FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from October 1, 1999 to December 31, 1999
Commission file number 333-34283
CHRONICLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of incorporation or organization)
58-2235301
(I.R.S. Employer Identification No.)
3910 Riga Boulevard, Tampa, Florida 33619
(Address of principal executive offices) (Zip Code)
(813) 630-2762
(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 X No
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 February 11, 2000, was 37,587,571 shares, all of one class, no
par value.
Transitional Small Business Disclosure Format (check one);
Yes ___ No X
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
Chronicle Communications and Affiliates, Inc.
Balance Sheets
(Unaudited)
Assets As of DECEMBER 31,
1999 1998
------------ ------------
Current Assets:
Cash $ 20,995 $ 2,717
Accounts receivable 149,638 137,614
Inventory 35,788 65,107
Other current assets 146,912 25,682
------------ ------------
Total current assets 353,333 231,120
Property and Equipment, net of
accumulated depreciation 1,295,999 1,455,850
Advances to stockholders 738,960 202,692
Other assets 603,727 53,357
------------ ------------
Total assets $ 2,992,019 $1,943,019
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 7,959 $ 22,428
Short-term notes 275,207 97,556
Current maturities of
long-term debt 1,166,390 1,200,732
Accounts payable 1,640,594 859,199
Accrued payroll liabilities 555,167 324,066
Other accrued liabilities 499,887 345,122
------------ ------------
Total current liabilities 4,145,204 2,849,103
Long-term liabilities 201,000 -
Stockholders' equity:
Common stock, no par value,
35,000,000 shares authorized,
22,212,620 and 7,038,564 shares
issued and outstanding at December
31, 1999 and 1998, respectively 7,086,614 2,942,754
Accumulated deficit (8,440,799) (3,848,838)
------------ ------------
Total stockholders' equity (1,354,185) (906,084)
------------ ------------
Total liabilities and
stockholders' equity $2,992,019 $1,943,019
============ ===========
Restated for comparative purposes
Chronicle Communications and Affiliates, Inc.
Consolidated Statements of Operations
(Unaudited)
For the three months ended
December 31,
1999 1998
------------ ------------
Sales $ 559,156 $ 514,070
Cost of sales 405,287 321,960
------------ ------------
Gross profit 153,869 192,110
------------ ------------
Operating expenses:
General and administrative 817,740 310,978
Interest 62,900 53,384
------------ ------------
Total operating expenses 880,641 364,362
------------ ------------
Net loss from operations $ (726,771) $ (172,252)
Net gain on sale of assets - -
------------ ------------
Net loss $ (726,771) $ (172,252)
============ ============
Net loss per share $ (0.08) $ (0.04)
============ ============
Weighted average shares outstanding 8,797,907 4,838,564
=========== ============
Restated for comparative purposes
Chronicle Communications, Inc and Affiliates
Consolidated Statements of Cash Flows
(Unaudited)
For the three months ended
December 31,
1999 1998
------------ ------------
Operating activities
Net loss $ (726,771) $ (172,252)
Adjustments to reconcile net
loss to net cash
provided by operating
activities:
Depreciation and amortization 64,142 41,140
Common stock issued for operations 782,220 332,617
Increase or decrease in:
Accounts receivable 47,580 (14,559)
Inventory (3,678) 20,190
Other assets (45,499) (22,622)
Accounts payable 55,072 (225,438)
Accrued payroll liabilities 22,936 (901)
Other accrued liabilities (319,183) 46,884
------------ ------------
Net cash used by operating
activities (123,181) 5,059
Investing activities
Increase in investments - (50,000)
Net cash used by investing activities - (50,000)
------------ ------------
Financing activities
Bank overdraft (23,985) 17,414
Principal payments of debt (3,631) (2,649)
Stockholders advances (60,915) (37,564)
Proceeds from issuance of stock 225,000 56,000
Net cash provided by
financing activities 136,469 33,201
------------ ------------
Net increase (decrease) in cash 13,288 (11,740)
------------ ------------
Cash at beginning of year 7,707 14,457
Cash at end of year $ 20,995 $ 2,717
Supplemental schedule of noncash investing and financing activities
Stock issued for
stockholder's advances $ 186,737 $ 5,108
Stock issued for investments $ 15,000 $ -
Stock issued for debt repayment $ 46,484 $ 33,633
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 completed the acquisition of AmeriComp Computers, Inc. of
Houston, TX, on August 19, 1999. The acquisition of AmeriComp Computers,
Inc. will not be treated as a "pooling" under generally accepted accounting
principles. The Company did have to complete audits of the financial
records of AmeriComp for the periods ended September 30, 1999 and December
31, 1998. The Company completed an acquisition of Bright Now, Inc. and
Southern Paper and Converters Inc. on September 30, 1998. This acquisition
of the two related companies was treated as a "pooling" under generally
accepted accounting principles. At December 31, 1999 and 1998, the
Company, on both a parent only and consolidated basis, and its
subsidiaries, considered individually, were technically insolvent. The
Company operates a commercial web-offset printing business and a newsprint
paper recycling business located in Tampa, Florida and during part of the
reported periods was the publisher of two free weekly shopper-style tabloid
newspapers, operates a custom computer reseller, and operates a real estate
publication in the Maryland area. 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 industry, and the sales of
computer parts and accessories.
In November 1999, the Bright Now, Inc. subsidiary filed for protection
under Chapter 11 of the Federal Bankruptcy Code. It continued operations
until February 7, 2000 at which time the Federal Bankruptcy Court converted
the Chapter 11 Bankruptcy to a Chapter 7 Liquidation. The Company will
remove associated liabilities and litigation from its balance sheet once
liquidation is completed.
The Company has purchased its own printing press and has a letter of intent
to acquire its own office and production facility in Tampa, Florida, to
which it has relocated its executive offices under an occupancy agreement
pending a closing of the transaction and at which it intends to install the
new printing press during the first two weeks of February, 2000. However,
the debt that will be eliminated by the Bankruptcy of Bright Now, Inc, will
be replaced with a mortgage of approximately $2,125,000.00 for the
Company's new corporate headquarters and long-term equipment loan of
approximately $589,000.00 for a new state of the art printing press. This
property and equipment will add approximately $3,250,000.00 in assets to
the balance sheet.
The Company's operating activity for the quarter ended December 31, 1999
reflect its commercial printing plant and its paper recycling business,
Bartow Communications publication - New Homes Register, and AmeriComp
Computers. The Company's operating activity for the quarter ended December
31, 1998 reflects its commercial printing plant and its paper recycling
business, and publication of shopper style tabloid newspapers.
The Company incurred operating losses of $726,000 and $172,252 for the
quarters ended December 31, 1999 and 1998, respectively. At Decemebr 31,
1999, current liabilities exceeded current assets by $1,153,185 and as of
December 31, 1998, current liabilities exceeded current assets by $906,084.
Additionally, major vendors had placed the Company on a COD basis for
purchases.
The revenues for the quarter ended Decmber 31, 1999, compared to the
quarter ended December 30, 1998, increased by $45,086, nearly a 9.0%
increase.
The Company showed an increase in cost of good sold for the quarter ended
December 31, 1999, over the same period in 1998. Cost of sales as a
percent of revenue was 72.5% for the quarter ended December 31, 1999,
verses 62.6% for the same quarter ended 1998. Increase in costs of sales
may be attributed to vendors declining credit terms. Net loss per common
share, basic was ($.08) for the quarter ended December 31, 1999 versus
($.04) for the same quarter of 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 December 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 $1,153,185 at
December 31, 1999, from a negative $906,084 at December 31, 1998. This
condition is the result of an increase in total current liabilities of
$247,101,
as a result of defaults on obligations from its subsidiary, Bright Now,
Inc. that filed for protection under the Federal Bankruptcy Code.
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.
Subsequent to
December 31, 1999, the Company obtained services by issuance of its common
stock
to certain creditors and was significantly dependent upon forbearance of
collection and foreclosure sale by its remaining trade creditors and its
major judgment creditor, respectively. The Company requires and is
aggressively seeking primarily debt financing in order to satisfy the
delinquencies in its trade credits, satisfy its judgment creditors and
reestablish commercially reasonable trade credit arrangements with
suppliers. The Company intends to aggressively seek equity financing for
the purpose of restoring solvency. Furthermore, the Company intends to
continue its
program of acquiring businesses, primarily through the issuance of common
stock, which it believes 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. Effective February 1, 2000, with written consent
of stockholders in lieu of a special meeting, the Restated and Amended
Articles of Incorporation provided for an increase to one hundred million
(100,000,000) for the number of shares of authorized common stock.
Item 3. Defaults Upon Senior Securities.
During the three month period ended December 31, 1999, the Company's Bright
Now, Inc. subsidiary 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.
See Item 5 for further discussion of bankruptcy proceedings regarding
Bright Now, Inc.'s Chapter 7 Liquidation and long-term debt elimination.
Item 4. Submission of Matters to a Vote of Security Holders
During the three month period ended December 31, 1999, the Company did not
submit any matters to a vote of its security holders.
Item 5. Other Information
During the first quarter of the fiscal year, which began on October 1,
1999, management has vigorously been working to eliminate and rectify
ongoing administrative and operational matters in order to more efficiently
proceed with our ongoing efforts to strengthen the Company. These items
include the resolution of several outstanding litigation matters,
employment contracts and property belonging to discontinued operations.
Additionally, with the conversion and finalization of the bankruptcy
proceedings for Bright Now, Inc d.b.a. United Printing and Publishing from
Chapter 11 Bankruptcy to Chapter 7 Liquidation, the Company has eliminated
substantially all of the long-term debt as shown on the balance sheet at
December 31, 1999, primarily composed of notes of subsidiaries that were in
default and litigation of subsidiaries, reflected on the December 31, 1999
balance sheet. However, this debt will be replaced with a mortgage of
approximately $2,125,000.00 for the new corporate headquarters and long-
term equipment loan of approximately $589,000.00 for a new state of the art
printing press. This property and equipment will add approximately
$3,250,000.00 in assets to the balance sheet. Moreover, this new facility
and press will allow the Company to improve our operational and
administrative efficiencies and further develop our product lines and
market.
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: February 15, 2000
/s/ John V. Whitman, Jr.
John V. Whitman, Jr., President and Chief Operating Officer
Date: February 15, 2000
/s/ Jay E. Ostrow
Jay E. Ostrow, Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 20,995
<SECURITIES> 0
<RECEIVABLES> 149,638
<ALLOWANCES> 0
<INVENTORY> 35,788
<CURRENT-ASSETS> 353,333
<PP&E> 1,295,999
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,992,019
<CURRENT-LIABILITIES> 4,145,204
<BONDS> 0
0
0
<COMMON> 7,086,614
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,992,019
<SALES> 559,156
<TOTAL-REVENUES> 559,156
<CGS> 405,287
<TOTAL-COSTS> 880,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,900
<INCOME-PRETAX> (726,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (726,771)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
