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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 1999 to March 31, 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, Inc. and Affiliates
Balance Sheets
(Unaudited)
Assets As of March 31,
1999 1998
---------- ---------
Current Assets:
Cash $ 8,008 $ 454
Accounts receivable 216,090 169,533
Inventory 45,100 92,878
Other current assets 57,053 89,075
---------- ---------
Total current assets 326,251 351,940
Property and Equipment,
net of accumulated depreciation 1,412,736 1,595,961
Advances to stockholders 400,855 293,289
Other assets 267,643 -
---------- ---------
Total assets $ 2,407,485 2,241,190
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 104,913 $ 20,660
Short-term notes 94,067 51,000
Current maturities
of long-term debt 1,195,065 1,015,919
Accounts payable 859,289 1,090,465
Accrued payroll liabilities 342,150 175,854
Other accrued liabilities 460,110 223,275
---------- ---------
Total current liabilities 3,055,594 2,577,173
Long-term liabilities 140,011 112,163
Stockholders' equity:
Common stock, no par value,
35,000,000 shares authorized,
7,207,329 and 2,664,511 shares
issued and outstanding at
March 31, 1999 and
1998, respectively 3,976,977 2,249,033
Accumulated deficit (4,765,097) (2,697,179)
---------- ---------
Total stockholders' equity (788,120) (448,146)
---------- ---------
Total liabilities
and stockholders' equity $ 2,407,485 $ 2,241,190
========= =========
Restated for comparative purposes
Chronicle Communications, Inc. and Affiliates
Consolidated Statements of Operations
(Unaudited)
For the three months ended
March March
1999 1998
Sales $ 547,929 $ 468,188
Cost of sales 498,091 386,697
---------- ---------
Gross profit 49,838 81,491
---------- ---------
Operating expenses:
General and administrative 909,812 364,241
Interest 56,285 57,193
---------- ---------
Total operating expenses 966,097 421,434
---------- ---------
Net loss from operations $ (916,259) $ (339,943)
========= =========
Net loss per share, basic $ (0.15) $ (0.13)
========= =========
Weighted average shares outstanding 6,022,944 2,589,632
========= =========
Restated for comparative purposes.
Chronicle Communications, Inc.and Affiliates
Consolidated Statements of Operations
(Unaudited)
For the six months ended
March March
1999 1998
Sales $ 1,061,999 $ 1,015,698
Cost of sales 856,379 1,173,245
---------- ---------
Gross profit 205,620 (157,547)
---------- ---------
Operating expenses:
General and administrative 1,184,462 561,236
Interest 109,669 115,387
---------- ---------
Total operating expenses 1,294,131 676,623
---------- ---------
Net loss from operations $ (1,088,511) $ (834,170)
========= =========
Net loss per share, basic $ (0.18) $ (0.32)
========= =========
Weighted average shares outstanding 6,022,944 2,589,632
========= =========
Restated for comparative purposes.
Chronicle Communications, Inc and Affiliates
Consolidated Statements of Cash Flows
(Unaudited)
For the three months ended March
1999 1998
---------- ---------
Operating activities
Net loss $ (1,088,511) (834,170)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 84,254 78,322
Contribution of services 84,500
Common stock issued for operations 999,459 54,979
Increase or decrease in:
Accounts receivable (93,035) 143,273
Inventory 40,197 8,506
Other assets (239,216) (54,167)
Accounts payable (225,348) 238,315
Accrued payroll liabilities 17,183 (29,127)
Other accrued liabilities 161,872 150,721
---------- ---------
Net cash used by
operating activities (343,145) (158,848)
---------- ---------
Investing activities
Increase in investments (50,000) -
---------- ---------
Net cash used by
investing activities (50,000) -
---------- ---------
Financing activities
Bank overdraft 99,899 (7,953)
Increase in debt 140,011 62,000
Principal payments of debt (8,318) (74,070)
Stockholders advances (167,980) 21,786
Proceeds from issuance of stock 323,084 156,084
---------- ---------
Net cash provided by
financing activities 386,696 157,847
---------- ---------
Net increase (decrease) in cash (6,449) (1,001)
Cash at beginning of year 14,457 1,455
---------- ---------
Cash at end of year $ 8,008 454
========= =========
Supplemental schedule of noncash investing and financing activities
Stock issued for
stockholder's advances $ 72,584
========= =========
Stock issued for investments $ 29,063
========= =========
Stock issued for debt repayment $ 37,152 $ 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 January 1,
1999 and ended on March 31, 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 March 31, 1998 . At March 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 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 publications, and sales of
recycled newsprint to the packaging and shipping industries.
The Company's operating activity for the quarter ended March 31, 1999,
reflect six weeks of The South Georgia Chronicle - Thomas County Edition,
six editions each of New Homes Register which were the Maryland and Virginia
editions, two editions of Business Builder, two editions of Bonded Builders
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 March 31, 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 ($916,259) and ($339,943) for the
quarters ended March 31, 1999 and 1998, respectively. At March 31, 1999,
current liabilities exceeded current assets by $2,729,343 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 March 31, 1998, current liabilities exceeded current
assets by $2,225,233 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.
Revenues for the quarter ended March 31, 1999, compared to the quarter ended
March 31, 1998, increased by 14.5% or $79,741. The increase in revenue in
directly related to the seasonal business of the Company's commercial
printing services. The losses for the quarter ended March 31, 1999, were
directly related to an increase of costs related to promotion of the
Company's stock on the OTC:BB, the addition of several executives in
preparation for expansion, and extraordinary one time expenses.
The Company showed a increase in cost of good sold for the quarter ended
March 31, 1999, over the same period in 1998. Revenues were $547,929 and
$468,188 respectively for the periods ended March 31, 1999, and 1998. Cost
of sales as a percent of revenue was 90.9% for the quarter ended March 31,
1999, verses 82.5% for the same quarter ended 1998. Net loss per common
share, basic was ($.15) for the quarter ended March 31, 1999, which is
($.02) greater than the same quarter one year earlier. Net operating loss
increased to ($916,259) for the period ended march 31, 1999, against a loss
of ($339,943) 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 March 31, 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 $2,729,343 at
March 31, 1999, from a negative $2,225,223 at March 31, 1998. This
condition is the result of a decline in total current assets to $326,251
from $51,940, coupled with an increase in total current liabilities by
$478,421, 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 $179,146. Accounts payable decreased
by $231,196. Accrued payroll liabilities increased by $166,596 and other
accrued liabilities by $236,835.
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
March 31, 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 March 31, 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 March 31, 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 March 31, 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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