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, 1999
[ ] 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.)
3910 Riga Boulevard, Tampa, Florida 33619
(Address of principal executive offices) (Zip Code)
(813) 630-2762
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. $1,934,500
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 25,502,517 shares at
January 24, 2000
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
FORWARD-LOOKING STATEMENTS
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 president and
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 newspaper 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 had 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 acted as a contract publisher
for organizations and associations which publish home builder association
trade publications in South Florida. The Company has returned RKN
Enterprises, Inc. to its previous owner. 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 since 1994. In November 1999, the
Bright Now, Inc. subsidiary filed for protection under Chapter 11 of the
Federal Bankruptcy Code, but it is continuing operations at the present
time. The Company has ordered 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.
COMMERCIAL PRINTING-
Bankruptcy of Bright Now, Inc.
On November 23, 1999, Bright Now, Inc., the Company's wholly owned
subsidiary which is engaged in commercial printing, filed for protection
under chapter 11 of the Federal Bankruptcy Code: Bright Now, Inc. doing
business as United Printing and Publishing, Case No. 99-18814 in the US
Bankruptcy court in the Middle District of Florida, Tampa Division. The
Company expects Bright Now, Inc. to file a plan of reorganization in due
course. A preliminary hearing will be held in Courtroom 8A, Sam M. Gibbons
United States Courthouse, in Tampa, Florida on February 7, 2000, at 1:30 PM
before the Honorable Paul M. Glenn, United States Bankruptcy Judge, to
consider and act upon the U.S. Trustee's Motion to Dismiss or Convert
Chapter 11 Case. At the date of this report, the Company is uncertain
regarding the business and prospects of Bright Now, Inc., which have been
highly dependent upon the ability of the Company to provide funding to
Bright Now, Inc., which has depended in turn upon the Company's ability to
obtain debt or equity funding. Continuing operations of Bright Now, Inc.,
if any, will quite likely remain dependent upon the Company's ability and
desire to provide funding to Bright Now, Inc. for working capital, of which
there is no assurance in either case. Most of the company's publishing
activities are conducted directly, so a possible liquidation of Bright Now,
Inc. possibly could be expected to increase the Company's cost of goods
sold in the event the Company were to be required to have its own
publications and work for its commercial printing customers to be printed
by others. See the information below regarding the Company's order of its
own printing press.
All of the Company's commercial printing business in Tampa is now being
conducted by Bright Now, Inc. That subsidiary 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 has ordered its own printing press which is expected to be
installed in its new headquarters and operations facility and be in
operation by mid- to late February 2000. The new press is manufactured by
the Raghbeer Company located in New Delhi, India. The Press is called a
FAST-300 and will consist of 6-printing units, 6-roll stands and a folder.
The FAST-300 is very similar in configuration and operation to a Goss
Community printing press. Installation of this new printing press will
make the Company's commercial printing operations independent of Bright
Now, Inc.
The Company, through its Bright Now, Inc. subsidiary, 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 42 percent of the Company's
revenues. The Company's commercial printing business is seasonal, with a
decline of approximately 15 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 Bright Now, Inc.'s
equipment, an aggressive advertising program and a qualified sales force.
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 ten personnel in Bright
Now, Inc.'s commercial printing operations.
The Company maintains a small business recycling damaged roles and butt end
or dink roles of newsprint through its Southern Paper and Converters, Inc.
subsidiary. 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. Once fully operational at its new headquarters
and operations offices in Tampa, the Company expects to discontinue
operations of Southern Paper and Converters, Inc. The Company has no plans
on continuing any type of recycling business in the future.
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 commercial printing plant in Tampa. To the Company's knowledge, there
are no direct competitors with The Register.
The Company's own publishing activities account for approximately 13
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 its 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 every year
since inception except fiscal 1999 and the first two quarters of year 2000.
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.buyaci.com. 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.
Bright Now, Inc.'s commercial printing facilities are located in a 40,000
square foot office/warehouse/industrial facility which it occupies, in the
historic Ybor City district of Tampa. The printing presses and certain
other equipment located at this facility are also subject to a foreclosure
judgment in favor of Bank of America. This facility is adequate for Bright
Now, Inc.'s commercial printing operations; however, the printing presses
are in need of substantial maintenance. Bright Now, Inc. generally runs one
shift 5 days a week, but when necessary can increase to two or three shifts
and extend printing schedules up to seven days a week. Bright Now, Inc.
has excess capacity on its existing press equipment. The facility is in
need of significant maintenance and capital improvements. This property,
as well as the printing presses and certain other equipment, has been
foreclosed on and is subject to repossession at any time, a judgment in
favor of the Company's mortgage lender has been granted. See, "Legal
Proceedings" in Item 3, below.
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.
The Company has entered into an Occupancy Agreement, pending execution of a
Sale Agreement and closing of the purchase of a 32,000 sq ft office and
light industrial building located in Tampa, Florida. The Company has
relocated its headquarters to this facility prior to closing the purchase
and intends to install its own new printing press at this facility. The
seller is providing the financing for the Company's purchase of this
property. The purchase is contingent upon the seller obtaining a re-
platting of the property to separate it from the larger parcel which the
seller owns.
Item 3. Legal Proceedings
The Company's litigation is primarily, but not exclusively, confined to
suits and claims against Bright Now, Inc. For information about the filing
by Bright Now, Inc. for protection under Chapter 11 of the Federal
Bankruptcy Code, see "Bankruptcy of Bright Now, Inc." in Item 1, above.
Bright Now, Inc. 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.
Bright Now, Inc. 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 Bright Now, Inc. in
NationsBank, N.A. vs. Bright Now, Inc., et al., Case No. 98-7658 in the
Hillsborough County, Florida Circuit Court. This property, as well as the
printing presses and certain other equipment, has been foreclosed on and is
subject to repossession at any time, a judgment in favor of the Company's
mortgage lender has been granted. Bright Now, Inc. has never been the
owner of the property and the Company has never taken record title to the
property.
Bright Now, Inc. 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.
Bright Now, Inc. is also a defendant 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 as
collateral for 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.
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.
One of the Company's subsidiaries is a defendant in 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.
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.
Larry S. Hyman vs. Chronicle Communication, Inc., Case No. 98-5547 CI 7
This action is for breach of contract in the acquisition of a printing
plant and seeks $739,371.70 in damages. Plaintiff's motion for summary
judgment has been denied. The Company believes it has substantial
defenses to this claim and is vigorously defending.
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 and its subsidiaries are also involved as defendants in
additional litigation with vendors. The Company's subsidiary was a
defendant in several additional suits which were resolved prior to
September 30, 1999 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 each of the five calendar quarters the Company's common
stock has quoted in the over-the-counter market ended on September 30, 1999
and for the quarter ended December 31, 1999 are set forth in the following
table. These over-the-counter bid quotations do not reflect retail markup,
markdown and or commission and may not necessarily represent actual
transactions.
Quarter ended High Bid Low Bid
September 1998 .667 .1875
December 1998 .50 .50
March 1999 .875 .875
June 1999 .29 .29
September 1999 .46 .33
December 1999 .625 .07
The Company had approximately 646 holders of its common stock at
September 30, 1999. At January 24, 2000, the Company had approximately
685 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, 1999, the Company sold
12,006,414
shares of its common stock with aggregate proceeds in cash and services
of approximately $3,310,537. 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, to fund
the operations of Bright Now, Inc., to settle claims and to make
acquisitions. The common stock was sold directly by the Company without an
underwriter.
The common stock was sold for cash to a total of 22 persons, including
existing stockholders, accredited investors and a limited number of non-
accredited investors. On July 28, 1999, the Company issued 125,000 shares
of its common stock to three individuals in payment of consideration for
seventy percent of the issued and outstanding equity securities of
Gotcashback.com, Inc. 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. On August 19, 1999, the Company
issued 2,250,000 shares of its common stock to two individuals (spouses) in
payment of consideration for 100 percent of the issued and outstanding
equity securities of AmeriComp Computers, Inc. 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 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 year ended September 30, 1999, on a consolidated basis
represent 42 calendar days of the Company operating AmeriComp Computers,
Inc. as a subsidiary. 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. 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, 1999 and 1998
and 1997. 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 part of the reported periods was the publisher of
two free weekly shopper-style tabloid newspapers, for 42 days of the period
the Company operated a custom computer reseller, and operated 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.
The Company's operating activity for the year ended September 30, 1999
reflect seventeen weeks of The South Georgia Chronicle - Thomas County
Edition. The Company operated its commercial printing plant and its paper
recycling business for the entire 1999 fiscal year, Bartow Communications,
New Homes Register results from operations for nine full months, Nicholson
Enterprises, for nine full months and AmeriComp Computers for 42 calendar
days. The Company's operating activity for the year ended September 30,
1998 reflects one full year of operations with the South Georgia Chronicle
both the Grady and Crisp County Editions, 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 $3,967,079 and $1,813,577 for the
years ended September 30, 1999 and 1998, respectively. At September 30,
1999 current liabilities exceeded current assets by $4,131,033 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 Company had a slight growth in revenue for the 1999 fiscal year
compared to the 1998 fiscal year of approximately 10% or $186,474. Gross
profit for the same period rose to $229,923 for the 1999 fiscal year
compared to 1998 fiscal year of $57,005 or a improvement of 9% when
compared to revenues for the reported periods.
The Company experienced an increase in General and Administrative expenses
for the 1999 fiscal year compared to the 1998 fiscal year of $2,366,640.
The increase is largely related to stock compensation to officers of
$1,049,492, stock compensation to others of $308,798, consulting expenses
of $599,275, legal expenses of $166,416 and accounting expenses of
$130,834.
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 finalization of the bankruptcy proceedings for
Bright Now, Inc d.b.a. United Printing and Publishing within the next 120
days, the Company will eliminate substantially all of the long-term debt,
primarily composed of notes that are in default and litigation, currently
reflected on our balance sheet. However, this debt will be replaced with a
mortgage of approximately $2,125,000.00 for our 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 us to improve our operational and
administrative efficiencies and further develop our product lines and
market.
Limited liquidity and financial resources:
During the 1999 and 1998 fiscal years, the Company funded much of its
working capital needs through the sale of its common stock. Approximately
$2,190,000 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.
The Company's working capital position declined by $1,306,385 at September
30, 1999. This condition is the result of an increase in total current
assets to $338,448 from $222,809, coupled with an increase in total current
liabilities by $1,462,856 partially as a result of defaults on long-term
liabilities. The Company experienced an increase from period to period in
current maturities of long-term debt by $188,891, accounts payable by
$500,886, accrued payroll liabilities by $207,264 and other accrued
liabilities by $520,834. 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, its 1998 acquisitions, which
had considerable debt and costs associated with building a market for its
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. 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.
The Company's annual results covered in this annual report began on October
1, 1998, and ended on September 30, 1999. 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 for
periods prior to the acquisition date, including the comparative quarterly
periods ended December 31, 1998, March 31, 1999, and June 30, 1999. At
June 30, 1999 and 1998, the Company, on both a parent only and consolidated
basis, and its subsidiaries, considered individually, were technically
insolvent.
The Company's operating activity for the twelve months ended September 30,
1999 reflect twenty-six editions of New Homes Register, eight editions of
Business Builder, eight editions of Bonded Builder News, and the Company
operated its commercial printing plant and its paper recycling business for
the entire twelve months, and 42 calendar days of the Company operating its
AmeriComp Computers, Inc. The Company's operating activity for the twelve
months ended September 30, 1998, reflect fifty-two weeks of the South
Georgia Chronicle Thomas County Edition, thirty-nine weeks of the South
Georgia Chronicle Crisp County Edition, and revenues from its commercial
printing plant and its paper recycling business.
The Company incurred operating losses of $3,967,079 for the twelve months
ended September 30, 1999, against operating losses of $1,813,577 for the
twelve months ended September 30, 1998. At September 30, 1999 and 1998,
current liabilities exceeded current assets and the Company was in default
on substantially all its debts. Additionally, major vendors had placed the
Company on a COD basis for purchases.
The losses for the twelve months ended September 30, 1999, were directly
related to commercial printing jobs dropped at the Company's printing
facility that did not meet the Company's minimum profit standards and
seasonal downturn in the commercial printing business. Additionally, the
Company suffered revenue losses as a result of no working capital, vendors
declining credit terms and requiring payment on delivery, and further
deterioration of printing equipment resulting in loss of customer base.
The Company showed a decrease in cost of good sold for the twelve months
ended September 30, 1999, over the same period in 1998. Cost of sales as a
percent of revenue was 88.1% for the twelve months ended September 30,
1999, verses 96.7% for the same twelve months ended 1998, which represents
an almost 10.0% decline in cost of sales. Net loss per common share, basic
was ($.51) and ($.70) for the twelve months ended 1999 and 1998,
respectfully. This represents a reduction of the net loss per common
share, basic of $.19 or 37.3%.
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 the Company's 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 twelve months ended September 30, 1999 and 1998, the Company
funded much of its working capital needs through the sale of its common
stock. The Company continued ability to operate is dependent on its
ability to either refinance its existing debt or raise additional capital.
The Company's working capital position declined by $1,306,385 at September
30, 1999. This condition is the result of an increase in total current
liabilities by $1,462,856 partially as a result of defaults on long-term
liabilities. The Company experienced an increase from period to period in
current maturities of long-term debt by $188,891. Accounts payable
increased by $500,886. Accrued payroll liabilities increased by $207,264
and other accrued liabilities by $520,834.
Year 2000 considerations:
The Company has not experienced any adverse consequences related to year
2000 considerations.
Item 7. Financial Statements.
January 25, 2000
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, 1999, 1998 and 1997, and the related consolidated statements
of operations, changes in stockholders' equity (deficit), 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, 1999, 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
ASSETS
September 30,
1999 1998 1997
CURRENT ASSETS:
Cash $ 7,707 $ 14,457 $ 1,455
Accounts Receivable 197,218 123,055 312,806
Inventory 32,110 85,297 101,384
Other Current Assets 101,413 22,144
Advances to Stockholders,
Current Portion 115,000
Total Current Assets 338,448 222,809 552,789
PROPERTY AND EQUIPMENT,
Net of Accumulated
Depreciation of $745,659
(1999), $504,453 (1998)
and $338,344 (1997) 1,334,850 1,496,990 1,662,512
ADVANCES TO STOCKHOLDERS 491,308 160,021 200,075
OTHER ASSETS 608,749 6,417 12,764
TOTAL ASSETS $2,773,355 $1,886,237 $2,428,140
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank Overdraft $ 31,944 $ 5,014 $ 28,613
Short-Term Notes 322,321 304,270 181,897
Current Maturities
of Long-Term Debt 1,178,390 1,030,331 180,790
Accounts Payable 1,585,523 1,084,637 852,150
Accrued Payroll Liabilities 532,231 324,967 204,981
Other Accrued Liabilities 819,072 298,238 72,554
Total Current Liabilities 4,469,481 3,047,457 1,520,985
LONG-TERM LIABILITIES 192,000 849,715
Total Liabilities 4,661,481 3,047,457 2,370,700
STOCKHOLDERS' EQUITY:
Common Stock, No Par
Value, 35,000,000
Shares Authorized,
15,374,199, 3,367,785
and 2,388,708 Shares
Issued and Outstanding at
September 30, 1999, 1998
and 1997, respectively 5,825,903 2,515,366 1,920,449
Accumulated Deficit (7,714,029 ) (3,676,586 ) (1,863,009)
Total Stockholders'
Equity (Deficit) (1,888,126 ) (1,161,220 ) 57,440
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT) $2,773,355 $1,886,237 $2,428,140
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements
2
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30,
1999 1998 1997
SALES $1,934,500 $1,748,026 $2,421,931
COST OF SALES 1,704,577 1,691,021 2,198,196
GROSS PROFIT 229,923 57,005 223,735
OPERATING EXPENSES:
General and Administrative 3,934,388 1,567,748 1,559,489
Interest 262,614 302,834 180,749
Total Operating Expenses 4,197,002 ,870,582 1,740,238
LOSS FROM OPERATIONS (3,967,079) (1,813,577 ) (1,516,503)
OTHER INCOME (EXPENSE) ( 70,364) 88,992
NET LOSS $4,037,443) $(1,813,577) $(1,427,511)
NET LOSS PER COMMON
SHARE, BASIC $( 0.51) $( 0.70) $( .68)
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,798,896 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 (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
Common Stock Preferred Stock Accumulated
Shares Amount Shares Amount Deficit
Balance,
October, 1996 1,789,750 $787,346 $ $( 435,498 )
Common Stock Issued:
For Cash, Net of
Offering Costs 570,083 977,759
For Consulting Services 2,500 2,500
For Payment of
Directors' Fees 8,750 17,500
For Employee Compensation 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 360,241 283,620
For Consulting Services 577,500 255,000
For Commissions Payable 7,720 22,398
For Interest on Loans 10,760 16,299
For Employee Compensation 3,000 6,600
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)
Common Stock Issued:
For Cash, Net of
Offering Costs 2,826,378 667,871
For Consulting Services 2,518,468 575,025
For Employee Compensation 2,263,580 1,012,160
For Debt Repayment 1,070,738 326,203
For Operating Expenses 394,389 133,241
For Acquisitions 2,500,000 407,812
For Shareholder Advances 432,861 188,225
Net Loss for the Year (4,037,443)
Balance,
September 30, 1999 15,374,199 $5,825,903 $- $(7,714,029)
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,
1999 1998 1997
OPERATING ACTIVITIES:
Net Loss $(4,037,443) $(1,813,577) $(1,427,511)
Adjustments to Reconcile
Net Loss to Net Cash Used
in Operating Activities:
Depreciation and Amortization 170,354 172,456 161,039
Loss (Gain) on the Sale of Assets 14,462 ( 88,992)
Loss on Investments 55,902
Expenses Paid with Stock 2,147,778 300,297 38,444
Expenses Paid with Debt 396,236
Contributed Services 99,400
Increase or Decrease in:
Accounts Receivable 116,295 189,751 24,122
Inventory 63,730 16,087 2,411
Other Assets ( 33,134 ) 22,144 70,101
Accounts Payable 312,913 232,487 396,612
Accrued Liabilities 615,895 345,670 212,129
Net Cash Used in
Operating Activities ( 177,012 ) ( 534,685) ( 512,245)
INVESTING ACTIVITIES:
Cash from Acquisitions 46,929 119,620
Purchase of Property and
Equipment ( 14,549 ) ( 586) ( 556,261)
Net Cash Provided by
(Used in) Investing
Activities 32,380 ( 586) ( 436,641)
FINANCING ACTIVITIES:
Bank Overdraft 20,135 ( 23,599) ( 26,247)
Proceeds from Issuance of Debt 68,500 174,004 849,257
Principal Payments of Debt ( 33,448) ( 40,805) ( 652,825)
Advances to Stockholders ( 129,343) 155,053 ( 215,952)
Proceeds from Issuance of Stock 212,038 283,620 977,759
Net Cash Provided by
Financing Activities 137,882 548,273 931,992
NET INCREASE (DECREASE) IN CASH ( 6,750 ) 13,002 ( 16,894)
CASH AT BEGINNING OF YEAR 14,457 1,455 18,349
CASH AT END OF YEAR $ 7,707 $ 14,457 $ 1,455
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended September 30,
1999 1998 1997
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid during the Year for
Interest $29,455 $29,172 $150,517
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Stock Issued for Payment
of Expenses $2,147,778 $ 0 $17,500
Equipment Purchased with Notes $ 0 $ 0 $86,799
Stock Issued for Debt Repayment $ 43,640 $11,000 $ 0
Stock Issued for Acquisitions
and Investments $ 512,049
Stock Issued for Stockholder
Advances $ 397,234
Proceeds from Sale of
Investments for Stockholders
Advances $ 8,297
Property Surrendered for
Debt Repayment $ 14,000
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, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chronicle Communications, Inc., a Georgia Corporation, was originally
organized as a publisher of several newspaper and shopper editions in several
Georgia counties. During 1998, these publications were discontinued and the
Company began a series of acquisitions in the publishing and computer
communications field. Chronicle Communications, Inc. now serves as the parent
company to the acquired businesses.
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. Bright
Now, Inc. operates a commercial printing plant in Tampa, Florida.
On January 3, 1999, the Company acquired Bartow Communications, Inc. in a
combination accounted for as a purchase. The financial statements include the
results of operations of Bartow Communications, Inc. from the date of
acquisition through September 30, 1999. Bartow Communications, Inc. publishes
real estate editions in the Washington, D.C. area.
On August 19, 1999, the Company acquired Americomp Computers, Inc., a computer
equipment retailer, located in Houston, Texas. The combination was accounted
for as a purchase and the financial statements include the results of
operations for Americomp Computers, Inc. from the acquisition date through
September 30, 1999.
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 and 1998 financial
statements to conform to the 1999 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, 1999,
1998 and 1997.
Accounts Receivable
The Company grants unsecured credit to its customers for terms of 10 to 60
days. 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, printing supplies and computer
parts.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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
Costs 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,
1999, 1998 and 1997 amounted to $11,415, $6,347 and $19,476, respectively.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of Chronicle
Communications, Inc. and all wholly owned subsidiaries. All material
intercompany transactions have been eliminated.
NOTE 2: GOING CONCERN
The Company incurred operating losses of $3,967,079, $1,813,577 and $1,516,503
for the years ended September 30, 1999, 1998 and 1997, respectively. At
September 30, 1999, current liabilities exceeded current assets by $4,131,033,
and the Company is in default on substantially all of its debt. Major vendors
have placed the Company on a COD basis for future purchases. Bright Now, Inc.
has filed for reorganization under Chapter 11 of the United States Bankruptcy
Code.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 2: GOING CONCERN (CONTINUED)
These factors 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 1999, 1998 and 1997, the Company funded much of its working capital
needs through the sale of its common stock. Approximately $2,190,000 in
capital was raised in connection with these stock sales. The Company's
continued ability to operate is dependent on its ability to refinance its
existing debt, raise additional capital, collect stockholder advances and
reverse negative operating trends.
NOTE 3: ACQUISITIONS
On January 3, 1999, the Company acquired Bartow Communications, Inc. for
125,000 shares of the Company's common stock, in a business combination
accounted for as a purchase. Bartow Communications, Inc. is primarily engaged
in real estate publishing in the Washington, D.C. area. The results of
operations of Bartow Communications, Inc. are included since the date of
acquisition. The total cost of the acquisition was $14,062, which exceeded
the fair value of the net assets of Bartow Communications, Inc. by $214,824.
The excess was allocated to goodwill and is being amortized on a straight line
basis over a period of twenty years.
On August 19, 1999, the Company acquired Americomp Computers, Inc. for
2,250,000 shares of the Company's common stock, in a combination accounted for
as a purchase. Americomp Computers, Inc. is primarily engaged in retail sales
of personal computer equipment. The total cost of the acquisition was
$373,500, which exceeded the fair value of the net assets of Americomp
Computers by $401,791. The excess was allocated to goodwill and is being
amortized on a straight line basis over a period of twenty years. The results
of operations of Americomp Computers are included since the date of
acquisition. The following presents pro forma information as if the
acquisition had occurred on January 1, 1998.
1999 1998
Net Sales $3,204,178 $5,478,613
Net Income $(4,127,078) $(1,687,920)
Earnings per Share:
Basic $( .51 ) $( .57)
Fully Diluted $( .51 ) $( .57)
The above amounts reflect adjustments for amortization of goodwill acquired in
the purchase. The amounts included for Americomp Computers, Inc. are based on
a December 31 year end, and therefore reflect only nine months activity for
the year ended September 30, 1999.
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.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 3: ACQUISITIONS (CONTINUED)
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, 1999, 1998 AND 1997
NOTE 4: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation:
1999 1998 1997
Land $ 30,875 $ 30,875 $ 30,875
Building and Improvements 691,471 721,471 721,471
Machinery and Equipment 1,358,163 1,249,097 1,248,510
Total 2,080,509 2,001,443 2,000,856
Less, Accumulated Depreciation 745,659 504,453 338,344
Net Property and Equipment $1,334,850 $1,496,990 $1,662,512
Depreciation expense for the years ended September 30, 1999, 1998 and 1997 was
$158,939, $166,109 and $141,563, respectively.
NOTE 5: SHORT-TERM DEBT
Short-Term Debt consists of the following:
1999 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 due immediately $30,931 $ 25,000 $ 25,000
Note payable to individual; secured by
mortgage on real estate; bearing interest
at 10%; in default, entire principal plus
interest due immediately 46,245 46,245 46,245
Note payable to individual; unsecured;
bearing interest at 11%; in
default, entire principal plus
interest due immediately 12,500 12,500
Loans payable to individuals; unsecured;
bearing interest at various rates with
various repayment terms 232,645 220,525 110,652
Total Short-Term Debt $322,321 $304,270 $181,897
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 6: LONG-TERM DEBT
Long-Term Debt consists of the following:
1999 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 $ 110,567 $ 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 40,832 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 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
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 521,350 404,280 404,901
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 297,641 237,355 247,230
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 171,000 171,000 122,342
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
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 6: LONG-TERM DEBT (CONTINUED)
1999 1998 1997
Loans payable to individuals; unsecured;
bearing interest at various rates with
various repayment terms 204,000
Total 1,370,390 1,030,331 1,030,505
Less, Current Maturities 1,178,390 1,030,331 180,790
Net Long-Term Debt $ 192,000 $ 0 $ 849,715
Based on current borrowing rates, the fair value of notes payable approximates
their carrying amount.
NOTE 7: INCOME TAXES
The Company has tax loss carryforwards of approximately $7,456,370 that may be
applied against future taxable income. These losses create a deferred tax
asset at September 30, 1999, 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.
1999 1998 1997
Loss Carryforward $1,112,296 $612,208 $320,509
Less, Valuation Allowance 1,112,296 612,208 320,509
Net Deferred Tax Assets $ 0 $ 0 $ 0
The loss carryforwards expire as follows:
Year of Expiration Amount
2011 $ 68,400
2012 1,385,735
2013 1,923,731
2014 4,078,504
$7,456,370
NOTE 8: 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:
1999 1998 1997
Advances to Stockholders $751,730 $444,021 $315,075
Less, Amount Repaid 260,422 284,000
Net Advances to Stockholders $491,308 $160,021 $315,075
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 9: 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 $382,668, $36,579 and $0 for the years ended September 30,
1999, 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, 1999, 1998 and
1997 is as follows:
1999 1998 1997
Pro Forma Net Loss $4,379,774 $1,823,473 $1,440,142
Pro Forma Net Loss
per Common Share $ 0.56 $ 0.70 $ .068
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 and the assumptions used in the models
are as follows:
1999 1998 1997
Weighted-Average Fair Value $ .42 $ .12 $ .21
Risk-Free Interest Rate 5.01% 5.00% 5.84%
Dividend Yield 0 0 0
Volatility Factor of Expected
Market Price 4.19 3.22 -
Weighted-Average Expected Life 1 1 3.25
A summary of the Company's stock option activity and related information
is as follows:
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Price Exercise Price Exercise Price
Options Per Share Options Per Share Options Per Share
Outstanding,
October 1 390,094 $ .03 5,000 $.03 $
Granted 3,303,056 $ .12 390,094 .03 5,000 .03
Exercised (2,286,787 ) $ .12
Canceled/Expired ( 5,000) .03
Outstanding,
September 30 1,406,363 $ .12 390,094 $.03 5,000 $.03
All shares outstanding at September 30, 1999 are exercisable at prices
ranging from $.02 to $.05 with estimated remaining lives of less than one
year.
CHRONICLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 10: 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 cancelled 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.
On July 8, 1999, the Company issued warrants to Generation Capital
Associates exercisable for up to 600,000 shares of common stock at
$150,000. Unexercised warrants will expire December 31, 2000.
Subsequent to September 30, 1999, the Company issued an additional
6,838,421 shares of common stock, including approximately 2,211,363
restricted shares and 4,627,058 free-trading shares, for general corporate
purposes in the amount of $1,479,915.
NOTE 11: 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 judgement, 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 $2,823, $38,679 and $45,644 for the
years ended September 30, 1999, 1998 and 1997, respectively.
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.
NOTE 13: SUBSEQUENT EVENTS
Subsequent to September 30, 1999, Bright Now, Inc. filed for
reorganization under Chapter 11 of the United States Bankruptcy Code. A
hearing on a motion to dismiss or convert the case to Chapter 7 is
scheduled for February 7, 1999.
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
- ------------------ ---- --------------------------- ---------------
Jackson L. Morris 54 Director, General
Counsel and Secretary 1996
John V. Whitman, Jr. 40 Director, Chairman, President 1996
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 either fiscal 1998 or 1999.
Management cannot predict when the Company will go to the expense of
holding an annual meeting of stockholders at which directors will be
elected. In the meantime, the existing board has the power to fill
vacancies created by resignations. The Company obligation to file reports
with the U.S. Securities and Exchange Commission arises under Section
15(d) and is not subject to the proxy solicitation and information
statement requirements of Section 14 the Company's directors, executive
officers and holders of ten percent or more of its equity securities are
not subject to the reporting requirements of Section 16 of the Securities
Exchange Act of 1934, as amended, and the regulations thereunder.
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.
David E. Salmon, has been the Chief Operating Officer and Investor
Relations Officer of the Company since November 1, 1999. Mr. Salmon
previously served as Investor Relation Manager with the Company during
1998 and early 1999. Mr. Salmon has served in various roles with public
companies since 1992. Mr. Salmon is a member of the National Investor
Relations Institute.
Jay E. Ostrow, is the Company's Chief Financial Officer. Mr. Ostrow has
completed fourteen years of financial management and accounting services
for multi-unit restaurant corporations including dinnerhouse, casual
themed and franchised restaurants in Florida. Additionally, Mr. Ostrow
provided financial management, and accounting and consulting services on a
contract basis for a variety of Tampa Bay businesses including a publicly-
held retailer, international manufacturer and distributor, community bank,
not-for-profit organizations, finance company, private school and,
restaurants. Mr. Ostrow has held the following positions in financial
management; Chief Financial Officer Columbia Restaurant Group, Corporate
Controller Olde World Cheese Shop, Inc., and Corporate Controller for
Wizard Studios, an event management and production company. Recently, Mr.
Ostrow has served as Chief Financial officer and Treasurer for the
Lionshare Group, Inc., a publicly held (OTC:BB) hospitality Company.
Item 10. Executive Compensation:
The following table sets forth the cash compensation accrued to Mr. Whitman
during the three fiscal years ended September 30, 1999. No other executive
officer was paid cash compensation of $100,000 or more during these
periods.
Fiscal Year Position(s) Salary(1)
----------- -------------- -----------
1997 President $ 99,400
1998 President $ 125,000
1999 President $ 175,000
(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 options granted to Mr. Whitman and Mr. Morris during the 1999
fiscal year.
As % of
Number of total granted to Exercise Grant
date
Name Shares all employees price Expiry value
- -------------- ----------- ---------------- -------- ------ ----------
- -
J.V. Whitman, Jr 2,670,732 80.9% (1) none $.12
J.L. Morris 632,320 19.1% (2) none $.12
(1) The exercise price 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.
(2) The exercise price is one-half of the average bid and asked quotation
(or closing price) on the day prior to exercise. This option entitles Mr.
Morris to maintain 5% ownership of the Company's total issued and
outstanding common stock at any time.
During fiscal year 1999, Mr. Whitman exercised options for the purchase of
1,838,487 shares of common stock at an aggregate exercise price of $.12 and
with a fair market value at the time of exercise (determined in the same
manner as the exercise price) of $.43. Mr. Whitman reduced accrued salary
payable by the Company as payment for the options shares. During the same
period, Mr. Morris exercised options for the purchase of 397,050 shares of
common stock at an aggregate exercise price of $.12 and with a fair market
value at the time of exercise (determined in the same manner as the
exercise price) of $.35. Mr. Morris rendered legal services as payment for
the option shares. Mr. Mallett exercised options for the purchase of
51,251 shares of common stock at an aggregate exercise price of $.06 and
with a fair market value at the time of exercise (determined in the same
manner as the exercise price) of $.13. For this exercise option Mr.
Mallett received accrued interest and director's fees.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The names of directors and officers, 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) at September 30, 1999 is
set forth in the following table. Unless otherwise indicated, all shares
are both legally and beneficially owned.
Name Number of Shares Percentage
- ------------------------ ---------------- -----------
Jackson L. Morris (1)(2) 768,710 5%
John V. Whitman, Jr. (1)(3) 3,228,582 21%
All directors and officers
as a group (2 persons)
(1) Messrs. Morris and Whitman's address is the address of the Company.
(2) Number of shares and percentage include 259,160 shares which Mr.
Morris may acquire at any time by exercise of common stock purchase
options.
(3) Number of shares and percentage include 814,839 shares which Mr.
Whitman may acquire at any time by exercise of common stock purchase
options. Mr. Whitman shares beneficial ownership of 725,260 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 Chairman.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3(a) Articles of Incorporation, as amended, incorporated by reference to
Registration Statement on Form SB-2, Commission File No. 333-34283 and 333-
90503 and Annual Report on Form 10-KSB for the fiscal year 1998.
3(b) Bylaws, incorporated by reference to the Registration Statement on
Form SB-2, Commission File No. 333-34283.
10 Material contracts:
10(a) Agreement for acquisition of Americomp Computers, Inc., incorporated
by reference to Registration Statement on Form SB-2, Commission File No.
333-90503.
10(b) Occupancy Agreement dated January 7, 2000 for use of real estate as
headquarters pending purchase of the property.
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.
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.
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: January 25, 2000
President and Chief Executive Officer
Signature Capacity in which signed: Date signed:
- ------------------------ ------------------------- -------------
/s/ Jackson L. Morris Director January 25, 2000
Jackson L. Morris
/s/ John V. Whitman, Jr. Director,
John V. Whitman, Jr. Chief Executive Officer, January 25, 2000
Chief Accounting Officer
and Principal Financial
EXHIBIT INDEX
10(b) Occupancy Agreement dated January 7, 2000 for use of real estate as
headquarters pending purchase of the property.
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
27 Financial data schedule
EXHIBIT 10(b) Occupancy Agreement dated January 7, 2000 for use of real
estate as headquarters pending purchase of the property.
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 (wholly owned)
Southern Paper and Converters, Inc., a Florida corporation (wholly owned)
Gotcashback.com, Inc., a Virginia corporation (70% owned)
Americomp Computers, Inc., a Texas corporation (wholly owned)
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 has not issued any annual
report to its stockholders during or for the 1999 fiscal year.
(2) The Company did not issue a proxy
statement, form of proxy or other proxy soliciting material to the
Company's stockholders for any purpose.
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