FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from April 1, 1999 to June 30, 1999
Commission file number 333-34283
CHRONICLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of incorporation or organization)
58-2235301
(I.R.S. Employer Identification No.)
2601 Second Avenue, Tampa, Florida 33605
(Address of principal executive offices) (Zip Code)
(813) 248-0100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's classes of common
stock, as of October 11, 1999, was 15,374,204 shares, all of one class, no
par value.
Transitional Small Business Disclosure Format (check one);
Yes ___ No X
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
Chronicle Communications and Affiliates, Inc.
Balance Sheets
(Unaudited)
Assets As of JUNE 30,
1999 1998
------------ ------------
Current Assets:
Cash $ 6,672 $ 3,451
Accounts receivable 120,105 168,938
Inventory 45,280 60,078
Other current assets 89,140 21,902
------------ ------------
Total current assets 261,197 254,369
Property and Equipment, net of
accumulated depreciation 1,369,955 1,563,427
Advances to stockholders 562,280 253,516
Other assets 267,453 -
------------ ------------
Total assets $ 2,460,885 $2,071,312
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 195,880 $ 25,159
Short-term notes 128,867 62,000
Current maturities of
long-term debt 1,176,485 928,916
Accounts payable 868,845 1,036,384
Accrued payroll liabilities 353,329 209,554
Other accrued liabilities 497,221 227,875
------------ ------------
Total current liabilities 3,220,628 2,489,888
Long-term liabilities 140,011 108,735
Stockholders' equity:
Common stock, no par value,
35,000,000 shares authorized,
10,196,604 and 2,771,191 shares
issued and outstanding at
June 30, 1999 and 1998, respectively 4,992,088 2,323,412
Accumulated deficit (5,891,842) (2,850,723)
------------ ------------
Total stockholders' equity (899,754) (527,311)
------------ ------------
Total liabilities and
stockholders' equity $2,460,885 $2,071,312
============ ===========
Restated for comparative purposes
Chronicle Communications and Affiliates, Inc.
Consolidated Statements of Operations
(Unaudited)
For the three months ended
June June
1999 1998
------------ ------------
Sales $ 365,139 $ 425,217
Cost of sales 578,075 286,739
------------ ------------
Gross profit (212,936) 138,478
------------ ------------
Operating expenses:
General and administrative 856,069 224,227
Interest 57,740 67,795
------------ ------------
Total operating expenses 913,809 292,022
------------ ------------
Net loss from operations $ (1,126,745) $ (153,544)
============ ============
Net loss per share $ (0.13) $ (0.06)
============ ============
Weighted average shares outstanding 8,701,964 2,589,632
=========== ============
Restated for comparative purposes
Chronicle Communications, Inc.and Affiliates
Consolidated Statements of Operations
(Unaudited)
For the nine months ended
June June
1999 1998
------------ ------------
Sales $ 1,427,138 $ 1,440,915
------------ ------------
Cost of sales 1,434,454 1,459,984
Gross profit (7,316) (19,069)
------------ ------------
Operating expenses:
General and administrative 2,040,532 785,463
Interest 167,409 183,182
------------ ------------
Total operating expenses 2,207,941 968,645
------------ ------------
Net loss from operations $ (2,215,256) $ (987,714)
============ ============
Net loss per share $ (0.25) $ (0.38)
============ ============
Weighted average shares outstanding 8,701,964 2,589,632
============ ============
*Restated for comparative purposes
Chronicle Communications, Inc and Affiliates
Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended June
999 1998
------------ ------------
Operating activities
Net loss $ (2,215,256) $ (987,714)
Adjustments to reconcile net
loss to net cash
provided by operating
activities:
Depreciation and amortization 127,035 99,085
Contribution of services 106,750
Common stock issued for operations 1,658,112 30,000
Increase or decrease in:
Accounts receivable 2,950 143,868
Inventory 40,017 41,306
Other assets (261,113) 13,006
Accounts payable (215,792) 184,234
Accrued payroll liabilities 28,362 4,573
Other accrued liabilities 198,984 155,321
------------ ------------
Net cash used by operating
activities (636,701) (209,571)
Investing activities
Increase in investments (50,000) -
Net cash used by investing activities (50,000) -
------------ ------------
Financing activities
Bank overdraft 190,866 (3,454)
Increase in debt 164,263 62,000
Principal payments of debt (2,649) (147,451)
Stockholders advances (228,935) 61,559
Proceeds from issuance of stock 555,371 238,913
Net cash provided by
financing activities 678,916 211,567
------------ ------------
Net increase (decrease) in cash (7,785) 1,996
------------ ------------
Cash at beginning of year 14,457 1,455
Cash at end of year $ 6,672 $ 3,451
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 debt repayment $ 50,582 $ 11,000
Restated for comparative purposes
Item 2. Management's Discussion and Analysis
This quarterly report 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 annual report, which may cause actual
results to differ materially from those discussed in such forward-looking
statements. The forward-looking statements within this annual report 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 projected in the forward looking statements as a
result of various factors, many of which are beyond the control of the
Company. 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 quarterly
report.
The Company's quarterly results covered in this report began on April 1,
1999, and ended on June 30, 1999. The Company successfully 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
period ended June 30, 1998 . 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 operates a commercial web-offset printing business and a
newsprint paper recycling business located in Tampa, Florida and during the
reported period was the publisher New Homes Register which published two
editions, Maryland and Virginia and was acting publisher for two home
builder association trade publications located in South Florida. The
Company's revenues were generated through sales of commercial printing
services, sales of display advertising in its own publication, and sales of
recycled newsprint to the packaging and shipping industries.
The Company's operating activity for the quarter ended June 30, 1999 reflect
six editions each of New Homes Register which included the Maryland and
Virginia editions, three editions of Business Builder, one edition of Bonded
Builder News, and the Company operated its commercial printing plant and its
paper recycling business for the entire quarter. The Company's operating
activity for the quarter ended June 30, 1998, reflect thirteen weeks of the
South Georgia Chronicle Thomas County Edition, thirteen 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 ($212,936) and against operating
profits of $138,478 for the quarters ended June 30, 1999 and 1998,
respectively. 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 the Company's 10K-SB
filing 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 the Company's 10K-SB filing 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 quarter ended June 30, 1999, compared to the
quarter ended June 30, 1998, and the losses for the quarter 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 increase in cost of good sold for the quarter ended
June 30, 1999, over the same period in 1998. Revenues were $365,139 and
$425,217 respectively for the periods ended June 30, 1999, and 1998. Cost
of sales as a percent of revenue was 158.3% for the quarter ended June 30,
1999, verses 67.4% for the same quarter ended 1998. Net loss per common
share, basic was ($.13) for the quarter ended 1999. Net operating loss
declined to ($1,126,745) for the period ended June 30, 1999, against a loss
of ($153,544) 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 quarters 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.
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
June 30, 1999, the Company 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. Upon restoration of the Company's compliance with the reporting
requirements of Section 15(d) of the Securities Exchange Act of 1934, as
amended, in which this quarterly report on Form 10-Q is a major component,
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.
PART II--OTHER INFORMATION
Item 2. Changes in Securities.
During the three-month period ended there was no modification of any
instruments defining the rights of holders of the Company's common stock and
no limitation or qualification of the rights evidenced by the Company's
common stock as a result of the issuance of any other class of securities or
the modification thereof.
Item 3. Defaults Upon Senior Securities.
During the three month period ended June 30, 1999, the Company was in
default of the following indebtedness:
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.
Item 4. Submission of Matters to a Vote of Security Holders
During the three month period ended June 30, 1999, the Company did not
submit any matters to a vote of its security holders.
Item 5. Other Information
The Company does not have any other material information to report with
respect to the three month period ended June 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chronicle Communications, Inc.
(Registrant)
Date: October 13, 1999
/s/ John V. Whitman, Jr.
John V. Whitman, Jr., President and Chief Operating Officer
Date: October 13, 1999
/s/ Ronald L. Mallett
Ronald L. Mallett, Chief Financial and Accounting Officer
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