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 December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________________
Commission file number 333-34283
CHRONICLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of incorporation or organization)
58-2235301
(I.R.S. Employer Identification No.)
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, Inc and Subsidiaries
Consolidated Balance Sheets
Unaudited
Assets As of December 31,
1998 1997
--------- ---------
Current Assets:
Cash $ 2,717 $ 10,398
Accounts receivable 137,614 198,630
Inventory 65,107 67,877
Other current assets 25,682 75,532
Advances to stockholders, current portion - -
--------- ---------
Total current assets 231,120 352,437
Property and Equipment,
net of accumulated depreciation 1,455,850 1,619,398
Advances to stockholders 202,692 248,552
Other assets 53,357 15,764
--------- ----------
Total assets $ 1,943,018 $ 2,236,151
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $22,428 $11,112
Short-term notes 97,556 62,000
Current maturities of long-term debt 1,200,732 180,790
Accounts payable 859,199 1,085,426
Accrued payroll liabilities 324,066 152,872
Other accrued liabilities 345,122 232,730
----------- ----------
Total current liabilities 2,849,103 1,724,930
Long-term liabilities - 948,008
Stockholders' equity:
Common stock, no par value, 35,000,000
shares authorized, 4,838,564 and 2,388,708
shares issued and outstanding at
December 31, 1998 and
1997, respectively 2,942,754 1,920,449
Accumulated deficit (3,848,838) (2,357,236)
----------- ----------
Total stockholders' equity (906,084) (436,787)
----------- ----------
Total liabilities and
stockholders' equity $ 1,943,019 $ 2,236,151
=========== ==========
Chronicle Communications, Inc and Subsidiaries
Consolidated Statements of Operations
Unaudited
For the three months ended
December December
1998 1997
----------- ----------
Sales $ 514,070 $ 547,510
Cost of sales 321,960 786,548
----------- ----------
Gross profit 192,110 (239,038)
----------- ----------
Operating expenses:
General and administrative 310,978 196,995
Interest 53,384 58,194
----------- ----------
Total operating expenses 364,362 255,189
----------- ----------
Income from operations (172,252) (494,227)
Net gain on sale of assets -
----------- ----------
Net loss $(172,252) $(494,227)
=========== ==========
Net loss per common share, basic $(0.04) $(0.21)
=========== ==========
Weighted average common
shares outstanding 4,838,564 2,388,708
=========== ==========
Chronicle Communications, Inc and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
For the three months ended December
1998 1997
----------- ----------
Operating activities
Net loss $ (172,252) $ (494,227)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 41,140 43,114
Common stock issued for operations 332,617
Increase or decrease in:
Accounts receivable (14,559) 114,176
Inventory 20,190 33,507
Other assets (22,622) (56,388)
Accounts payable (225,438) 233,276
Accrued payroll liabilities (901) 233,276
Other accrued liabilities 46,884 160,176
----------- ----------
Net cash used by operating activit 5,059 266,910
----------- ---------
Investing activities
Increase in investments (50,000) -
----------- ----------
Net cash used by investing activities (50,000) -
----------- ----------
Financing activities
Bank overdraft 17,414 (17,501)
Principal payments of debt (2,649) (21,604)
Stockholders advances (37,564) 66,523
Proceeds from issuance of stock 56,000 -
----------- ----------
Net cash provided by
financing activities 33,201 27,418
----------- ----------
Net increase (decrease) in cash (11,740) 8,943
Cash at beginning of year 14,457 1,455
----------- ----------
Cash at end of year $ 2,717 10,398
=========== ==========
Supplemental schedule of noncash investing and financing activities
1998 1997
----------- ----------
Stock issued for
stockholders advances $ 5,108 $ -
=========== ==========
Stock issued for debt repayment $ 33,633 $ -
----------- ----------
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 October 1,
1998 and ended on December 31, 1998. 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 December 31, 1997. At December 31, 1998 and 1997, 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 of a free weekly shopper-style tabloid
newspaper. The Company's revenues were generated through sales of
commercial printing services, sales of display advertising in its own
publication, sales of classified advertising and sales of recycled
newsprint to the packaging and shipping industries.
The Company's operating activity for the quarter ended December 31, 1998,
reflect thirteen weeks of The South Georgia Chronicle - Thomas County
Edition 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 December 31, 1997, reflect thirteen weeks of
the South Georgia Chronicle Thomas County Edition, thirteen weeks of the
South Georgia Chronicle Crisp County Edition, thirteen weeks of both
editions of the Sunday South Georgia Chronicle and revenues from its
commercial printing plant and its paper recycling business.
The Company incurred operating losses of $172,252 and $494,227 for the
quarters ended December 31, 1998 and 1997, respectively. At December 31,
1998 current liabilities exceeded current assets by $2,617,983 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 December 31, 1997, current liabilities
exceeded current assets by $1,372,493 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 December 31, 1998, compared
to the quarter ended December 31, 1997, and the losses for the quarter
ended December 31, 1998, were directly related to commercial printing jobs
dropped at the Company's printing facility that did not meet the Company's
minimum profit standards. 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 marked improvement in cost of good sold for the
quarter ended December 31, 1998, over the same period in 1997. Revenues
were $514,070 and $547,510 respectively for the periods ended December 31,
1998, and 1997. Cost of sales as a percent of revenue was 62.6% for the
quarter ended December 31, 1998, verses 143.6% for the same quarter ended
1997. Net loss per common share, basic was ($.04) for the quarter ended
1998 which is a ($.17) improvement over the same quarter one year earlier.
Net operating loss improved to ($172,252) for the period ended December 31,
1998, against a loss of ($494,227) for the same period ended 1997.
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 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 had a positive impact on the Company's operating performance
in subsequent periods. 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 December 31, 1998 and 1997, 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 $2,617,983 at
December 31, 1998, from a negative $1,371,953 at December 31, 1997. This
condition is the result of a decline in total current assets to $231,120
from $352,437, coupled with an increase in total current liabilities by
$1,124,173, 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 $1,019,942. Accounts payable
decreased by $226,227. Accrued payroll liabilities increased by $171,194
and other accrued liabilities by $112,392.
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
December 31, 1998, 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 December 31, 1998, 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 December 31, 1998, 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 December 31, 1998.
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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