U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT UNDER 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.
(Name of small business issuer 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
Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: NONE
Name of each exchange on which registered: NOT APPLICABLE
Securities registered under Section 12(g) of the Exchange Act:
Title of class: NONE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2)
has been subject to such filing requirements for the past 90 days. Yes
... No X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,748,026
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 15,189,204 shares at
August 30, 1999
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I,
Part II, etc.) into which the document is incorporated: (1) any annual
report to security holders; (2) any proxy or information statement; and
(3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities
Act of 1933 ("Securities Act"). The list documents should be clearly
described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1990).
NONE
Transitional Small Business Disclosure Format (check one): Yes No X
This annual 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 annual
report.
PART I
Item 1. Description of Business.
OVERVIEW OF BUSINESS DEVELOPMENT SINCE INCEPTION-
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. 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. 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 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 has announced an aggressive acquisition program focusing on
print media, televisions stations, radio stations, digital communications
companies, e-commerce and e-service businesses.
COMMERCIAL PRINTING-
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.
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.
The Company is the contract publisher of several home builder
association trade newspapers in the South Florida market. Although it
does not own the publications, under its contract with the owner, the
Company sells the advertising, assembles the product, and prints the product.
The publication owner pays printing and distribution cost, while the
Company retains all advertising sales revenues. The Company is currently
producing two such publications and has three additional publications
under contract. The Company believes there are a few independent and
self employed persons performing contract publishing services which could
compete with the Company.
The Company's own publishing and contract publishing activities
account for approximately twenty-six percent of its revenues. None of
these publishing activities and customers account for more than ten
percent of the Company's revenues. All of the Company's continuing
publishing operations were acquired or initiated subsequent to the fiscal
year covered by this annual report.
INTERNET SERVICES-
The Company acquired seventy percent of a development stage
Internet business operating under Gotcashback.com, Inc. The 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. The 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
Internet. The Company's Internet 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.
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.
Item 2. Description of Property.
The Company owns a 25,000 square foot office/warehouse in Cairo, Georgia
which was formerly used for executive, sales and production offices.
This property is presently not used by the Company and is offered for
sale.
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 to allow the Company to obtain refinancing, which the Company is
actively seeking. 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.
Item 3. Legal Proceedings
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.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock is quoted under the trading symbol of CRNC on
the OTC Bulletin Board operated by the National Association of Securities
Dealers, Inc. The Company's common stock was first quoted in the over-
the-counter market on or about August 19, 1998. The high and low bid
quotations for the only calendar quarter the Company's common stock was
quoted in the over-the-counter market prior to the date of the Financial
Statements included herein were $.34 and $.18, respectively. These over-
the-counter bid quotations do not reflect retail markup, markdown and or
commission and may not necessarily represent actual transactions.
The Company had approximately 217 holders of its common stock at
September 30, 1998. At September 15, 1999, the Company had approximately
644 holders of its common stock. The Company's transfer agent is Atlas Stock
Transfer of Salt Lake City, Utah.
The Company has not paid dividends on its common stock since inception
and does not anticipate paying dividends in the near future. The Company
has not earned net profits from which to pay dividends.
During the fiscal year ended September 30, 1998, the Company sold 979,077
shares of its common stock with aggregate proceeds in cash and services
of approximately $594,917. The common stock was issued in reliance upon
Rule 505 under the Securities Act of 1933, as amended, as part of an
offering which began in June 1997. The cash proceeds from the sale of
the common stock were used for general working capital purposes. The
common stock was sold directly by the Company without an underwriter.
The common stock was sold to a total of seventy-eight persons, including
existing stockholders, accredited investors and a limited number of non-
accredited investors. On September 30, 1998, the Company issued 640,000
shares of its common stock to three individuals in payment of
consideration for all of the issued and outstanding equity securities of
Bright Now, Inc. and Southern Paper and Converters, Inc. and the
industrial real property on which the operations of the two acquired
companies were located in Tampa, Florida. These shares were issued
pursuant to an exemption provided by Section 4(2) of the Securities Act
of 1933, as amended, from the registration requirements of said act.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company's fiscal year covered by this annual report began on October
1, 1997 and ended on September 30, 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. 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
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 customers from printing with the
Company, and finally the high costs associated in building a public
market for the Company's common stock. 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 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. 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 annual report on Form 10-KSB 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. See Note 11 to the Financial Statements
included elsewhere herein.
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.
Item 7. Financial Statements.
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
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
1998 1997
-------- --------
CURRENT ASSETS:
Cash $ 14,457 $ 1,455
Accounts Receivable 123,055 312,806
Inventory 85,297 101,384
Other Current Assets 22,144
Advances to Stockholders, Current Portion 115,000
-------- --------
Total Current Assets 222,809 552,789
PROPERTY AND EQUIPMENT,
Net of Accumulated Depreciation of
$504,453 (1998) and $338,344 (1997) 1,496,990 1,662,512
ADVANCES TO STOCKHOLDERS 160,021 200,075
OTHER ASSETS 6,417 12,764
---------- ---------
TOTAL ASSETS $1,886,237 $2,428,140
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank Overdraft $ 5,014 $ 28,613
Short-Term Notes 304,270 181,897
Current Maturities of Long-Term Debt 1,030,331 180,790
Accounts Payable 1,084,637 852,150
Accrued Payroll Liabilities 324,967 204,981
Other Accrued Liabilities 298,238 72,554
----------- ----------
Total Current Liabilities 3,047,457 1,520,985
LONG-TERM LIABILITIES 849,715
----------- ----------
Total Liabilities 3,047,457 2,370,700
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
Accumulated Deficit (3,676,586) (1,863,009)
Total Stockholders' Equity (1,161,220) 57,440
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,886,237 $2,428,140
=========== ===========
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
1998 1997
---- ----
SALES $1,748,026 $2,421,931
COST OF SALES 1,691,021 2,198,196
--------- ---------
GROSS PROFIT 57,005 223,735
OPERATING EXPENSES:
General and Administrative 1,567,748 1,559,489
Interest 302,834 180,749
--------- ---------
Total Operating Expenses 1,870,582 1,740,238
LOSS FROM OPERATIONS (1,813,577) (1,516,503)
NET GAIN ON SALE OF ASSETS 88,992
--------- ---------
NET LOSS $(1,813,577) $(1,427,511)
========= =========
NET LOSS PER COMMON SHARE, BASIC $( 0.70) $( 0.68)
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,589,632 2,113,131
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)
========= ========== ========== ======= ============
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
1998 1997
---- ----
OPERATING ACTIVITIES:
Net Loss $(1,813,577) $(1,427,511)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation and Amortization 172,456 161,039
Gain on the Sale of Assets ( 88,992)
Expenses Paid with Stock 300,297 38,444
Contributed Services 99,400
Increase or Decrease in:
Accounts Receivable 189,751 24,122
Inventory 16,087 2,411
Other Assets 22,144 70,101
Accounts Payable 232,487 396,612
Accrued Liabilities 345,670 212,129
---------- ------------
Net Cash Used in Operating Activities (534,685) (512,245)
---------- ------------
INVESTING ACTIVITIES:
Proceeds from Sale of Assets 119,620
Purchase of Property and Equipment ( 586) ( 556,261)
---------- ------------
Net Cash Used in Investing Activities ( 586) ( 436,641)
---------- ------------
FINANCING ACTIVITIES:
Bank Overdraft ( 23,599) ( 26,247)
Proceeds from Issuance of Debt 174,004 849,257
Principal Payments of Debt ( 40,805) ( 652,825)
Advances to Stockholders 155,053 ( 215,952)
Proceeds from Issuance of Stock 283,620 977,759
---------- ------------
Net Cash Provided by Financing Activities 548,273 931,992
---------- ------------
NET INCREASE (DECREASE) IN CASH 13,002 ( 16,894)
CASH AT BEGINNING OF YEAR 1,455 18,349
---------- ------------
CASH AT END OF YEAR $ 14,457 $ 1,455
========== ============
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 Payment of Directors' Fees $ 0 $17,500
Equipment Purchased with Notes $ 0 $86,799
Stock Issued for Debt Repayment $11,000 $ 0
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 15, 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.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
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
- -------------------- ---- --------------------------- ---------------
Randall D. Bartow 48 Director, President
of Subsidiaries (1) 1999
Daniel L. Hefner 49 Chief Operating Officer 1999
Ronald L. Mallett 48 Director 1997
Jackson L. Morris 54 Director, General
Counsel and Secretary 1996
John V. Whitman, Jr. 40 Director, Chairman, President 1996
(1) Mr. Bartow is the president of Bartow Communications, Inc. and
Gotcashback.com, Inc.
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. An
annual meeting of stockholders was not held in fiscal 1998 and has not
yet been held in fiscal 1999.
Randall D. Bartow, is a director since 1999 and the president of two of
the Company's subsidiaries, Bartow Communications, Inc. and, beginning
with the Company's acquisition, of Gotcashback.com, Inc. He was the
founder in 1994 and president of Bartow Communications. Mr. Bartow is a
director of Chronicle Communications, Inc., a publicly traded company.
Prior to founding Bartow Communications, Mr. Bartow was the president of
the publisher of Mid-Atlantic Country magazine, a company which also
acquired the Baltimore Magazine under Mr. Bartow's direction, and was
employed by the publisher of New Homes Guide. Mr. Bartow has more than
twenty-five years experience in real estate Marketing. Mr. Bartow earned
Bachelor of Science degree in journalism (1973) from Ohio University.
Ronald L. Mallett, a director since May 1997, is a Vice President and the
General Manager of Thigpen Heating & Cooling, Inc. of Jacksonville,
Florida, employment which he started in June 1997. From 1990 to June
1997, Mr. Mallett was a vice president of Certified Air Contractors, Inc.
of Jacksonville, Florida. Both Thigpen Heating & Cooling, Inc. and
Certified Air Contractors, Inc. are regional heating, air conditioning
and refrigeration contractors with annual sales of approximately $4
million and $3 million, respectively. Mr. Mallett's duties with each
company include sales and operations. Mr. Mallett is a member of the
Occupational License Tax Equity Study Commission, a post appointed by the
mayor of Jacksonville, Florida, for one year beginning 1995. From 1990
to 1995, Mr. Mallett was the president of Jacksonville Air Conditioning
Contractors Association and in 1990 and 1991 he was a member of the board
of the American Subcontractors Association, North Florida Chapter.
Beginning in 1994 to the present Mr. Mallett has served on several
committees of the Associated General Contractors of North Florida and was
elected to the board of that organization in 1996. Mr. Mallett retired
from the U.S. Marine Corps in 1990 with the rank of Captain after twenty-
three years of service. Mr. Mallett earned a B.S. degree in occupational
education (1985) from Southern Illinois University.
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.
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.
Item 10. Executive Compensation.
Name Fiscal Year Position(s) Salary(1)
- --------------------- ----------- -------------- -----------
John V. Whitman, Jr. 1996 President $ 39,600
1997 President $ 99,400
1998 President $ 125,000
(1) The amounts shown are amounts accrued but not paid. Mr. Whitman has
however taken advances from the Company during the respective periods.
The following table sets forth certain information about common stock
purchase warrants granted to executive officers during the 1998 fiscal year.
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) 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 21.805% ownership of the Company's total
issued and outstanding common stock at any time, less adjustment for
shares sold by Mr. Whitman after December 31, 1997.
Independent directors are paid an annual fee of $500 for services and all
directors may be granted common stock purchase options in the discretion
of the board of directors. During fiscal 1998, the following options
were granted to directors other than Mr. Whitman:
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The names of directors and officers and the name of each person who owned
legally and beneficially more than five percent of the Company's issued
and outstanding common stock at September 30, 1998, 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 only by such person is set
forth in the following table. Unless otherwise indicated, all shares are
both legally and beneficially owned.
Name Number of Shares Percentage
- ------------------------ ---------------- -----------
Ronald L. Mallett (1)(2) 57,500 1.70
Jackson L. Morris (1)(3) 169,639 5.04
John V. Whitman, Jr. (1)(4) 1,107,662 32.89
All directors and officers 1,334,801 39.63
as a group (3 persons)
(1) Messrs. Mallett, Morris and Whitman's address is the address of the
Company.
(2) Number of shares and percentage include 51,250 shares which Mr.
Mallett may acquire at any time by exercise of common stock purchase
options.
(3 ) Number of shares and percentage include 57,139 shares which Mr.
Morris may acquire at any time by exercise of common stock purchase
options.
(4 ) Number of shares and percentage include 345,152 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.
Item 12. Certain Relationships and Related Transactions.
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
Shairman.
Item 13. Exhibits and Reports on Form 8-K.
The change in the Company's independent auditor, subsequent to the fiscal
year covered by this annual report, was previously reported on Form 8-K
for May 28, 1999.
(a) Exhibits:
3(a) Articles of Incorporation, as amended, incorporated by reference to
Registration Statement on Form SB2, Commission File No. 333-34283, except
for amendments sunsequent to the date of this annual report, which are filed
herewith.
3(b) Bylaws, incorporated by reference to the Registration Statement on Form
SB2, Commission File No. 333-34283
10 Material contracts for the period covered by the related annual report on
Form 10-KSB
10(a) Agreement for Purchase and Sale of Stock and Agreement for
Purchase of Commercial Real Estate covering the acquisition of Bright
Now, Inc., Southern Paper and Converters, Inc. and the related real
estate, incorporated by reference to report on Form 8-K filed with respect
to September 30, 1998 under Commission File No. 333-34283
11 Statement re: computation of earnings per share
16 Letter re: change in certifying accountant incorporated by reference to
report on Form 8-K with respect to May 28, 1999.
21 Subsidiaries of the Company
23 Consent of certifying auditor
27 Financial data schedule
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the last three months of the period covered by this annual
report. The Company subsequently filed two reports on Form 8-K with
respect to September 30, 1998. Each such report was filed with respect
to the acquisition of Bright Now, Inc. and Southern Paper and Converters,
Inc.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Chronicle Communications, Inc.
By: /s/ John V. Whitman, Jr.
Date signed: September 29, 1999
President and Chief Executive Officer
Signature Capacity in which signed: Date signed:
- ------------------------ ------------------------- -------------
/s/ Randall D. Bartow Director September 29, 1999
Randall D. Bartow
/s/ Ronald L. Mallett Director,
Ronald L Mallett Chief Accounting Officer September 29, 1999
and Principal Financial
/s/ Jackson L. Morris Director September 29, 1999
Jackson L. Morris
/s/ John V. Whitman, Jr. Director,
John V. Whitman, Jr. Chief Executive Officer September 29, 1999
EXHIBIT INDEX
3(a) Amendments to the Articles of Incorporation dated May 14, 1999
and May 24, 1999
3(b) Bylaws, incorporated by reference to Registration Statement on Form SB2,
Commission File No. 333-34283
10 Material contracts
10(a) Agreement for Purchase and Sale of Stock and Agreement for Purchase
of Commercial Real Estate covering the acquisition of Bright Now, Inc.,
Southern Paper and Converters, Inc. and the related real estate, incorporated
by reference to report on Form 8-K filed with respect to September 30, 1998
under Commission File No. 333-34283
11 Statement re: computation of earnings per share
16 Letter re: change in certifying accountant incorporated by reference to
report on Form 8-K with respect to May 28, 1999.
21 Subsidiaries of the Company
23 Consent of certifying auditor
27 Financial data schedule
EXHIBIT 3(a)
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
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 21 Subsidiaries of the Company
The Subsidiaries of the Company during the period covered by the
related
annual report on Form 10-KSB are:
Bright Now, Inc., a Florida corporation
Southern Paper and Converters, Inc., a Florida corporation
EXHIBIT 23 Consent of certifying auditor
EXHIBIT 27 Financial data schedule
Supplemental information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Exchange Act By Non-reporting Issuers
(1) The Company did not issue and at this time cannot issue any annual
report to its stockholders during the 1998 fiscal year.
(2) The Company did not issue and at this time cannot issue a proxy
statement, form of proxy or other proxy soliciting material to more than
ten of the Company's stockholders for any purpose.
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