 1999
Securities sold-Series A Zero Coupon Preferred Stock and Common Stock
Amount-169,904 shares of preferred stock and 306,000 of Common Stock
(b) Issued for cash to a private investment partnership which is an
accredited investor
(c) $50,000 sold for cash and approximately $3,500 valued at market as a
contractual penalty for late filing of this registration statement
(d) The registrant relies upon Section 4(2) of the Securities Act of 1933, as
amended, in that the offering did not involve a public offering.
Item 27. Exhibits. Sequential Page Number
3.1a Articles of Incorporation, as amended through April 1999n/a
3.1b Articles of Amendment filed May 1999 [insert]
3.2 By-Laws*n/a
5 Opinion re: legality [insert]
10.1 Stock Exchange Agreement for Americomp Computer, Inc. [insert]
23.1 Consent of counsel (included in Exhibit 5) [insert]
23.2 Consent of independent public accountant [insert]
*Filed as Exhibits to Registration Statement on Form SB-2,
Commission File No. 333-34283
Item 28. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) (230.424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Tampa, State of Florida on December 8, 1999.
Chronicle Communications, Inc.
By: /s/ John V. Whitman, Jr.
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
Signature Capacity in which signed: Date signed:
/s/ Jackson L. Morris Director and Secretary December 8, 1999
Jackson L. Morris
/s/ John V. Whitman, Jr. Director, President December 8, 1999
John V. Whitman, Jr. Principal Executive Officer
Chief Accounting Officer
Chief Financial Officer
EXHIBIT 3.1a
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION, AS AMENDED,
OF
CHRONICLE COMMUNICATIONS, INC.
Pursuant to the applicable provisions of Chapter 14, O.C.G.A., the
undersigned,
being the President of Chronicle Communications, Inc., a Georgia corporation,
does hereby certify to the Secretary of State of Georgia, Department of
Corporation, the within Articles of Amendment to the Articles of
Incorporation, as amended, of the Corporation, as follows:
1. The name of the Corporation is Chronicle Communications, Inc.
2. The within Amendment to the Articles of Incorporation was duly approved
and
adopted on May 13, 1999, by an action by written consent by of a majority of
the
holders of issued and outstanding shares of common stock, there being no
other class of stock authorized or issue or entitled to vote thereon as a
separate voting group, pursuant to approval by the board of directors and
recommendation of the within amendment to the stockholders for approval,
on May 13, 1999, by an action by written consent.
3. Article II of the Articles of Incorporation, as amended by Articles of
Amendment as previously filed, be, and it hereby is, amended to:
Delete the authorization of Seven Million Five Hundred Thousand (7,500,000)
shares of preferred stock titled "Convertible, Voting Preferred Stock"; and
Authorize the Corporation to issue up to Seven Thousand Seven Hundred Fifty
(7,750) shares of preferred stock entitled "Series A Zero Coupon Preferred
Stock", each share of which preferred stock shall have a
par value of $5.48387, shall be redeemable by the Corporation upon demand by
the holder thereof at a value of $9.67742, shall not be entitled to payment of
a dividend and shall be convertible at the election of the holder into 226
shares of the Corporation's common stock, the conditions to demand for
redemption and election of conversion being subject to negotiation and
agreement
between the Corporation and the purchaser of the preferred stock.
4. Except as provided herein, the rest and remainder of the Articles of
Incorporation shall be and remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned, John V. Whitman, Jr., President of
Chronicle Communications, Inc., has executed the within Articles of Amendment
this 14th day of May, 1999 and caused said Articles to be filed in the office
of
the Secretary of State for the State of Georgia.
[CORPORATE SEAL] Chronicle Communications, Inc.
Attest:
By: /s/ John V. Whitman, Jr.
John V. Whitman, Jr., President
/s/ Jackson L. Morris
Jackson L. Morris, Secretary
EXHIBIT 3.1b
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION, AS AMENDED,
OF
CHRONICLE COMMUNICATIONS, INC.
Pursuant to the applicable provisions of Chapter 14, O.C.G.A., the
undersigned, being the President of Chronicle Communications, Inc., a Georgia
corporation, does hereby certify to the Secretary of State of Georgia,
Department of Corporation, the within Articles of Amendment to the Articles of
Incorporation, as amended, of the Corporation, as follows:
1. The name of the Corporation is Chronicle Communications, Inc.
2. The within Amendment to the Articles of Incorporation was duly approved
and adopted on May 24, 1999, by an action by written consent by of a majority
of the holders of issued and outstanding shares of common stock, there being
no other
class of stock authorized or issue or entitled to vote thereon as a separate
voting group, pursuant to approval by the board of directors and
recommendation of the within amendment to the stockholders for approval, on
May 24, 1999, by an action by written consent.
3. Article II of the Articles of Incorporation, as amended by Articles of
Amendment as previously filed, be, and it hereby is, amended to increase the
number of shares of Series A Zero Coupon Preferred Stock the Corporation is
authorized to issue to 169,904 shares from 7,750 shares, to change the par
value thereof to $.10 per share from $5.48387 per share, to change the
redemption value thereof to $.175233661 per share from $9.67742 per share
and to change the ratio for conversion thereof into shares of the
Corporation's common stock such that each such preferred share shall be
convertible at the election of the holder into one share of common stock;
provided, that, the conditions to demand for redemption and election of
conversion being subject to negotiation and agreement between the Corporation
and the purchaser of the such preferred stock.
4. Except as provided herein, the rest and remainder of the Articles of
Incorporation shall be and remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned, John V. Whitman, Jr., President of
Chronicle Communications, Inc., has executed the within Articles of Amendment
this 24th day of May, 1999 and caused said Articles to be filed in the office
of the Secretary of State for the State of Georgia.
[CORPORATE SEAL]
Chronicle Communications, Inc.
Attest:
By: /s/ John V. Whitman, Jr.
John V. Whitman, Jr., President
/s/ Jackson L. Morris
Jackson L. Morris, Secretary
EXHIBIT 5: OPINION RE: LEGALITY
JACKSON L. MORRIS
ATTORNEY AT LAW
3116 West North A Street
Tampa, Florida 33609-1544
November 8, 1999
By Certified First Class U.S. Mail and Telephone Facsimile
Board of Directors
Chronicle Communications, Inc.
Tampa, Florida
Re: Registration Statement on Form SB-2
Gentlemen:
I am general counsel for and a director and corporate secretary of Chronicle
Communications, Inc., a Georgia corporation, (the "Company"). I have been
asked to provide an opinion letter in connection with the registration under
the Securities Act of 1933, as amended, (the "Act") on Form SB-2
("Registration Statement") for the offer and sale of up to 6,484,172 shares of
the Company's common stock, no par value per share which are currently issued,
outstanding and owned by stockholders of the Company ("Stockholders' Shares")
and 7,100,000 .shares of the Company's common stock, no par value per share
which are to be offered and sold by the Company ("Company Shares"). Based
upon my review of the Company's Articles of Incorporation, as amended,
appropriate records of proceedings of the Company's board of directors,
subscription documents and the Company's audited balance sheet for the year
ended September 30, 1998 and the unaudited balance sheet for the nine months
ended June 30, 1999 and statement of changes in stockholders' equity from
inception to June 30, 1999, it is my opinion that: The Stockholders' Shares
included in the Registration Statement are legally authorized, duly and
validly issued, fully paid and non-assessable; and, The Company Shares are
legally authorized and, upon issuance and delivery against payment or receipt
of consideration therefor, will be duly and validly issued, fully paid and
non-assessable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and the reference to me therein under the caption "Interest of
Counsel."
Very truly yours
Jackson L. Morris
/s/ Jackson L. Morris
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT, made and entered into as of August 19, 1999, by
and between Chronicle Communications, Inc., a Georgia corporation,
("Chronicle") and Michael Lam and Sandra Lam, natural persons residing in the
state of Texas, (collectively, the "Stockholders") and Americomp Computer,
Inc., a Texas corporation, ("Americomp").
W I T N E S S E T H :
WHEREAS, Chronicle's common stock is traded in the public securities market on
the OTC Bulletin Board and Chronicle is obligated to file reports with the
U.S. Securities and Exchange Commission pursuant to a registration statement
under the Securities Act of 1933, as amended, (the "Securities Act"); and
WHEREAS, Chronicle desires to acquire all of Americomp's equity securities;
and
WHEREAS, Americomp and the Stockholders desire Chronicle to acquire Americomp
as contemplated by this Agreement; and
WHEREAS, the parties desire to effect a reorganization within the meaning of
Section 386(a)(1)(B) of the Internal Revenue Code of 1986, as amended, ("Tax
Code") pursuant to which Chronicle will acquire all of the voting stock of
Americomp solely in exchange for shares of the authorized common stock of
Chronicle (such exchange herein, the "B Reorganization"), all on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises herein before set forth, in
reliance hereon and the mutual promises and respective representations and
warranties of the parties, one to another made herein, and the reliance of
each party upon the other(s) based hereon and other good and valuable
consideration, the receipt and sufficiency of which the parties acknowledge,
the parties agree, for purposes of consummating the exchange of stock as
contemplated herein, as follows:
ARTICLE I
PRELIMINARY MATTERS
Section 1.01. Recitals. The parties acknowledge the recitals herein above
set forth in the preamble are correct, are, by this reference, incorporated
herein and are made a part of this Agreement.
Section 1.02. Exhibits and Schedules. Exhibits (which are documents to be
executed and delivered at the Closing by the party identified therein or in
the provision requiring its delivery) and Schedules (which are statements
setting forth information about party identified in each such Schedule)
referred to herein and annexed hereto are, by this reference, incorporated
herein and made a part of this Agreement, as if set forth fully herein.
Section 1.03. Use of words and phrases. Natural persons may be identified by
last name, with such additional descriptors as may be desirable. The words
"herein," "hereby," "hereunder," "hereof," "herein before," "hereinafter" and
any other equivalent words refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision hereof. The words, terms and
phrases defined herein and any pronoun used herein shall include the singular,
plural and all genders. The word "and" shall be construed as a coordinating
conjunction unless the context clearly indicates that it should be construed
as a copulative conjunction.
Section 1.04. Accounting terms. All accounting terms not otherwise defined
herein shall have the meanings assigned to them under generally accepted
accounting principles unless specifically referenced to regulatory accounting
principles.
Section 1.05. Calculation of time lapse or passage; Action required on
holidays. When a provision of this Agreement requires or provides for the
calculation of the lapse or passage of a time period, such period shall be
calculated by treating the event which starts the lapse or passage as zero;
provided, that this provision shall not apply to any provision which specifies
a certain day for action or payment, e.g. the first day of each calendar
month. Unless otherwise provided, the term "month" shall mean a period of
thirty days and the term "year" shall mean a period of 360 days, except that
the term "calendar year" shall mean the actual calendar year period. If any
calendar day on which action is required to be taken or payment is required to
be made under this Agreement is not a Business Day (Business Day being a day
on which national banks are open for business where the actor or payor is
located), then such action or payment shall be taken or made on the next
succeeding Business Day.
Section 1.06. Use of titles, headings and captions. The titles, headings and
captions of articles, sections, paragraphs and other subdivisions contained
herein are for the purpose of convenience only and are not intended to define
or limit the contents of said articles, sections, paragraphs and other
subdivisions.
ARTICLE II
TERMS OF THE TRANSACTIONS
Section 2.01. Exchange transaction. In accordance with the terms of this
Agreement, on the Closing Date, (i) the Stockholders will assign, transfer and
deliver to Chronicle 100 percent of the issued and outstanding equity
securities in Americomp; and (ii) Chronicle will issue and deliver to the
Stockholders Two million two hundred fifty thousand (2,250,000) shares of
common stock of Chronicle ("Chronicle Stock").
Section 2.02. Management following the Exchange. Following the Exchange,
John V. Whitman, Jr. will be elected as the sole director of Americomp.
Following the Exchange, Steven Lee and Katie Lam will continue as employees of
Americomp in the positions they hold prior to the Exchange for a period of not
less than two years, subject to respective employment agreements in general
substance consistent with employment agreements held by other executive
officers of Chronicle and its subsidiaries. Mr. Lee's monthly salary will be,
for the first ninty (90) days $2,500, subject to change in the employment
contract and Ms. Lam's monthly salary will be, for the first ninty (90) days
$2,500, subject to change in the employment contract, in each case, beginning
on the Closing date. In addition to salary, the Stockholders will receive
such additional benefits as approved by the board of directors and are
generally enjoyed by Chronicle's employees in similar positions.
Section 2.03. Additional shares of the Chronicle Stock. If the Stockholders
have sold all shares of the Chronicle Stock received in the B Reorganization
within the three year period beginning on the Closing Date and the aggregate
gross proceeds from the sale thereof is less than One Million Five Hundred
Thousand Dollars ($1,500,000), then Chronicle shall, upon receipt of written
notice from the Stockholders to such effect accompanied by copies of their
brokerage sales confirmations, issue and deliver to the Stockholders such
number of additional shares of Chronicle's common stock as are equal in value
to the difference between One Million Five Hundred Thousand Dollars $1,500,000
and such aggregate gross proceeds, the value of such additional shares being
determined at either the closing price or the average of the closing bid and
asked quotations for Chronicle common stock in the best market therefor as may
be applicable on either the date of the Stockholders' written notice under
this provision or the date of the Stockholders' last sale of the Chronicle
Stock, whichever is lower.
Section 2.04. Press releases. Neither party will issue a press release
regarding the subject matter of this Agreement and the transaction
contemplated hereby without the prior approval thereof by the other party and
its counsel; provided, that the filing of reports pursuant to the Securities
Exchange Act of 1934 by Chronicle and the issue of a press release in
connection therewith shall be the entire responsibility and prerogative of
Chronicle.
Section 2.04. Transaction costs. Each party shall pay all costs and expenses
which it incurs in connection with this Agreement and the transactions
contemplated hereby.
ARTICLE III
CLOSING OF THE TRANSACTION
Section 3.01. Location, date and time of the Closing. The Closing of the
Exchange shall be deemed to have taken place on and as of August 19, 1999.
Section 3.02. The Stockholder's obligations at Closing. At the Closing, the
Stockholders will deliver to Chronicle:
(a) Certificates representing One Hundred Percent (100%) of the issued and
outstanding equity securities of Americomp, pursuant Section 2.01; and
Section 3.03. Americomp's obligations at Closing. At the Closing, Americomp
will deliver to Chronicle:
(a) Officers' Certificates and Secretary's Certificates of Americomp, in the
respective forms of Exhibit "A" and Exhibit "B"; and
(b) All of Americomp's corporate records, corporate seal and stock ledger.
Section 3.04. Chronicle's obligations at Closing. At the Closing, Chronicle
will deliver to the Stockholders:
(a) Certificates representing the Chronicle Stock, in such names and such
denominations as advised by Stockholders not less than two Business Days prior
to the Closing of the Exchange.
(b) Officers' Certificates and Secretary's Certificates of Chronicle, in the
respective forms of Exhibit "A" and Exhibit "B".
Section 3.05. Closing memorandum and receipts. As evidence that all parties
deem the Closing to have been completed and the transaction contemplated by
this Agreement to have been consummated, the parties jointly will execute and
deliver a Closing memorandum acknowledging such completion and consummation.
Each party receiving shares of the Chronicle Stock will execute and deliver a
receipt therefore to Chronicle.
Section 3.06. Waiver of conditions. Notwithstanding Section 11.03, any
condition to the Closing which is to the benefit of any party and which is not
satisfied prior to or at the Closing will be deemed to be waived by the
benefited party or otherwise satisfied and waived by virtue of that party
executing the Closing memorandum, except to the extent any such unsatisfied or
unperformed condition is expressly preserved in the Closing memorandum for
satisfaction or performance after the Closing.
Section 3.07. Further assurances. At any time and from time to time after
the Closing of the Exchange, at the reasonable request of any party and
without further consideration, any other part(ies) shall execute and deliver
such other instruments and documents as such requesting party may deem
reasonably desirable or necessary to complete the transactions contemplated by
this Agreement.
Section 3.08. Conditions precedent to Chronicle's obligations. All
obligations of Chronicle hereunder are subject, at the option of Chronicle, to
the fulfillment of each of the following conditions at or prior to the
Closing, and the Stockholders and Americomp shall exert their best efforts to
cause each such condition to be so fulfilled:
(a) All representations and warranties of the Stockholders and Americomp
contained herein or in any document delivered pursuant hereto shall be true
and correct in all material respects when made and shall be deemed to have
been made again at and as of the date of the Closing of the Exchange, and
shall then be true and correct in all material respects except for changes in
the ordinary course of business after the date hereof in conformity with the
covenants and agreements contained herein.
(b) All covenants, agreements and obligations required by the terms of this
Agreement to be performed by the Stockholders and/or Americomp at or before
the Closing shall have been duly and properly performed in all material
respects to Chronicle's reasonable satisfaction.
(c) Since the date of this Agreement there shall not have occurred any
material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of Americomp.
(d) All documents required to be delivered to Chronicle at or prior to the
Closing shall have been so delivered.
(e) Americomp shall have obtained votes or written consents to the Exchange
where the vote or consent of any other party (including holders of Americomp's
equity securities, all of whom shall have waived any statutory appraisal
rights) may, in the view of Chronicle's counsel, be required for or as a
consequence of the Exchange, including any landlords of Americomp.
(f) None of the assets or business of Americomp shall have suffered or
incurred a material damage, destruction or loss not fully covered by insurance
and which has a materially adverse affect on its business and operations.
(g) Chronicle shall have received a certificate of good standing for
Americomp issued by the secretary of state of its state of incorporation and
of each state in which it is qualified to do business as a foreign
corporation.
Section 3.09. Conditions precedent to the Stockholders and Americomp's
obligations. All obligations of the Stockholders and of Americomp at the
Closing are subject, at the option of Americomp, to the fulfillment of each of
the following conditions at or prior to the Closing, and Chronicle shall exert
its best efforts to cause each such condition to be so fulfilled.
(a) All representations and warranties of Chronicle contained herein or in
any document delivered pursuant hereto shall be true and correct in all
material respects when made and as of the Closing.
(b) All obligations required by the terms of this Agreement to be performed
by Chronicle at or before the Closing shall have been duly and properly
performed in all material respects.
(c) All documents required to be delivered to Americomp at or prior to the
Closing shall have been so delivered.
(d) Chronicle shall have obtained written consents to the transaction
contemplated by this Agreement where the consent of any other party may, in
the view of Americomp 's counsel, be required for or as a consequence of the
transactions contemplated hereby.
(e) None of the assets or business of Chronicle shall have suffered or
incurred, on a consolidated basis, a material damage, destruction or loss not
fully covered by insurance and which has a materially adverse affect on their
respective business and operations.
(f) Americomp shall have received a certificate of good standing for
Chronicle issued by the secretary of state of its state of incorporation and
of each state in which they are qualified to do business as a foreign
corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Section 4.01. The Stockholders and Americomp's representations and
warranties. The Stockholders and Americomp, jointly and severally, represent
and warrant to Chronicle that:
(a) Americomp is a duly incorporated and existing corporation in good
standing under the laws of its state of incorporation, has full corporate
power to execute and deliver this Agreement, is qualified and in good standing
as a foreign corporation in every jurisdiction where the conduct of its
business or the nature of its properties require it to be qualified and has
delivered to Chronicle true copies of its articles of incorporation, bylaws
and the records of proceeding of its board of directors and stockholders for
the past five years or since inception, whichever is less.
(b) Americomp has the power to conduct its business as it is now being
conducted and to own and lease its properties shown on its most recent balance
sheet and used in the conduct of its business.
(c) This Agreement has been duly and validly authorized, executed and
delivered by Americomp and constitutes the legal, valid and binding obligation
of Americomp enforceable against it in accordance with its terms subject, as
to enforceability, to bankruptcy, insolvency, reorganization and other laws
of, relating to or affecting stockholders and creditors rights generally and
to general equitable principles.
(d) The execution of this Agreement and consummation of the transaction
contemplated hereby does not conflict with and will not result in any adverse
consequences to or breach of any agreement, mortgage, instrument, judgment,
decree, law or governmental regulation, permit or authorization by Americomp
or in the loss, forfeiture or waiver of any rights or franchise owned by
Americomp, from which Americomp benefits or which is desirable in the conduct
of Americomp's business.
(e) Americomp's authorized capital is as set forth in its Articles of
Incorporation; and, Americomp's shares to be acquired by Chronicle in the
Exchange, are duly and validly authorized, are validly issued, fully paid and
nonassessable, all of which are legally and beneficially owned by the
Stockholders.
(f) Except for such actions as may have been taken, no further action by or
before any governmental body or authority of the United States of America or
any state or subdivision thereof or any self-regulatory body to which
Americomp is subject is required in connection with the execution and delivery
of this Agreement by Americomp and the consummation of the transactions
contemplated hereby.
(g) [Not Used];
(h) [Not Used];
(i) Neither Americomp nor any employee, to Americomp's knowledge, has since
inception given or agreed to give any gift or similar benefit valued at more
than $20 annually to any customer, supplier, governmental employee or other
person who is or may be or have been in a position to help or hinder
Americomp's business which might subject any of Americomp to damage or penalty
in civil, criminal or governmental litigation or proceedings.
(j) Other than the equity securities of Americomp to be acquired by Chronicle
in the Exchange, there are no other equity securities of Americomp issued and
outstanding, no authorizations in effect or, upon a specified event, with the
lapse of time or otherwise, to take effect for the issue of additional equity
securities of Americomp, no obligations outstanding convertible into equity
securities of Americomp, no options, warrants, rights or similar instruments
outstanding pursuant to which the holder has a right to demand and receive the
issuance of Americomp's equity securities and no stock appreciation rights or
phantom stock of Americomp held by any person or to which any person has a
claim.
(k) Americomp's financial statements delivered to Chronicle have been
prepared in accordance with generally accepted accounting principles
consistently applied and maintained throughout the periods indicated, fairly
present the financial condition of Americomp at the dates and the results of
operations for the periods indicated, contain all normally recurring
adjustments and do not omit to disclose any contingent, undisclosed or hidden
liabilities.
(l) Americomp has good, marketable and insurable title to all of the
properties and assets which it owns or uses in its business or purports to
own, including, without limitation, those reflected in its books and records
and in the balance sheet, both tangible and intangible, trademarks, trade
names, copyrights and other intellectual properties (excluding inventory sold
after the most recent balance sheet date in the ordinary course of business),
excepting only those properties and assets subject to operating leases
disclosed in Schedule "A". None of the properties and assets are subject to
any mortgage, pledge, lien, charge, security interest, encumbrance,
restriction, lease, license, easement, liability or adverse claim of any
nature whatsoever, direct or indirect, whether accrued, absolute, contingent
or otherwise, except (i) as expressly set forth in the notes to Americomp's
financial statements as securing specific liabilities or subject to specific
capital leases or (ii) those imperfections of title and encumbrances, if any,
which (A) are not substantial in character, amount or extent and do not
materially detract from the value of the properties or assets subject thereto,
(B) do not interfere with either the present or continued use of such property
or assets or the conduct of Americomp's normal business operations and (C)
have arisen only in the ordinary course of business. All of the properties
and assets owned, leased or used by Americomp are in good operating condition
and repair, (other than assets held in inventory for resale which are in "as
is" condition) are suitable for the purposes used, are adequate and sufficient
for all current operations of Americomp and are directly related to
Americomp's business.
(m) All of the contracts, agreements, leases, licenses and commitments of
Americomp (other than those which have been fully performed), copies of all of
which have been delivered to Chronicle, are valid and binding, enforceable in
accordance with their respective terms, in full force and effect and there is
not thereunder any existing default or event, which after the giving of notice
or lapse of time or both, would constitute a default or result in a right to
accelerate or loss of rights and none of such contracts, agreements, leases,
licenses and commitments is, either when considered singly or in the aggregate
with others, unduly burdensome, onerous or materially adverse to Americomp's
business, properties, assets, earnings or prospects or either before or after
the Closing, to result in any material loss or liability.
(n) Except as set forth in Schedule "B", there is no claim, legal action,
suit, arbitration, governmental investigation, or other legal or
administrative proceeding, nor any order, decree or judgment in progress,
pending or in effect or to Americomp's knowledge threatened, against or
relating to Americomp, its directors, officers or employees with respect to
Americomp or for which Americomp may have an indemnity obligation, it
properties, assets or business or the transaction contemplated by this
Agreement and Americomp does not know or have any reason to be aware of any
basis for the same, including any basis for a claim of sexual harassment or
racial or age discrimination.
(o) All taxes, including without limitation, income, property, special
assessments, sales, use, franchise, intangibles, employees' income withholding
and social security taxes, imposed by the United States or any state,
municipality, subdivision, authority, which are due and payable, and all
interest and penalties thereon, unless disputed in good faith in proper
proceedings and reserved for or set aside, have been paid in full and all tax
returns required to be filed in connection therewith have been accurately
prepared and timely filed and all deposits required by law to be made by
Americomp with respect to employees' withholding and social security taxes
have been made. Americomp is not and has no reason to believe that it will be
the subject of an audit by any taxing authority. There is not now in force
any extension of time with respect to the date when tax return was or is due
to be filed, or any waiver or agreement by Americomp for the extension of time
for the assessment of any tax and Americomp is not a "consenting corporation"
within the meaning of Section 341(f)(1) of the Internal Revenue Code of 1986,
as amended; and no shareholder of Americomp is entitled to the distribution of
previously taxed undistributed S corporation earnings and profits. All
workers' compensation, disability and similar items due and payable under any
governmental program have been paid.
(p) Americomp does not have any employee benefit, pension or profit sharing
plans subject to ERISA and no such plans to which Americomp is obligated or
required to make contributions.
(q) None of Americomp's employees are represented by a collective bargaining
agent or subject to a collective bargaining agreement and Americomp considers
its relations with its employees as a whole to be good. Americomp has
disclosed to Chronicle all employee salary, compensation and benefit
agreements and no employee has a written employment agreement.
(r) No person has guaranteed any obligation of Americomp and Americomp has
not guaranteed the obligation of any other person.
(s) The termination of Americomp's election to be treated for federal income
tax purpose pursuant to Chapter S of the Internal Revenue Code of 1986, as
amended, will not have any adverse federal income tax effect on Americomp or
result in Americomp being required to pay any federal income taxes with
respect to income earned prior to the current taxable year.
Section 4.02. Chronicle's representations and warranties. Chronicle
represents and warrants to Americomp and to the Stockholders that:
(a) Chronicle is a duly incorporated and existing corporation in good
standing under the laws of its state of incorporation, has full corporate
power to execute and deliver this Agreement, is qualified and in good standing
as a foreign corporation in every jurisdiction where the conduct of its
business or the nature of its properties require it to be qualified.
(b) This Agreement has been duly and validly authorized, executed and
delivered by Chronicle and constitutes the legal, valid and binding obligation
of Chronicle enforceable against Chronicle in accordance with its terms
subject, as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of, relating to or affecting shareholders and creditors rights
generally and to general equitable principles.
(c) The Chronicle Stock, when issued by Chronicle and authenticated and
delivered by its transfer agent, as contemplated by this Agreement, will be
duly and validly authorized, are validly issued and fully paid and
nonassessable.
(d) Except for such actions as may have been taken, no further action by or
before any governmental body or authority of the United States of America or
any state thereof is required in connection with the execution and delivery of
this Agreement by Chronicle and the consummation of the transactions
contemplated hereby.
(e) The information Chronicle has delivered to Americomp was on the date
reflected in each such item of information accurate in all material respects
and such information at the date hereof as a whole did not contain any untrue
statement of material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; subject to the filing by Chronicle of reports now
due and unfiled under the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder
Section 4.03. Nature and survival of representation and warranties; Remedies.
All statements of fact contained in this Agreement, any certificate delivered
pursuant to this Agreement, or any letter, document or other instrument
delivered by or on behalf of Americomp or Chronicle and their respective
officers, pursuant to the terms of this Agreement shall be deemed
representations and warranties made by Americomp and Chronicle, respectively
as the case may be, to each other under this Agreement. For purposes of this
Section 4.03 and Section 10.01 only, any party or other person seeking to
enforce, or claiming the benefit of, any representation and warranty under
this Agreement is called a Claimant, and any party or other person against
whom a right is claimed is called a Defendant. All representations and
warranties of the parties shall survive the Closing and all inspections,
examinations or audits on behalf of the parties; provided, however, that all
representations and warranties shall terminate and expire, and be without
further force and effect whatever from and after the one year from the date
hereof, and neither Chronicle nor Americomp shall have any liability
whatsoever on account of any inaccurate representation or warranty or for any
breach of warranty, unless a Claimant shall, on or prior to the expiration of
such one year period, serve written notice on a Defendant, with a copy to the
Defendant's counsel, setting forth in reasonable detail the breach and any
direct, incidental or consequential damages (including amounts) the Claimant
may have suffered as a result of such breach.
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01. Conduct of business prior to Closing.
(a) From the date hereof to the Closing, Americomp will conduct its business
and affairs only in the ordinary course and consistent with its prior practice
and shall maintain, keep and preserve its assets and properties in good
condition and repair and maintain insurance thereon in accordance with present
practices, it will use its best efforts (i) to preserve its business and
organization intact, (ii) to keep available to Chronicle the services of
Gotcashback.com's present employees, agents and independent contractors, (iii)
to preserve for the benefit of Chronicle the goodwill of suppliers, customers,
distributors, landlords and others having business relations with it, and (iv)
to cooperate and use reasonable efforts to obtain the consent of any landlord
or other party to any lease or contract with Americomp where the consent of
such landlord or other party may be required by reason of the transactions
contemplated hereby.
(b) From the date hereof to the Closing, Americomp shall not (i) dispose of
any material assets, (ii) engage in any extraordinary transactions without
Chronicle's prior approval, including but not limited to, directly or
indirectly, soliciting, entertaining, encouraging inquiries or proposals or
entering into negotiation or agreement with any third party for sale of assets
by Americomp, sale of equity securities or merger, consolidation or
combination with any company, (iii) grant any salary or compensation increase
to any employee, or (iv) make any commitment for capital expenditures, other
than as disclosed to Chronicle and approved by it.
Section 5.02. Notice of changes in information. Each party shall give the
other party prompt written notice of any change in any of the information
contained in their respective representations and warranties made in Article
IV, or elsewhere in this Agreement, or the exhibits and schedules referred to
herein or any written statements made or given in connection herewith which
occurs prior to the Closing.
Section 5.03. Notice of extraordinary changes. The Americomp shall advise
Chronicle with respect to any of the following outside of ordinary course of
business or which are materially adverse: (i) the entering into and
cancellation or breach of contracts, agreements, commitments or other
understandings or arrangements to which Americomp is a party, including,
without limitation, purchase orders for any item of inventory and commitments
for capital expenditures or improvements, orderly and gradual discontinuance
or particular items or (ii) any changes in purchasing, pricing or selling
policy (including, without limitation, selling merchandise at discounts);
provided, however, that not withstanding anything contained in this subsection
(c) Americomp will not take or fail to take any action that, in Chronicle's
reasonable judgment, is likely to give rise to a substantial penalty or a
claim for damages by any third party against Americomp, or is likely to result
in losses to either corporation, or is otherwise likely to prejudice in any
material respect or unduly interfere with the conduct of its business and
operations in the ordinary course consistent with prior practice, or is likely
to result in a breach by Americomp of any of its representations, warranties
or covenants contained in this Agreement (unless any such breach is first
waived in writing by Chronicle).
Section 5.04. Access to information and documents. Upon reasonable notice
and during regular business hours, each party will give the other party, its
attorneys, accountants and other representatives full access to its personnel
(subject to reasonable approval as to the time thereof) and all properties,
documents, contracts, books and records and will furnish copies of such
documents (certified by officers, if so requested) and with such information
with respect to its business, operations, affairs and prospects (financial and
otherwise) as it may from time to time request, and the party to whom the
information is provided will not improperly disclose the same prior to the
Closing. Each party will afford the other party an opportunity to ask
questions and receive answers thereto for purposes of due diligence. Any such
furnishing of such information or any investigation shall not affect that
party's right to rely on the other party's representations and warranties made
in this Agreement or in connection herewith or pursuant hereto. The
Stockholders and Americomp acknowledge that information which they receive
regarding Chronicle and its subsidiaries may include material non public
information, their disclosure of which to third parties or their purchase or
sale of Chronicle's common stock in the public securities markets could result
or constitute in violations of the federal securities laws.
Section 5.05. Cooperation by the parties. Each party hereto shall cooperate
and shall take such further action as may be reasonably requested by any other
party in order to carry out the provisions and purposes of this Agreement.
ARTICLE VI
SECURITIES LAW MATTERS AND STATUS OF CHRONICLE'S STOCK
Section 6.01. Unregistered the Chronicle Stock. The Stockholders acknowledge
that the Chronicle Stock delivered as contemplated by this Agreement is not
being registered under the federal Securities Act of 1933, as amended,
("Securities Act") and the securities laws of the Stockholders' state of
residence, and that the Chronicle Stock is not transferable, except as
permitted under various exemptions contained in the Securities Act and
applicable state securities law. The provisions contained in the following
sections are intended to ensure compliance with the Securities Act and
applicable state securities law.
Section 6.02. No transfers in violation of Securities Act. The Stockholders
agree not to offer, sell, assign, pledge, hypothecate, transfer or otherwise
dispose of the Chronicle Stock, except after full compliance with all of the
applicable provisions of the Securities Act and applicable state securities
law.
Section 6.03. Investment intent. The Stockholders represent and warrant to
and covenant with Chronicle by subscription agreement that he is acquiring the
Chronicle Stock for his own account for investment, and not with a view to
resale or other distribution; that he currently has no intention of selling,
assigning, transferring, pledging, hypothecating or otherwise disposing of all
or any part thereof at any particular time, for any particular price, or on
the happening of any particular event or circumstance; and he acknowledges
that Chronicle is relying on the truth and accuracy of his covenants,
warranties and representations in issuing the Chronicle Stock first
registering it under the Securities Act.
Section 6.04. Conditions to sale and investment legend on certificates. The
Stockholders agree not to sell, assign, transfer, pledge, hypothecate or
otherwise dispose of any of the Chronicle Stock for two years following the
Closing, unless and until he or she (i) has delivered to Chronicle a written
legal opinion in form and substance satisfactory to counsel for Chronicle to
the effect that the disposition is permissible under the terms of the
Securities Act; (ii) has complied with the registration and prospectus
delivery requirements of the Securities Act; or (iii) if more than one year
after the Closing, has presented Chronicle satisfactory evidence that the
transfer will comply with Rule 144 under the Securities Act. The Stockholders
further agree that the certificates evidencing the Chronicle Stock shall
contain the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND IS A "RESTRICTED SECURITY" AS DEFINED UNDER SAID ACT. ACCORDINGLY,
NEITHER THIS SECURITY NOR ANY INTEREST THEREIN MAY BE SOLD, OFFERED FOR
SALE, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED, EXCEPT BY BONA
FIDE GIFT OR INHERITANCE, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS SECURITY UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO HITS THAT SUCH REGISTRATION IS NOT REQUIRED.
The Stockholders acknowledge Chronicle will also place a "stop transfer" order
against any transfer of the Chronicle Stock until one of the conditions set
forth in this section has been met.
Section 6.05. Indemnification by The Stockholders. If at any time in the
future, the Stockholders should offer, sell, assign, pledge, hypothecate,
transfer or otherwise dispose of any of the Chronicle Stock without
registration under the Securities Act, unless an exemption from registration
is available, the Stockholders agree to indemnify and hold harmless Chronicle
against and from any and all claims, liabilities, penalties, costs and
expenses which may be asserted against or suffered by Chronicle as a result of
the disposition.
Section 6.08. State securities law. The Closing is subject to any and all
requirements of the laws of the Stockholders respective states of residence
applying to the offer and sale of securities therein. In no event shall any
party be liable to anyone for failure to sell or issue its securities pursuant
to this Agreement, unless and until all applicable requirements of the law of
the applicable state of the recipient's residence relating to the offer and
sale have been satisfied.
Section 6.09. Americomp's stock. Chronicle acknowledges that it is acquiring
the Americomp stock under the same terms and conditions set forth in this
Article VI that apply to Chronicle's stock.
Section 6.10. Chronicle's registration undertaking. Chronicle undertakes to
file, as soon as practicable following the Closing, but in no event longer
than six months from the closing date, a registration pursuant to the
Securities Act which includes Six Hundred Twenty-Five Thousand (625,000)
shares of the Chronicle Stock for resale by the Stockholders into the public
securities markets.
ARTICLE VII
FEDERAL INCOME TAX MATTERS AND ELECTIONS
Section 7.01. Responsibility for understanding tax consequences. Each party
shall be responsible for obtaining it own tax advice with respect to and
understanding the federal income tax consequences of the transactions and the
federal income tax consequences thereof contemplated by this Agreement.
Section 7.01. Application of Section 368(a)(1)(B). It is intended that the B
Reorganization shall constitute a reorganization described in Section
368(a)(1)(B) of the Tax Code and that this Agreement shall constitute a "plan
of reorganization" for the purposes of Section 368 of the Tax Code. Following
consummation of this transaction, both parties shall treat the transaction for
all purposes as a B reorganization within the meaning of the Tax Code. It
shall not be a condition to the consummation of the B Reorganization that any
party hereto shall have received a ruling from the Internal Revenue Service or
an opinion of counsel as to the federal income tax consequences of the
transaction contemplated by this Agreement
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
[Reserved.]
ARTICLE IX
NOTICES
Section 9.01. Procedure for giving notices. Any and all notices or other
communications required or permitted to be given under any of the provisions
of this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered (excluding telephone facsimile and including
receipted express courier and overnight delivery service) or mailed by first
class certified U.S. mail, return receipt requested showing name of recipient,
addressed to the proper party.
Section 9.02. Addresses for notices. For purposes of sending notices under
this Agreement, the addresses of the parties are as follows:
As to Americomp and the Stockholders: Steven Lee
Suite 180
6776 Southwest Freeway
Houston, Texas 77074
Copy to: Jeff C. Lamberth
Hanson, Lamberth & Kiatta, LLP
Suite 610
6363 Woodway
Houston, Texas 77057
As to Chronicle: John V. Whitman, Jr., Chairman
Chronicle Communications, Inc.
2601 Second Avenue
Tampa, Florida 33605
Copy to: Jackson L. Morris, Esq.
3116 West North A Street
Tampa, Florida 33609
Section 9.03. Change of address. A party may change its address for notices
by sending a notice of such change to all other parties by the means provided
in Section 9.01.
ARTICLE X
LEGAL AND OTHER COSTS
Section 10.01. Party entitled to recover. In the event that any party (the
"Defaulting Party") defaults in his or its obligation under this Agreement
and, as a result thereof, the other party (the "Non-Defaulting Party") seeks
to legally enforce his or its rights hereunder against the Defaulting Party
(whether in an action at law, in equity or in arbitration), then, in addition
to all damages and other remedies to which the Non-Defaulting Party is
entitled by reason of such default, the Defaulting Party shall promptly pay to
the Non-Defaulting Party an amount equal to all costs and expenses (including
reasonable attorneys' fees and expert witness fees) paid or incurred by the
Non-Defaulting Party in connection with such enforcement.
Section 10.02. Interest. In the event the Non-Defaulting Party is entitled
to receive an amount of money by reason of the Defaulting Party's default
hereunder, then, in addition to such amount of money, the Defaulting Party
shall promptly pay to the Non-Defaulting Party a sum equal to interest on such
amount of money accruing at the rate of 1.5% per month during the period
between the date such payment should have been made hereunder and the date of
the actual payments thereof.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Effective date. The effective date of this Agreement shall
for all purposes be August 19, 1999 notwithstanding a later actual date of
execution by the parties.
Section 11.02. Entire agreement. This writing constitutes the entire
agreement of the parties with respect to the subject matter hereof,
superseding all prior agreements, understandings, representations and
warranties.
Section 11.03. Waivers. No waiver of any provision, requirement, obligation,
condition, breach or default hereunder, or consent to any departure from the
provisions hereof, shall be considered valid unless in writing and signed by
the party giving such waiver, and no such waiver shall be deemed a waiver of
any subsequent breach or default of the same or similar nature.
Section 11.04. Amendments. This Agreement may not be modified, amended or
terminated except by a written agreement specifically referring to this
Agreement signed by all of the parties hereto and amendment, modification or
alteration of, addition to or termination of this Agreement or any provision
of this Agreement shall not be effective unless it is made in writing and
signed by the parties.
Section 11.05. Construction. This Agreement has been negotiated by the
parties, section by section, and no provision hereof shall be construed more
strictly against one party than against the another party by reason of such
party having drafted such provision. The order in which the provisions of
this Agreement appear are solely for convenience of organization; and later
appearing provisions shall not be construed to control earlier appearing
provisions.
Section 11.06. Invalidity. It is the intent of the parties that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision hereof shall be
prohibited, invalid, illegal or unenforceable, in any respect, under
applicable law, such provision shall be ineffective to the extent of such
prohibition, invalidity or non enforceability only, without invalidating the
remainder of such provision or the remaining provisions of this Agreement;
and, there shall be substituted in place of such prohibited, invalid, illegal
or unenforceable provision a provision which nearly as practicable carries out
the intent of the parties with respect thereto and which is not prohibited and
is valid, legal and enforceable.
Section 11.07. Multiple counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be an original and, taken together,
shall be deemed one and the same instrument.
Section 11.08. Assignment, parties and binding effect. This Agreement, and
the duties and obligations of any party shall not be assigned without the
prior written consent of the other party(ies). This Agreement shall benefit
solely the named parties and no other person shall claim, directly or
indirectly, benefit hereunder, express or implied, as a third-party
beneficiary, or otherwise. Wherever in this Agreement a party is named or
referred to, the successors (including heirs and personal representative of
individual parties) and permitted assigns of such party shall be deemed to be
included, and all agreements, promises, covenants and stipulations in this
Agreement shall be binding upon and inure to the benefit of their respective
successors and permitted assigns.
Section 11.09. Survival of representations and warranties. The
representations and warranties made herein shall survive the execution and
delivery of this Agreement and full performance hereunder of the obligations
of the representing and warranting party, subject to the provisions of Section
4.03.
Section 11.10. Arbitration. Unless a court of competent jurisdiction shall
find that a particular dispute or controversy cannot, as a matter of law, be
the subject of arbitration, any dispute or controversy arising hereunder,
other than suit for injunctive relief which can be granted only by a court of
competent jurisdiction, shall be settled by binding arbitration in Clearwater,
Florida by a panel of three arbitrators in accordance with the rules of the
American Arbitration Association; provided, that the rules of discovery of the
U.S. District Court with jurisdiction of the situs of the arbitration shall
apply. Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. The parties may pursue all other
remedies with respect to any claim that is not subject to arbitration.
Section 11.11. Jurisdiction and venue. Any action or proceeding for
enforcement of this Agreement and the instruments and documents executed and
delivered in connection herewith which is determined by a court of competent
jurisdiction not, as a matter of law, to be subject to arbitration as
provided in Section 11.10 or which seeks injunctive relief shall be brought
and enforced in the courts of the State of Florida in and for Hillsborough
County and in the United States District Court for the Middle District of
Florida, Tampa Division, and the parties irrevocably submit to the
jurisdiction of each such court in respect of any such action or proceeding.
Section 11.12. Applicable law. This Agreement and all amendments thereof
shall be governed by and construed in accordance with the law of the State of
Florida applicable to contracts made and to be performed therein (not
including the choice of law rules thereof).
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, the day and year first above written
[Corporate Seal] Chronicle Communications, Inc.
Attest: By: /s/ John V. Whitman, Jr.
John V. Whitman, Jr., Chairman
/s/ Jackson L. Morris
Jackson L. Morris, Secretary
[Corporate Seal] Americomp Computer, Inc.
Attest: By: /s/ Michael Lam
Michael Lam, President
/s/ Katie Lam
Katie Lam, Secretary
The Stockholders
/s/ Michael Lam
Michael Lam
/s/ Sandra Lam
Sandra Lam
EXHIBIT "A"
OFFICERS' CERTIFICATE
Pursuant to Section 3.0__ of the Acquisition Agreement identified within
The undersigned, ____________, President, and __________, Treasurer, of
________________, a ___________ corporation (the "Corporation"), hereby each
certifies that he is familiar with the Acquisition Agreement, dated _________
___, 1999 (the "Agreement"), between the Corporation and ____________ and, to
the best of his knowledge, based on reasonable investigation:
(a) All representations and warranties of the _____________ (as defined in
the Agreement) contained in the Agreement, and in all Exhibits and Schedules
attached thereto containing information delivered by ___________, were true
and correct in all material respects when made and when deemed to have been
made and are true and correct at the date hereof, except for changes in the
ordinary course of business between the date of the Agreement, in conformity
with the covenants and agreements contained in the Agreement.
(b) All covenants, agreements and obligations required by the terms of the
Agreement to be performed by _______________ at or before the Closing have
been duly and properly performed in all material respects.
(c) Since the date of the Agreement there have not occurred any material
adverse change in the condition or prospects (financial or otherwise),
business, properties or assets of the ____________________.
IN WITNESS WHEREOF, each of the undersigned has executed this certificate
this ___________________, 1999.
________________________________
_______________, President
________________________________
_______________, Treasurer
EXHIBIT "B"
SECRETARY'S CERTIFICATE
Pursuant to Section 3.0__ of the Acquisition Agreement identified within.
I, ------------, the duly elected, qualified and acting Secretary of -------
- ----------, a corporation duly organized, existing and in good standing under
the laws of ------------, (the "Corporation") do hereby certify that:
(i) The following is a true and complete copy of Resolution of the Board of
Directors of the Corporation taken and adopted on ---------- -----, 1999,
approving the Acquisition Agreement dated __________ ___, 1999, by and among
the Corporation and _____________, and that said Resolution has not been
rescinded, revoked or modified and is in full force and effect at the date
hereof:
(ii) The persons whose names, titles and signatures appear below are each
the duly elected, qualified and acting officers of the Corporation, hold on
the date hereof the offices set forth opposite their respective names and the
signatures appearing opposite said names are the genuine signatures of said
persons:
Name Title Signature
- ----------------- President ----------------------------
- ----------------- Secretary ----------------------------
- ----------------- Treasurer ----------------------------
(iii) I am authorized by the Corporation to make the within certifications.
IN WITNESS WHEREOF, I have executed this Certificate on --------, 1999.
(CORPORATE SEAL)
- ----------------------------
- -------------------------, Secretary
I, -----------, President of -------------, a ------------ corporation, hereby
certify that --------------- is the duly elected, qualified and acting
Secretary of -------------- and that the signature appearing above is his
genuine signature.
IN WITNESS WHEREOF, I have executed this Certificate on -----------, 1999.
- --------------------------------
- -------------------------------, President
EXHIBIT 23.1: CONSENT OF COUNSEL
Included in Exhibit 5
EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of
our report dated August 6, 1999, relating to the September 30, 1997 and 1998
consolidated financial statements of Chronicle Communications, Inc. and to the
reference to our firm under the caption "Experts" in the Prospectus.
/s/ W. Andrew Mueller
W. Andrew Mueller, C.P.A.
Bella, Hermida, Gillman, Hancock & Mueller
Plant City, Florida
December 8, 1999
