<PAGE>
As filed with the Securities and Exchange Commission on July 6, 1995
Registration No. 33-46467
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 5
ON
FORM SB-2
TO
REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
-----------------------
NEWS COMMUNICATIONS, INC.
-------------------------
(Name of Small Business Issuer in its charter)
NEVADA 2711 13-3346991
------------ ------ ----------
(State or other Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation Classification Code Number) Identification No.)
or organization)
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
(718) 357-3380
--------------
(Address and telephone number of principal executive
offices and principal place of business)
MICHAEL SCHENKLER, PRESIDENT
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
(718) 357-3380
--------------
(Name, address and telephone number of agent for service)
-----------------------
COPIES TO:
NOAH SCOOLER, ESQ.
Graubard Mollen Horowitz Pomeranz & Shapiro
600 Third Avenue
New York, New York 10016
(212) 818-8800
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
-----------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
_______________________________________
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
Two forms of Prospectus are included in this Post-Effective Amendment.
The first Prospectus (the "A/B Warrant Prospectus") will be used in connection
with the offering of securities issuable upon exercise of the Company's
Redeemable Class A Warrants. The second Prospectus (the "C/D Warrant
Prospectus") will be used in connection with:
(a) the offering of shares of the Company's Common Stock issuable upon
exercise of the Company's Redeemable Class C Warrants and Redeemable Class D
Warrants; and
(b) the offering by successors-in-interest to Hibbard Brown & Company,
Inc. ("Hibbard Brown") of the shares of Common Stock of the Company issuable to
Hibbard Brown upon exercise of presently unexercised non-redeemable Class D
Warrants.
Each Prospectus is substantially identical, except for certain
sections or specific language applicable to one Prospectus but not the other,
relating principally to terms of the various Warrants. For convenience, the C/D
Warrant Prospectus has been marked to generally indicate the manner in which it
differs from the A/B Warrant Prospectus.
After this Post-Effective Amendment becomes effective, both Prospectuses
will be used in their entirety in connection with the offer and sale of the
respective securities referenced therein.
ii
<PAGE>
PROSPECTUS
- ----------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 6, 1995
NEWS COMMUNICATIONS, INC.
4,611,960 SHARES OF COMMON STOCK
20,700,000 REDEEMABLE CLASS B WARRANTS
This Prospectus relates to (i) 2,305,980 shares of Common Stock, par value
$.01 per share ("Common Stock"), of News Communications, Inc. (the "Company") to
be issued by the Company upon exercise of the Company's Redeemable Class A
Warrants ("A Warrants") and offered by the Company to the holders thereof, (ii)
20,700,000 Redeemable Class B Warrants to be issued by the Company upon exercise
of the A Warrants and offered by the Company to the holders thereof, and (iii)
the 2,305,980 shares of Common Stock to be issued by the Company upon exercise
of the B Warrants and offered by the Company to the holders thereof. See
"Description of Securities."
The principal market for trading of the Common Stock is the Nasdaq SmallCap
Market under the symbol NCOM. On June 28, 1995, the last sale price for the
Common Stock was $2.19, as reported by Nasdaq. On April 7, 1995, the A Warrants
(symbol NCOMW) ceased to be traded on Nasdaq as the price therefor was below
$.03125 (1/32). As the B Warrants have not been issued, no market yet exists
for their trading. They have been approved for quotation by Nasdaq under the
symbol NCOMZ upon issuance. There can be no assurance that a market for the B
Warrants will develop.
===============================================================================
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
===============================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
===============================================================================
The A Warrants and, upon issuance, the B Warrants (collectively, the
"Warrants") are exercisable at any time until September 19, 1995. Each A
Warrant presently entitles the registered holder thereof to purchase .1114
shares of Common Stock for an exercise price of $0.50 per A Warrant ($4.49 per
share) and to receive one B Warrant. Each B Warrant, upon issuance, presently
entitles the registered holder thereof to purchase .1114 shares of Common Stock
for an exercise price of $0.75 per B Warrant ($6.73 per share). Cash will be
paid in lieu of fractional shares upon exercise of any Warrants. The Company
may call the A Warrants or B Warrants for redemption at $.05 per Warrant in
whole or in part at any time upon not less than 30 days' prior written notice,
if the average closing bid price of the Common Stock as quoted by Nasdaq (or the
last sale price if listed on a national securities exchange) exceeds 140% of its
current per share exercise price, in either case for 30 consecutive business
days (or such other period as D.H. Blair & Co., Inc. ("Blair") may consent to)
during a period ending within 15 business days prior to the date notice of
redemption is given. The Company has not determined whether it will exercise
such right if it should become available, although there is a good likelihood
that it would do so. If the Warrants are called for redemption, they must be
exercised prior to the close of business on the date of any such redemption or
the right to purchase the applicable shares of Common Stock and B Warrants is
forfeited. See "Description of Securities - Warrants."
The following table sets forth certain information with respect to the
exercise of the Warrants:
<TABLE>
<CAPTION>
Exercise Solicitation Proceeds to
Price(1) Fee(2) Company(3)
-------------- --------------- --------------
<S> <C> <C> <C>
Per A Warrant (4).. $ 0.50 $ 0.02 $ 0.48
Per B Warrant (5).. $ 0.75 $ 0.03 $ 0.72
Total.............. $25,875,000 $1,035,000 $24,840,000
- --------------------------------------------------------------------
</TABLE>
(1) The exercise prices of the A Warrants and the B Warrants were determined by
negotiation between the Company and Blair. See "Description of Securities -
Warrants."
(2) The Company has agreed to pay Blair, as warrant solicitation agent, under
certain circumstances, a fee equal to 4% of the exercise price. Blair may be
deemed to be an underwriter as defined in the Securities Act of 1933, as
amended. See "Description of Securities - Warrants."
(3) Before deducting expenses payable by the Company estimated at $35,000.
(4) Upon exercise of an A Warrant, the holder will receive .1114 shares of
Common Stock and one B Warrant.
(5) Upon exercise of a B Warrant, the holder will receive .1114 shares of
Common Stock.
===============================================================================
The date of this Prospectus is ______ __, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the Commission's public reference facilities
located at 450 Fifth Street, N.W., Washington, D.C. 20549 and Regional Offices
located at 75 Park Place, New York, New York 10007 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601-2511.
Copies of such material may also be obtained at prescribed rates by writing
the Securities and Exchange Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such
requests should be made to the Company at 174-15 Horace Harding Expressway,
Fresh Meadows, New York 11365, telephone (718) 357-3380.
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus. Any information or
representations not herein contained, if given or made, must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the securities offered by this Prospectus, nor does it constitute
an offer to sell or a solicitation of any offer to buy the securities by any
person in any jurisdiction where such offer or solicitation is not authorized,
or in which the person making such an offer is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION...................................... 2
PROSPECTUS SUMMARY......................................... 3
THE COMPANY................................................ 6
RISK FACTORS............................................... 7
PRICE RANGES OF SECURITIES................................. 12
DIVIDEND POLICY............................................ 13
USE OF PROCEEDS............................................ 13
CAPITALIZATION............................................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.. 15
BUSINESS................................................... 20
MANAGEMENT................................................. 29
PRINCIPAL STOCKHOLDERS..................................... 36
DESCRIPTION OF SECURITIES.................................. 39
SHARES ELIGIBLE FOR FUTURE SALE............................ 43
LEGAL MATTERS.............................................. 43
EXPERTS.................................................... 43
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES............. 44
ADDITIONAL INFORMATION..................................... 44
INDEX TO FINANCIAL STATEMENTS.............................. F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data (including the Consolidated Financial Statements
and Notes thereto) appearing elsewhere in this Prospectus. Each prospective
investor is urged to read this Prospectus in its entirety.
THE COMPANY
News Communications, Inc. (the "Company") is primarily engaged, through
various wholly and partly-owned subsidiaries, in the publication and
distribution of advertiser supported, community oriented newspapers and related
targeted audience publications. The community newspapers are directed at
specific geographic communities and, for the most part, are distributed free of
charge to selected residences and business establishments in those communities.
Each publication focuses on the lifestyle, culture, arts, entertainment,
politics and social issues of particular interest to the group of communities at
which it is directed. Some of the papers publish different editions (with
variations in editorial content and advertising) which are distributed to each
community in the targeted group. The principal source of the Company's revenues
(94% for the fiscal year ended November 30, 1994 and 94% for the three months
ended February 28, 1995) is the sale of advertising space in its publications.
The Company's business plan is to develop a regional group of
publications in the greater New York metropolitan area. Toward that end it has
to date acquired or organized the following publications: the MANHATTAN SPIRIT,
which is distributed in neighborhoods of the Borough of Manhattan in New York
City; DAN'S PAPERS and the MONTAUK PIONEER, which are directed to communities in
eastern Long Island, New York; the QUEENS TRIBUNE, which, through nine weekly
editions, is directed at communities in the Borough of Queens in New York City;
OUR TOWN, which is directed to the East Side of Manhattan; the BRONX PRESS
REVIEW, which is directed at communities in the Borough of the Bronx in New York
City; the RIVERDALE REVIEW and WESTCHESTER LIFESTYLES, which are directed at
communities in the Riverdale section of the Bronx and Westchester County, New
York; LYNBROOK USA, the MALVERN TIMES, the ROCKVILLE CENTER NEWS & OWL, the
VALLEY STREAM MAILEADER, the INDEPENDENT VOICE OF LONG BEACH, OCEANSIDE & ISLAND
PARK, the ROCKVILLE CENTER-OCEANSIDE BEACON, the BALDWIN CITIZEN, the EAST
ROCKAWAY OBSERVER, six editions of LONG ISLAND MARKET and LONG ISLAND LIFESTYLES
(collectively, the "NASSAU NEWSPAPERS"), which are directed at communities in
Nassau County, New York; MANHATTAN FILE, a monthly magazine targeted at young
people in Manhattan; THE HILL, a weekly newspaper devoted to the coverage of the
United States Congress; the BROOKLYN SKYLINE, which is directed at communities
in New York City's Borough of Brooklyn; and the CHELSEA-CLINTON NEWS and the
WESTSIDER, paid circulation newspapers directed to communities in Manhattan's
West Side. The Company's management believes that its strategy will be
attractive to advertisers seeking a broad metropolitan area audience. It also
believes the Company can take advantage of economies of scale, combination of
operations and other synergies not available to individual publications. See
"Business."
THE OFFERING
Securities Offered......... 2,305,980 shares of Common Stock and 20,700,000
Redeemable Class B Warrants ("B Warrants") issuable
upon exercise of outstanding Redeemable Class A
Warrants ("A Warrants") and 2,305,980 shares of
Common Stock issuable upon exercise of the B
Warrants.
Terms of A Warrants........ Each A Warrant is exerciseable at any time through
September 19, 1995. Each A Warrant presently
entitles the holder thereof to purchase .1114
shares of Common Stock (subject to adjustment) and
one B Warrant at a price of $0.50 per A Warrant
($4.49 per share). The Company may reduce the
exercise price at any time on notice to the
holders. The A Warrants are redeemable by the
Company at any time, upon at least 30 days' prior
written notice, at $0.05 per Warrant, if the
average of the closing bid prices for the Common
Stock exceeds 140% of its current per share
exercise price for any 30 consecutive trading days
(or such other period as Blair may consent to)
ending within 15 days prior to the date on which
the notice of
3
<PAGE>
redemption is given. The A Warrants were originally
issued as part of units (each unit consisting of
one share of the Company's 10% Convertible
Preferred Stock and 18,000 A Warrants) offered
pursuant to a public offering under Registration
Statement No. 33-35484, which became Each A Warrant
is exercisable at any time through September 19,
1995. effective September 19, 1990 (the "1990
Offering").
Terms of B Warrants....... Each B Warrant is exercisable at any time from the
date of its issuance through September 19, 1995.
Each B Warrant presently entitles the holder
thereof, upon issuance, to purchase .1114 shares of
Common Stock (subject to adjustment) at a price of
$0.75 per B Warrant ($6.73 per share). The Company
may reduce the price at any time on notice to the
holders. The B Warrants are redeemable by the
Company, at any time, upon at least 30 days' prior
notice, at $0.05 per Warrant, if the average of the
closing bid prices for the Common Stock exceeds
140% of its current per share exercise price for
any 30 consecutive trading days (or such other
period as Blair may consent to) ending within 15
days prior to the date on which the notice of
redemption is given.
Securities Outstanding..... Before Offering(1) After Offering(1)
--------------- --------------
Common Stock......... 7,783,376 shares(2) 10,089,356 shares(2)(3)
Preferred Stock
10% Convertible.... 32 shares 32 shares
8% Convertible.... 217 shares 217 shares
12% Convertible.... 200 shares 200 shares
A Warrants........... 20,700,000 A Warrants None
B Warrants........... None 20,700,000 B Warrants
C Warrants........... 821,850 C Warrants 821,850 C Warrants
D Warrants........... 853,935 D Warrants 853,935 D Warrants
Use of Proceeds............ Working capital. See "Use of Proceeds."
Risk Factors............... The securities offered hereby involve a high degree
of risk. See "Risk Factors" and "Business."
NASDAQ Symbols............. Common Stock: NCOM
A Warrants: NCOMW
B Warrants: NCOMZ
C Warrants: NCOMM
D Warrants: NCOML
Units: NCOMU
__________________
(1) Assumes no exercise of outstanding Redeemable Class C Warrants ("Public C
Warrants") and Redeemable Class D Warrants ("Public D Warrants") pursuant
to a public offering underwritten by Hibbard Brown & Company, Inc.
("Hibbard Brown") registered under the Registration Statement of which this
Prospectus is part but not offered pursuant to this Prospectus. See
"Description of Securities - C Warrants and D Warrants."
(2) Does not give effect to (a) up to 166,667 shares issuable upon the exercise
of stock options granted and that may be granted under the Company's 1987
Stock Option Plan, (b) up to 1,000,000 shares issuable upon the exercise of
options granted and that may be granted under the Company's Discretionary
Directors and Officers Stock Option Plan, (c) up to 500,000 shares issuable
upon the exercise of options granted and that may be granted under the
Company's Non-discretionary Directors Stock Option Plan, (d) up to 256,667
shares issuable upon the exercise of other outstanding warrants and
options, (e) up to 581,040 shares issuable upon the exercise of an option
granted to Blair (the "Blair Option") to purchase 100 units of securities,
each unit consisting of one share of 10% Convertible Preferred Stock and
18,000 A Warrants, and the exercise and conversion of the securities
included therein, (f) up to 85,000 shares issuable upon exercise of non-
redeemable Class D Warrants issued to Hibbard Brown, or (g) 162,143 shares
reserved for issuance in connection with the acquisition of the NASSAU
NEWSPAPERS.
(3) Assumes exercise of all A Warrants but no exercise of B Warrants.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information is derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with such Consolidated Financial Statements and
the related Notes thereto. Information with respect to Access Network Corp.,
Dan's Papers, Inc., Tribco Incorporated, Manhattan Publishing Corp. and
Business-to-Business and Pennysavers, Incorporated is included for all periods.
Information with respect to Parkchester Publishing Co., Inc. is included
beginning December 19, 1992. Information with respect to Long Island Community
Newspaper Group, Inc. is included beginning December 10, 1993. Information with
respect to Manhattan File Publishing, Inc. is included beginning August 1, 1994.
Information with respect to Brooklyn Newspaper Publishing, Inc. is included
beginning August 17, 1994. Information with respect to Capitol Hill Publishing,
Inc. is included beginning September 1, 1994. Information with respect to
Westside Newspaper Corp. is included beginning September 27, 1994. For
information relating to the Company's dividend policy, see "Dividend Policy."
<TABLE>
<CAPTION>
INCOME STATEMENT DATA:
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
-------------------------------- ---------------------------
1995 1994 1994 1993
-------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Revenues................. $3,384,111 $ 2,197,153 $13,718,175 $8,927,704
Operating Expenses........... $4,034,733 $ 2,404,126 $14,413,364 $8,644,711
Interest Expense............. $ 6,475 $ 6,875 $ 24,797 $ 62,461
Net Income (Loss) Available
to Common Stockholders...... $ (659,400) $ (210,662) $ (604,711) $ 191,269
Net Income (Loss) per Share
of Common Stock............. $(.08) $(.03) $(.08) $ .03
Average Number of Shares 7,768,776 7,353,942 7,580,203 6,232,630
BALANCE SHEET DATA:
FEBRUARY 28, 1995 FEBRUARY 28, 1994
------------------------------ ---------------------------
AS
ACTUAL ADJUSTED(1)
------ -----------
Total Assets(2).............. $9,639,491 $19,540,491 $10,620,618
Long-Term Debt, excluding
current maturities.......... --- --- $79,000
Working Capital.............. $3,582,845 $13,483,845 $5,083,864
Stockholders' Equity $8,284,285 $18,185,285 $8,901,162
</TABLE>
- --------------
(1) Gives effect to the exercise of the A Warrants and the application of the
estimated net proceeds therefrom. Does not give effect to the Blair Option
and other outstanding options and warrants, including the Public C Warrants
and Public D Warrants. See "Description of Securities - Warrants."
(2) At February 28, 1995, and 1994, and November 30, 1994 and 1993, assets
included goodwill of $3,838,668, $3,662,777, $3,903,111 and $3,092,898,
respectively.
5
<PAGE>
THE COMPANY
News Communications, Inc. (the "Company") was incorporated in Nevada
under the name Applied Resources, Inc. on May 20, 1986. In December 1987, the
Company consummated an Agreement and Plan of Reorganization with Mr. Jerry
Finkelstein and a former director and officer whereby the Company acquired
from them all of the issued and outstanding shares of Access Network Corp.
("Access"), a New York corporation which was and is the publisher of the
MANHATTAN SPIRIT, and they together acquired 70.77% of the then issued and
outstanding shares of the Company. Access thereby became a wholly-owned
subsidiary of the Company. The business of Access is the publication and
distribution of the MANHATTAN SPIRIT, a weekly, free circulation newspaper
directed toward the West Side of Manhattan, New York City.
In October 1988, the Company acquired an 80% interest in Dan's Papers,
Inc. ("DPI"), a New York corporation organized to buy substantially all of the
assets and assume certain of the liabilities of Dan's Papers, Ltd., the
publisher and distributor of DAN'S PAPERS and the MONTAUK PIONEER, weekly free
circulation newspapers distributed in eastern Long Island, New York. In
October 1988, the Company acquired 50% of the common stock of Business-To-
Business and Pennysavers, Incorporated ("Pennysavers"), a newly-formed New
York corporation which thereafter commenced publication and distribution of
OFFICE LIFE, which, during the fiscal year ended November 30, 1991, was
restructured as a periodic supplement to the MANHATTAN SPIRIT. The Company
now owns all of the Pennysavers stock. In May 1989, the Company, through
Tribco Incorporated ("Tribco"), a wholly-owned subsidiary, acquired, by way of
merger, all the stock of two companies which, together, published and
distributed the QUEENS TRIBUNE, a weekly newspaper serving the Borough of
Queens, New York City. In May 1991, the Company, through Manhattan Publishing
Corp. ("MPC"), a wholly-owned subsidiary, acquired substantially all of the
assets of a company which published OUR TOWN, a weekly free circulation
newspaper distributed in Manhattan's Upper East Side. In December 1992, the
Company acquired all of the outstanding stock of Parkchester Publishing Co.,
Inc. ("Parkchester"), the publisher of the BRONX PRESS REVIEW, a weekly paid
circulation newspaper distributed in the Borough of the Bronx of the City of
New York. In December 1993, the Company, through Long Island Community
Newspaper Group, Inc. ("LICNG"), a wholly-owned subsidiary, acquired
substantially all of the assets of a company which was the publisher of the
NASSAU NEWSPAPERS. In August, 1994, the Company, through Brooklyn Newspaper
Publishing, Inc. ("BNP"), a wholly-owned subsidiary, acquired substantially
all of the assets of a company which was the publisher of the BROOKLYN
SKYLINE. In September, 1994, the Company, through Westside Newspaper Corp.
("WNC"), a wholly-owned subsidiary, acquired substantially all of the assets
of a company which was the publisher of the CHELSEA-CLINTON NEWS and the
WESTSIDER. In January, 1994, the Company initiated publication of MANHATTAN
FILE through its 80%-owned subsidiary, Manhattan File Publishing, Inc.
("MFP"). In July, 1994, the Company initiated publication of THE HILL through
its wholly-owned subsidiary, Capitol Hill Publishing, Inc. ("Capitol Hill").
In connection with various of its acquisitions, the Company incurred
significant deferred purchase price obligations. See "Business."
The A Warrants were originally issued as part of units (each unit
consisting of one share of the Company's 10% Convertible Preferred Stock and
18,000 A Warrants) offered pursuant to the 1990 Offering.
As used in this Prospectus, unless the context requires otherwise,
the term "Company" refers to News Communications, Inc. together with Access,
DPI, Tribco, MPC, Parkchester, LICNG, Pennysavers, BNP, WNC, MFP and Capitol
Hill. The Company's principal executive offices are located at 174-15 Horace
Harding Expressway, Fresh Meadows, New York 11365. Its telephone number is
(718) 357-3380.
6
<PAGE>
RISK FACTORS
The securities being offered hereby involve a high degree of risk,
including, but not limited to, the risks described below. Each prospective
investor should carefully consider the following risk factors affecting the
business of the Company and this Offering before making an investment
decision:
1. History of Losses; Accumulated Deficit. The Company's revenues
--------------------------------------
have not been sufficient to satisfy its ongoing expenses of operation.
Although it operated on a profitable basis for the 1993 fiscal year, it had
net losses of $604,711, $994,431 and $652,154 for the fiscal years ended
November 30, 1994, 1992 and 1991, respectively, and a net loss of $649,060 for
the three months ended February 28, 1995. As of February 28, 1995, the
Company's accumulated deficit was $(5,563,920). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
2. Dividend Restrictions. The Company has not paid any dividends on
---------------------
its Common Stock since its inception and does not contemplate paying any
dividends on its Common Stock in the foreseeable future. The Company has the
option to pay dividends on its outstanding 10% Convertible Preferred Stock
("10% Preferred Stock") in cash or in shares of Common Stock, valued at their
"fair market value." Fair market value of a share of Common Stock shall mean
the average of the closing bid and asked priced of the Common Stock for the
ten business days prior to the dividend payment date. If there is no trading
market for the Common Stock during such period, then the fair market value of
the Common Stock shall be determined by the Company's Board of Directors. To
date, all dividends on the 10% Preferred Stock have been paid in shares of
Common Stock. It is anticipated that dividends on the 10% Preferred Stock
will, at least in the foreseeable future, continue to be paid in shares of
Common Stock. Applicable provisions of Nevada corporate law affect the
ability of the Company to declare and pay dividends and could materially
limit, or even prohibit, the Company's ability to pay dividends in the future.
Applicable provisions of the Company's outstanding series of Preferred Stock
also restrict its ability to pay dividends on its Common Stock in certain
circumstances. See "Dividend Policy."
3. Uncertainties Regarding Company Operations. The likelihood of
------------------------------------------
success of the Company must be considered in light of the difficulties in
enhancing and sustaining the readership interest necessary to attract and hold
advertisers, which represent the primary source of revenue for the Company.
There can be no assurance that the Company's existing publications will retain
or increase their present level of acceptance to advertisers, or, if they
attain greater acceptance, that such greater acceptance will allow the Company
to recoup its development and acquisition costs or achieve profitability on an
ongoing basis.
4. Highly Competitive Industry. The newspaper business is extremely
---------------------------
competitive. The Company's publications compete for advertising revenue
directly with other newspapers and magazines which are distributed without
charge in the areas in which the Company's publications are distributed. The
Company's publications also compete with newspapers and magazines which are
sold in the areas in which the Company's publications are distributed, as well
as with other advertising media such as radio and television. Many of the
Company's competitors have established market positions and name recognition,
as well as marketing and financial resources greater than those of the
Company. See "Business - Competition."
5. Dependence Upon Key Personnel. The success of the Company is
-----------------------------
dependent upon the personal efforts and abilities of its officers, including
Michael Schenkler, the Company's President. The Company is also dependent
upon certain key personnel who are publishers and/or editors of some of the
publications the Company has acquired. Such persons include Mr. Dan Rattiner,
who is the publisher and editor of DAN'S PAPERS. If the affiliation of any of
these persons were to cease before a qualified successor could be found, there
could be a material adverse effect on the business and prospects of the
7
<PAGE>
publications of which such person is a publisher, editor or operator and on
the business and prospects of the Company as a whole. See "Management."
6. Significant Seasonality of Certain Publications. DAN'S PAPERS,
-----------------------------------------------
which is a resort area newspaper, has significant seasonal variations in
revenues. This seasonality has historically caused operating results to vary
significantly from quarter to quarter, with the third fiscal quarter being the
most significant in terms of revenues and income. Failure of DAN'S PAPERS to
have sales of advertising space increase in the prime summer season after
losses carried during the off-season will have a material adverse effect on
the Company's operating results and profitability. THE HILL is also expected
to be subject to variations in revenues, depending upon the periods that
Congress is in session.
7. Potential Dilutive Effect of Outstanding Options and Convertible
----------------------------------------------------------------
Securities; Registration Rights. As of the date of this Prospectus, without
-------------------------------
taking into account the exercise of the A Warrants, B Warrants, Public C
Warrants, Public D Warrants, Hibbard Brown D Warrants or Blair Option, there
were outstanding various options, warrants and shares of Preferred Stock
which, if exercised or converted by the holders thereof, would entitle such
holders to purchase up to 1,428,283 shares of Common Stock at prices ranging
from $0.30 to $9.00 per share.
The exercise or conversion of any of such securities will most likely
have a dilutive effect on the Company's Common Stock. Moreover, the terms
upon which the Company may be able to obtain additional capital may be
adversely affected because the holders of such securities can be expected to
exercise or convert their securities at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided by the terms thereof. In addition, certain
holders of Common Stock, Preferred Stock and options of the Company have
received registration rights with respect to the securities held by or
issuable to them and the Company has granted certain registration rights with
respect to the other securities. These registration rights could result in
substantial future expense to the Company and could adversely affect any
future equity or debt financing. Furthermore, the sale of such shares of
Common Stock held by or issuable to the holders of registration rights, or
even the potential of such sales, could have an adverse effect on the then
current market price of the Company's securities. See "Description of
Securities."
8. Control of the Company by Certain Principal Stockholders. Messrs.
--------------------------------------------------------
Michael Schenkler, President and a director of the Company, Jerry Finkelstein,
Chairman of the Board of Directors of the Company, and Gary Ackerman, a
director of the Company, beneficially own, in the aggregate approximately
19.5% (3.9%, 10.2% and 5.4%, respectively) of the issued and outstanding
Common Stock on the date of this Prospectus and, accordingly, may be able to
influence the election of all directors and to control the affairs of the
Company. Because the Company's stockholders do not have cumulative voting
rights, the other stockholders may not have the ability to materially
influence the election of all directors of and to control the affairs of the
Company. See "Principal Stockholders" and "Description of Securities."
9. Non-Registration in Certain Jurisdictions of Shares Underlying
--------------------------------------------------------------
Warrants; Current Prospectus and State Registration Required to Exercise
------------------------------------------------------------------------
Warrants. Holders of Warrants may reside in or may move to jurisdictions in
--------
which the shares of Common Stock underlying the Warrants are not registered or
qualified for issuance or sale under the applicable state securities laws at a
time when they may wish to exercise the Warrants. In this event, the Company
would be unable to issue shares of Common Stock to the person desiring to
exercise the Warrants unless the shares could be registered or otherwise
qualified for sale in the jurisdiction in which such purchaser resides, or an
exemption from such registration or qualification exists in such jurisdiction.
There can be no assurance that the Company will be able to effect any required
registration or qualification.
A holder will be able to exercise the Warrants only if a current
prospectus relating to the securities underlying the Warrants is then in
effect and only if such securities are qualified for sale or
8
<PAGE>
exempt from qualification under the applicable securities laws of the state in
which the holder resides. Although the Company will undertake to use its best
efforts to maintain the effectiveness of a current prospectus covering such
securities, there can be no assurance that the Company will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the securities issuable upon the exercise of the Warrants is not kept
effective or if such securities are not qualified or exempt from qualification
in the states in which the holders reside.
10. Qualification Requirements for Nasdaq Securities. The Common Stock
------------------------------------------------
and Units are presently quoted in the Nasdaq system, which is administered by
the National Association of Securities Dealers, Inc. For the Company's
securities to continue to be eligible for inclusion in the Nasdaq system, the
Company must, among other things, maintain at least $2,000,000 in total assets
and have at least $1,000,000 of capital and surplus and the bid price of the
Common Stock must be at least $1.00 per share, provided, however, that, if a
company's stock falls below such minimum bid prices, it will remain eligible
for continued inclusion if the market value of the public float is at least
$1,000,000 and the company has at least $2,000,000 in capital and surplus.
While the Company presently meets the required standards, there can be no
assurance that it will continue to be able to do so. If it should fail to
meet one or more of such standards, its securities would be subject to
deletion from the Nasdaq system. If this should occur, trading, if any, in
the Common Stock and the Warrants would then continue to be conducted in the
over-the-counter market in what are commonly referred to as "pink sheets." As
a result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities. In
addition, if the Company's securities cease to be quoted on Nasdaq and the
Company fails to meet certain other criteria, they would be subject to a
Securities and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors. For transactions covered by
this rule, the broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the rule may affect the ability of
broker-dealers to sell the Company's securities and may affect the ability of
purchasers in this offering to sell their securities in the secondary market.
11. Factors Affecting Exercise Price of Warrants; Possible Volatility
-----------------------------------------------------------------
of Stock Price. The exercise prices and other terms of the Warrants were
--------------
arbitrarily determined by negotiation between the Company and Blair and do not
necessarily bear any relationship to the risk of the investment in these
securities, the value of the assets of the Company, the earnings of the
Company, or any other traditional indicia of the worth of securities.
Although the Company may reduce the exercise prices of the Warrants at any
time on notice to the holders, the exercise prices might never be less than
the fair market value of the shares of Common Stock of the Company during the
exercise period of the Warrants. Accordingly, the Warrants may expire before
achieving any value. The market prices for shares of Common Stock and the
Warrants may be significantly affected by such factors as the Company's
financial performance, the results of the Company's efforts to increase
circulation and advertising copy of its publications, the Company's
acquisition and/or development of publications and services with a
complementary focus, and various factors affecting the newspaper industry
generally. On April 7, 1995, the A Warrants (symbol NCOMW) ceased to be
traded on Nasdaq as the price therefor was below $.03125 (1/32).
Additionally, in recent years, the stock market has experienced a high level
of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies traded on the over-the-
counter market, and these wide price fluctuations are not necessarily related
to the operating performance of these companies. Accordingly, there may be
significant volatility in the market for the securities of the Company and
there can be no assurance that the shares of Common Stock issuable upon
exercise of the Warrants can be resold at or near the exercise prices. See
"Price Ranges of Securities."
12. Potential Depressive Effect of Shares Eligible for Future Sale
--------------------------------------------------------------
Pursuant to Rule 144; Other Potential Sales. At present, approximately
-------------------------------------------
2,254,000 shares of the Company's outstanding Common Stock are "restricted"
securities as that term is defined in Rule 144 under the Securities Act of
1933. Of the restricted shares, approximately 2,117,000 have presently been
held for over two years. Possible or actual sales of such restricted Common
Stock by current stockholders of the Company under Rule 144
9
<PAGE>
may in the future have a depressive effect upon the price of the Common Stock
in any market which exists or which may develop. In general, under Rule 144,
a person who has satisfied a two year holding period may, under certain
circumstances, sell publicly, in each three month period thereafter, an amount
of restricted securities that does not exceed the greater of (i) 1% of the
number of outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks immediately
preceding such sale. Persons who have not been affiliated with the Company
for at least three months and who have held their restricted securities for at
least three years are not subject to the volume and certain other limitations
with respect to the sale of such securities. Sales of restricted securities
may also be made at any time pursuant to an effective registration statement
under the Securities Act of 1933. See "Shares Eligible for Future Sale."
13. Potential Dilutive Effect of Authorized and Unissued Shares of
--------------------------------------------------------------
Common Stock Issuable in Discretion of Management; Authorization of Preferred
-----------------------------------------------------------------------------
Stock. The Company is authorized to issue 100,000,000 shares of Common Stock,
-----
of which 7,783,376 shares are outstanding, 359,504 are reserved for issuance
upon conversion of outstanding Preferred Stock and warrants issuable upon such
conversion, 4,611,960 are reserved for issuance upon exercise of the A
Warrants and B Warrants, 581,040 are reserved for issuance upon the exercise
of the Blair Option and the conversion of the Preferred Stock and exercise of
A Warrants included therein and B Warrants issuable upon exercise of the A
Warrants issuable thereunder, 1,675,785 are reserved for issuance upon
exercise of the Public C Warrants and Public D Warrants, 85,000 are reserved
for issuance upon exercise of the outstanding Hibbard Brown D Warrants,
1,923,334 are reserved for issuance pursuant to the Company's stock option
plans and other outstanding options and warrants, of which options and
warrants to purchase 1,428,283 shares are issued and outstanding, and 162,143
shares are reserved for issuance in connection with the acquisition of the
NASSAU NEWSPAPERS. The balance of the authorized but unissued shares of
Common Stock will be issuable, in the discretion of the Board of Directors,
without seeking stockholder approval. Management has no plans at the present
time to issue any of these authorized but unissued shares except in payment of
dividends on the 10% Preferred Stock. The Company is also authorized to issue
500,000 shares of "blank check" Preferred Stock (of which 1,567 shares have
been issued) with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue the
balance of the Company's authorized Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the Company's Common Stock
or other series of Preferred Stock. In the event of issuance, the Preferred
Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company, which
could have the effect of discouraging bids for the Company and thereby prevent
stockholders from receiving the maximum value for their shares. See
"Description of Securities."
14. Potential Loss of Rights Upon Redemption of Warrants. The Company
----------------------------------------------------
may call the A Warrants and B Warrants for redemption, in whole or in part, at
any time upon a minimum of 30 days' prior written notice to holders, at a
redemption price of $0.05 per Warrant, provided that the average of the means
of the closing bid prices of the Common Stock on Nasdaq (or the last sale
price if principally traded on a national securities exchange or the Nasdaq
National Market System) exceeds 140% of the current per share exercise prices
of the Warrants being redeemed for any 20 consecutive trading days ending
within 15 days prior to the day on which notice is given. If the Warrants are
called for redemption, holders of the Warrants will lose their right to
exercise the Warrants except during the 30-day period after the date of the
Company's written notice of redemption. Notice of redemption of the Warrants
may, under certain circumstances, force the holder either to (i) exercise his
Warrants to Common Stock at a time when it may be disadvantageous for such
holder to do so, or to (ii) accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. The Company has not determined whether it will exercise such
right if it should become available, although there is a good likelihood that
it would do so. See "Description of Securities - Warrants."
10
<PAGE>
15. Dilution. This Offering involves an immediate and substantial
--------
dilution (69%) to investors who exercise their A Warrants because the net
tangible book value per share of the Common Stock of the Company after
exercise ($1.41) will be substantially less than the current per share
exercise price ($4.49).
16. Potential Litigation Exposure. The Company is a defendant in a
-----------------------------
litigation in which the plaintiff has claimed significant amounts of damages.
See "Business - Legal Proceedings." Although management believes that the
claims are without merit and that the Company has meritorious defenses, there
can be no assurance that the Company will prevail in such action. An adverse
judgment in such action may have a materially adverse effect upon the
financial condition of the Company, depending upon the amount of such
judgment.
17. Possible Adverse Effect of Commission Investigation of Blair on
---------------------------------------------------------------
Solicitation of Exercises of Warrant. The Securities and Exchange Commission
------------------------------------
is conducting an investigation concerning various business activities of the
warrant solicitation agent for the A Warrants and B Warrants. (See
"Description of Securities - Blair Option and Warrant Solicitation Fee.") The
Company has been advised by Blair that the investigation has been ongoing
since 1989 and appears to be broad in scope, involving numerous aspects of
Blair's compliance with the Federal securities laws. Blair is cooperating
with the investigation. Blair cannot predict whether this investigation will
ever result in any type of formal enforcement action against Blair or, if so,
whether any such action might have an adverse effect on Blair or on its
ability to act as solicitation agent for the Warrants.
11
<PAGE>
PRICE RANGES OF SECURITIES
The Company's Common Stock has been quoted on Nasdaq under the symbol
NCOM since September 19, 1990. The A Warrants (symbol NCOMW) were quoted on
Nasdaq from September 19, 1990 to April 7, 1995, when trading of the A
Warrants on Nasdaq ceased because the price dropped below $.03125 (1/32). The
Units (symbol NCOMU), each consisting of one share of Common Stock, one Public
C Warrant (symbol NCOMM) and one Public D Warrant (symbol NCOML), have been
quoted on Nasdaq since October 9, 1992. The Public C Warrants and Public D
Warrants became separately tradeable on February 12, 1993; however, through
the date of this Prospectus there has been no separate trading in either the
Public C Warrants or the Public D Warrants and they continue to be traded as
part of the Units.
<TABLE>
<CAPTION>
REDEEMABLE
CLASS A
COMMON STOCK WARRANTS UNITS
------------ ---------- ----------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------- ----- ----- ----- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
February 28, 1993 1.00 0.88 .12 .06 1.50 1.00
May 31, 1993 1.88 1.00 .16 .12 1.75 1.00
August 31, 1993 2.69 2.88 .38 .22 2.50 1.75
November 30, 1993 4.25 2.56 .50 .38 8.00 2.50
February 28, 1994 4.25 2.00 .50 .09 7.00 2.00
May 31, 1994 2.38 1.25 .13 .06 2.50 1.50
August 31, 1994 3.50 2.00 .16 .06 5.00 2.00
November 30, 1994 3.00 1.88 .09 .06 3.00 1.75
February 28, 1995 3.06 1.94 .13 .03 4.00 2.00
May 31, 1995 2.75 1.88 .06 .03 2.75 2.25
</TABLE>
On June 28, 1995, the last sale price of the Common Stock was $2.19.
On May 8, 1995, the last day prior to the date of this Prospectus on which the
Units were traded, the last sale price of the Units was $2.25.
As the B Warrants have not been issued, no market yet exists for their
trading. They have been approved for quotation on Nasdaq under the symbol
NCOMZ upon issuance. There can be no assurance that a market for the B
Warrants will develop.
At June 28, 1995, there were approximately 1,000 record owners of the
Company's Common Stock, approximately 38 record owners of the A Warrants,
approximately 80 record owners of the Units, approximately 80 record holders
of the Public C Warrants and approximately 80 record holders of the Public D
Warrants. The Company estimates there are approximately 2,100 beneficial
owners of its Common Stock, approximately 800 beneficial owners of the A
Warrants, approximately 650 beneficial owners of the Units, approximately 650
beneficial owners of the Public C Warrants and approximately 650 beneficial
owners of the Public D Warrants.
12
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Company intends to retain any future earnings to
finance the growth of the Company. Applicable provisions of Nevada corporate
law may affect the ability of the Company to declare and pay cash dividends
and common stock dividends on the Common Stock as well as Preferred Stock.
Under Nevada law, dividends may be paid from a corporation's excess of assets
over its liabilities including capital (based upon certain computations) or in
case there shall be no such excess, out of its net profits for the current
fiscal year and the preceding fiscal year or out of its net profits for the
preceding fiscal year. Dividends on the 10% Preferred Stock are payable
annually in an amount of $500 per share of 10% Preferred Stock, in cash or in
shares of Common Stock having a fair market value of $500, payable on
September 19th of each year. Dividends on the 10% Preferred Stock may be paid
in shares of Common Stock to the extent the Company has sufficient authorized
but unissued Common Stock even if the Company has sufficient assets or net
profits to pay such dividends in cash. It is anticipated that any permitted
dividends will, at least in the foreseeable future, continue to be paid in
shares of Common Stock. There can be no assurance that, in the future, the
Company will have sufficient surplus available for payment of cash or Common
Stock dividends. See "Description of Securities" and Consolidated Financial
Statements and Notes thereto.
USE OF PROCEEDS
The net proceeds to be received upon the exercise of the A Warrants if,
as and when A Warrants are exercised by the holders are estimated to be
$9,900,000, assuming all of the A Warrants are exercised. Such amounts will
be used for working capital and other general corporate purposes as and when
received. A portion of such proceeds may be used in the future for additional
acquisitions of or investments in other businesses, both related or non-
related to the Company's newspaper business. Such investments could include
controlling or non-controlling or minority interests. The Company is in the
process of identifying appropriate candidates for acquisitions. There can be
no assurance that the Company can make additional acquisitions acceptable to
it. Until utilized, the net proceeds of this offering will be invested in
short-term United States Government securities, certificates of deposit, money
market funds and other short-term or long-term interest-bearing investments
and investment grade common equities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at (a)
February 28, 1995; and (b) as adjusted to give effect to the issuance of
2,305,980 shares of Common Stock upon exercise of 20,700,000 A Warrants and
the application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
Actual As Adjusted
------------- -------------
<S> <C> <C>
Stockholders' Equity:
Preferred Stock, $1.00 par value, 500,000 shares authorized..................
10% Convertible Preferred Stock, 1,250 shares authorized, 32
outstanding and as adjusted(1)............................................ $ 32 $ 32
8% Convertible Preferred Stock, 500 shares authorized, 217
outstanding and as adjusted............................................... 217 217
12% Convertible Preferred Stock, 200 shares authorized,
outstanding and as adjusted............................................... 200 200
Paid-in Capital Preferred Stock........................................... 519,873 519,873
Common Stock, $.01 par value, 100,000,000 shares authorized,
7,920,576 issued, 10,226,556 as adjusted(1)............................... 79,206 102,266
Paid-in Capital Common Stock.............................................. 13,657,406 23,535,346
(Deficit).................................................................... ($5,563,920) ($5,563,920)
------------ ------------
Totals....................................................................... $ 8,693,014 $ 18,594,014
Less: Treasury Stock, 151,000 shares actual and as adjusted.................. (408,729) (408,729)
------------ ------------
Total stockholder's equity................................................ $ 8,284,285 $ 18,185,285
------------ ------------
</TABLE>
(1) Does not reflect (i) issuance of 13,800 shares of Common Stock subsequent
to February 28, 1995; (ii) 359,504 shares of Common Stock reserved for
conversion of Preferred Stock and exercise of warrants issuable upon such
conversion; (iii) 2,305,980 shares of Common Stock reserved for issuance
upon exercise of B Warrants issuable upon exercise of A Warrants; (iv)
581,040 shares of Common Stock reserved for issuance upon exercise of the
Blair Option and the conversion of Preferred Stock and exercise of
warrants issuable thereunder; (v) 1,666,667 shares reserved for issuance
upon exercise of options which have been or may be granted under the
Company's stock option plans; (vi) 256,667 shares reserved for issuance
upon the exercise of other outstanding options and warrants; (vii) 162,143
shares reserved for issuance in connection with the acquisition of the
NASSAU NEWSPAPERS; (viii) 1,675,785 shares reserved for issuance upon
exercise of outstanding Public C Warrants and Public D Warrants; and (ix)
85,000 shares reserved for issuance upon exercise of non-redeemable Class
D Warrants issued to Hibbard Brown.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The table on page 17 sets forth, for the periods indicated, certain
information relating to each of the Company's publications and to certain
expenses incurred by the parent company, News Communications, Inc. The
numbers set forth below reflect the operations of the following acquired or
start-up publications from the dates indicated: BRONX REVIEW -- December 1992;
NASSAU NEWSPAPERS -- December 1993; BROOKLYN SKYLINE -- August 1994; MANHATTAN
FILE -- August 1994; THE HILL -- September 1994; CHELSEA-CLINTON NEWS and
WESTSIDER -- September 1994. For information with respect to the Company's
financial position and actual results of operations on a consolidated basis,
please refer to Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED FEBRUARY 28, 1995
COMPARED TO THREE MONTHS ENDED FEBRUARY 28, 1994
------------------------------------------------
NET REVENUES
Total revenues from existing publications were up over 13%. The
addition of Long Island Lifestyles, a four color lifestyle section which is
included in all the existing Nassau Newspapers publications has enabled
advertisers to make an effective regional buy and helped increase revenues for
the NASSAU NEWSPAPERS (42%). DAN'S PAPERS has continued to expand its
geographic base to the north fork of Long Island and further west in the
Hamptons, increasing its revenues (26%). Moderate increases in revenues by
the other existing publications and the additional revenues generated by the
acquisitions and start-ups has brought the total revenues for the quarter to
more than $3,380,000, an increase of 54%.
INCOME (LOSS) -- PUBLICATIONS
Net income from existing publications increased by more than 80%. The
increase in income for the QUEENS TRIBUNE (13%) is attributed to more
effective management. DAN'S PAPERS had a decrease in its loss (14%) as a
result of the increase in revenues and tighter financial controls. The BRONX
PRESS REVIEW had a slight loss compared to a small profit last year as a
result of an increase in sales related expenses incurred in order to increase
future revenues. The increase in sales for NASSAU NEWSPAPERS resulted in a
profit this year as compared to a loss of over $40,000 last year. The
MANHATTAN SPIRIT and OUR TOWN both had small increases in income as a result
of increases in sales. The Company is continuing to focus on increasing sales
and controlling costs. As newsprint prices have increased, the Company has
been engaging in ongoing negotiations with papers suppliers and reviewing
contracts with printers to enable it to control the costs of a very
significant item of production expense.
PARENT COMPANY EXPENSES
The increase in parent company expenses (28%) was primarily a result of
increased personnel costs required for the continuing corporate growth and
expansion.
15
<PAGE>
FISCAL YEAR ENDED NOVEMBER 30, 1994
COMPARED TO FISCAL YEAR ENDED NOVEMBER 30, 1993
-----------------------------------------------
NET REVENUES
Existing Publications
---------------------
The QUEENS TRIBUNE had an increase in revenues (21%) as a result of an
increased display and classified sales effort. The MANHATTAN SPIRIT (10%) and
OUR TOWN (3%) had slight increases in revenues. Display sales staff turnover
prevents greater growth. Classified sales remains strong. DAN'S PAPERS
increase in revenue (29%) was primarily from increased display sales due to
greater recognition in the marketplace and increased efforts, capturing a
greater market share in its North Fork and East-End communities, which
continue to prosper economically. The BRONX PRESS REVIEW had an increase in
revenues (81%) primarily as a result of its two new publications, RIVERDALE
REVIEW and WESTCHESTER LIFESTYLES.
Acquisitions and Start-ups
--------------------------
NASSAU NEWSPAPERS were acquired in December 1993, BROOKLYN SKYLINE was
acquired in August 1994, WESTSIDE was acquired in September 1994 and THE HILL
and MANHATTAN FILE were started during 1994.
INCOME (LOSS) -- PUBLICATIONS
Existing Publications
---------------------
The substantial increases in income for the QUEENS TRIBUNE (53%), DAN'S
PAPERS (54%), MANHATTAN SPIRIT (57%) and OUR TOWN (11%) were a result of
increased sales and/or reductions in operating expenses. In addition, as
newsprint prices have increased greatly, the parent company has engaged in
ongoing negotiations securing new suppliers and contracts mitigating the
negative effect on income. The BRONX PRESS REVIEW sold its building this
year, with much of the profit being offset by start-up costs associated with
the RIVERDALE REVIEW and WESTCHESTER LIFESTYLES, resulting in a slight
increase in income.
Acquisitions and Start-ups
--------------------------
NASSAU NEWSPAPERS were acquired in December 1993, BROOKLYN SKYLINE was
acquired in August 1994, WESTSIDE was acquired in September 1994 and THE HILL
and MANHATTAN FILE were started during 1994.
Parent Company Expenses
-----------------------
The large increase in parent company expenses are primarily a result of
additional personnel costs and professional fees required for the continuing
corporate growth expansion.
16
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
----------------------------- -------------------------------
1995 1994 1994 1993
NET REVENUES
<S> <C> <C> <C> <C>
Existing Publications:
Queens Tribune.......... $ 668,868 $ 666,673 $ 3,252,008 $2,682,422
Dan's Papers............ 234,067 186,367 2,921,469 2,270,956
Manhattan Spirit........ 369,436 345,368 1,802,405 1,781,839
Our Town................ 386,515 372,545 1,678,349 1,634,792
Nassau Newspapers....... 599,572 422,841 --- ---
Bronx Press Review...... 226,167 203,359 1,009,769 557,695
---------- ---------- ----------- ----------
Total Net Revenues -
Existing Publications 2,484,625 2,197,153 10,664,020 8,927,704
---------- ---------- ----------- ----------
Acquisitions and Start-ups:
The Hill................ 177,482 --- 216,962 ---
Manhattan File.......... 316,721 --- 392,070 ---
Nassau Newspapers....... --- --- 2,197,906 ---
Brooklyn Skyline........ 203,469 --- 206,323 ---
Westside Publications... 201,814 --- 135,536 ---
---------- ---------- ----------- ----------
Total Net Revenues -
Acquisitions and
Start-ups: 899,486 --- 3,148,797 ---
---------- ---------- ----------- ----------
Total Net Revenues $3,384,111 $2,197,153 $13,812,817 $8,927,704
========== ========== =========== ==========
<CAPTION>
INCOME (LOSS) PUBLICATIONS BEFORE GOODWILL
<S> <C> <C> <C> <C>
Existing Publications:
Queens Tribune.......... $ 148,739 $ 131,391 $ 715,593 $ 468,111
Dan's Papers............ (67,991) (78,836) 713,290 464,450
Manhattan Spirit........ 14,024 10,336 145,278 92,493
Our Town................ 64,155 63,714 253,244 228,197
Nassau Newspapers....... 3,371 (42,691) --- ---
Bronx Press Review...... (7,368) 1,826 23,572 6,203
---------- ---------- ----------- ----------
Net Income - Existing
Publications 154,930 85,740 1,850,977 1,259,454
---------- ---------- ----------- ----------
Acquisitions and Start-ups
The Hill(3)............. (262,210) --- (387,887) ---
Manhattan File(3)....... (146,158) --- (462,753) ---
Nassau Newspapers....... --- --- (46,836) ---
Brooklyn Skyline........ (38,954) --- (59,825) ---
Westside Publications... 5,724 --- (13,309) ---
---------- ---------- ----------- ----------
Income (Loss) --
Acquisitions and
Start-ups:................ 441,598 --- (970,610) ---
---------- ---------- ----------- ----------
Income (Loss) --
Publications $ 286,668 $ 85,740 $ 880,367 $1,259,454
========== ========== =========== ==========
<CAPTION>
INCOME (LOSS) PUBLICATIONS AFTER GOODWILL(1)
<S> <C> <C> <C> <C>
Existing Publications:
Queens Tribune.......... $ 122,022 $ 104,674 $ 608,725 $ 361,243
Dan's Papers............ (80,666) (91,511) 662,589 413,749
Manhattan Spirit........ 14,024 10,336 145,278 92,493
Our Town................ 50,694 50,253 199,399 174,352
Nassau Newspapers....... (4,378) (50,191) --- ---
Bronx Press Review...... (10,930) (674) 9,324 (3,797)
---------- ---------- ----------- ----------
Net Income - Existing
Publications 90,766 22,887 1,625,315 1,038,040
---------- ---------- ----------- ----------
Acquisitions and Start-ups:
The Hill(3)............. (262,210) --- (387,887) ---
Manhattan File(3)....... (146,158) --- (462,753) ---
Nassau Newspapers....... --- --- (77,813) ---
Brooklyn Skyline........ (40,348) --- (61,865) ---
Westside Publications... 2,463 --- (17,090) ---
---------- ---------- ----------- ----------
Income (Loss) --
Acquisitions and
Start-ups: (446,253) --- (1,007,408) ---
---------- ---------- ----------- ----------
Income (Loss) --
Publications $ (355,487) $ 22,887 $ 617,907 $1,038,040
========== ========== =========== ==========
<CAPTION>
PARENT COMPANY EXPENSES
<S> <C> <C> <C> <C>
Personnel, Rent, General
and Administrative $ 295,135 $ 229,860 $ 1,218,454 $ 741,244
Interest (Income)
Expense(2) (1,562) (6,651) (37,196) 64,167
---------- ---------- ----------- ----------
Total Parent Company
Expenses $ 293,573 $ 223,209 $ 1,181,258 $ 805,411
========== ========== =========== ==========
NET INCOME (LOSS) $ (649,060) $ (200,322) $ (563,351) $ 232,629
---------- ---------- ----------- ----------
</TABLE>
_____________________________
(Footnotes to table are on following page)
17
<PAGE>
_____________________________
(Footnotes to table on preceding page)
(1) Reflects expense for amortization of goodwill by publication as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
------------------------------- -----------------------------
1995 1994 1994 1993
------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Queens Tribune......... $26,717 $26,717 $106,868 $106,868
Dan's Papers........... 12,675 12,675 50,701 50,701
Our Town............... 13,461 13,461 53,845 53,845
Bronx Press Review..... 3,562 2,500 14,248 ---
Nassau Newspapers...... 7,749 --- 30,977 ---
Brooklyn Skyline....... 1,394 --- 2,040 ---
Westside Publications.. 3,261 --- 3,781 ---
------- ------- -------- --------
$68,819 $62,853 $262,460 $221,414
======= ======= ======== ========
</TABLE>
(2) Net of interest income of $8,037 and $13,526 for the three months ended
February 28, 1995 and 1994, and $61,993 and $12,097 for the years ended
November 30, 1994 and 1993, respectively.
(3) Approximately $400,000 of start-up costs related to MANHATTAN FILE and THE
HILL which were deferred in the third quarter were expensed in the fourth
quarter upon commencement of regular operations of the publications.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1995, the Company had an excess of current assets over
current liabilities in the amount of approximately $3,580,000. Through
February 28, 1995, approximately $1,951,000 net proceeds were realized, after
costs and expenses, upon conversion of Class C and D Warrants. Until
utilized, available cash is invested in short-term United State Government
securities, certificates of deposit, money market funds, other short-term and
long-term interest bearing investments, and investment grade common equities.
Through February 28, 1995 approximately $320,000 was used to acquire the
NASSAU NEWSPAPERS; $190,000 was used to acquire WESTSIDE, and $30,000 to
purchase BROOKLYN SKYLINE; $175,000 was used to pay notes and accrued interest
incurred with the reacquisition in 1991 of Common Stock from a former officer;
$250,000 was used to pay the remaining notes due to the former owner of OUR
TOWN; and approximately $180,000 was used to repay notes and accrued interest
incurred with the acquisition of the BRONX PRESS REVIEW.
For the three months ended February 28, 1995, the Company had a cash
increase of approximately $1,300, resulting from (a) a deficit of
approximately $743,000 in cash from operating activities, made up of an
operating loss of $649,000 increased by non-cash items such as depreciation
and amortization ($126,000) and changes in balance sheet items such as
increases in accounts receivable ($52,000) and decreases in current
liabilities ($193,000); (b) reduced by approximately $822,000 cash provided
from investing activities; and (c) increased by approximately $77,000 cash
used for financing activities, principally repayment of long-term debt. See
"Consolidated Statements of Cash Flows."
For the year ended November 30, 1994, the Company had a cash decrease of
approximately $2,000,000 resulting from (a) operating activities, made up of
operating loss of $563,000, increased by non-cash items such as depreciation
and amortization ($413,000), and changes in balance sheet items
18
<PAGE>
such as increases in accounts receivable ($1,983,000) and increase in accounts
payable and accrued expenses ($584,000); (b) reduced by $1,820,000 for
investing activities (see Consolidated Statements of Cash Flows); (c)
increased by financing activities (including $1,951,000 provided from the
exercise of Class C and Class D Warrants less payments of long-term debt
($470,000)).
For the year ended November 30, 1993, the Company had a cash increase of
approximately $1,200,000 resulting from (a) operating activities, made up of
operating income of $233,000, increased by non-cash items such as depreciation
and amortization ($340,000), and changes in balance sheet items such as
increases in accounts receivable ($779,000); (b) reduced by $256,000 for
capital expenditures; (c) increased by $1,513,000 provided by financing
activities (including $2,080,000 provided from the exercise of Class C and
Class D Warrants).
Although there can be no assurance, management believes that the
Company's operations will generate positive cash flow for the fiscal year
ending November 30, 1995. It is the opinion of management that cash on hand
and cash from operations are expected to be sufficient to meet the Company's
cash needs on an ongoing basis.
The Company's terms of payment for its advertising sales are generally
net 30 days. However, the Company's experience, which management believes is
typical of the weekly newspaper industry, is that payments are received over
much longer periods. As of February 28, 1995, the average age of the
Company's receivables was about 120 days. Management has recognized the
continued adverse economic conditions and has taken that into consideration in
identifying those accounts which require a reserve. As a result, the
Company's reserve for bad debts is believed to be sufficient to avoid the need
for further material write-offs. At February 28, 1995, the Company had
sufficient cash on hand to fund the purchase of stock of DPI if Mr. Rattiner
exercised his option requiring the Company to do so (see "Management --
Certain Transactions"). The Company had no material commitments for capital
expenditures at February 28, 1995.
In recent months, the cost of newsprint has increased significantly. As
newsprint is a material expense of production, the Company's results of
operations have been adversely affected.
19
<PAGE>
BUSINESS
News Communications, Inc., a Nevada corporation formed in 1986 (the
Company), has been primarily engaged, through various wholly owned and partly-
owned subsidiaries, in the publication and distribution of advertiser
supported, community oriented newspapers and related targeted audience
publications. The community newspapers are directed at specific geographic
communities and, for the most part, distributed free of charge to selected
residences and business establishments in those communities. Each publication
focuses on the lifestyle, culture, arts, entertainment, politics and social
issues of particular interest to the group of communities at which it is
directed. Some of the papers publish different editions (with variations in
editorial content and advertising) which are distributed to each community in
the targeted group. The principal source of the Company's revenues (94% for
the three months ended February 28, 1995, and 94% for the fiscal year ended
November 30, 1994) is the sale of advertising space in its publications.
As used herein, unless the context requires otherwise, the term Company
refers to News Communications, Inc. together with its subsidiaries, Access
Network Corp. ("Access"), publisher of the MANHATTAN SPIRIT (formerly called
the West Side Spirit), Tribco Incorporated ("Tribco"), publisher of the QUEENS
TRIBUNE and the WESTERN QUEENS TRIBUNE, Dan's Papers Inc. ("DPI"), publisher
of DAN'S PAPERS and the MONTAUK PIONEER, Manhattan Publishing Corp. ("MPC"),
publisher of OUR TOWN, and Parkchester Publishing Co., Inc., publisher of the
BRONX PRESS REVIEW, RIVERDALE REVIEW, and WESTCHESTER LIFESTYLES, Long Island
Community Newspaper Group, Inc. ("LICNG"), publisher of LYNBROOK USA, the
MALVERN TIMES, the ROCKVILLE CENTER NEWS & OWL, the VALLEY STREAM MAILEADER,
the INDEPENDENT VOICE OF LONG BEACH, OCEANSIDE & ISLAND PARK, the ROCKVILLE
CENTER-OCEANSIDE BEACON, the BALDWIN CITIZEN, the EAST ROCKAWAY OBSERVER, six
editions of LONG ISLAND MARKET and LONG ISLAND LIFESTYLES (collectively, the
"Nassau Newspapers"), Manhattan File Publishing, Inc. ("Manhattan File"),
publisher of MANHATTAN FILE, Capitol Hill Publishing, Inc. ("Capitol Hill"),
publisher of THE HILL, Brooklyn Newspaper Publishing, Inc. ("Brooklyn"),
publisher of BROOKLYN SKYLINE, and Westside Newspaper Corp. ("Westside"),
publisher of CHELSEA-CLINTON NEWS and the WESTSIDER.
While the Company is also striving to expand the business of its current
publications through more intensive sales efforts, it believes that the major
opportunities for growth in community newspapers lie through acquisitions of
existing publications. Such acquisitions would afford the Company an
established presence in the marketing and circulation areas covered by the
acquired publications. As opposed to starting up new publications, an
acquisition policy also changes a competitor into an ally and, management
believes, offers a faster possible return on investment. On the other hand,
acquisitions may carry with them negative attributes of their predecessors,
such as duplicative staffing which may be costly and disruptive to eliminate
and policies, procedures and matters of corporate culture which could be
well-established but different from or contrary to those of the acquiring
entity. Acquisitions can also be costly to effectuate and may subject the
Company to large charges against earnings to amortize their good will, as has
been the Company's experience. Consequently, the Company is also considering
low-cost methods to initiate new publications to complement its existing
newspapers.
The Company's business plan is to develop a regional group of
publications in the greater New York metropolitan area. The Company's
management intends to seek acquisition candidates and other expansion
opportunities in the New York region. The Company also desires to expand to
other areas as resources permit, including areas such as New Jersey,
Connecticut, Massachusetts and resort communities throughout the United
States.
In furtherance of its business plan, the Company underwent considerable
expansion in 1994. This included the acquisition of community newspapers in
Nassau County (the suburban Long Island county just east of New York City),
Brooklyn and Manhattan.
20
<PAGE>
The Company also believes that it has developed the talent and expertise
to expand into media ventures other than community newspapers. Thus, in 1994,
the Company launched two new products -MANHATTAN FILE, a glossy magazine
directed at the young urban Manhattanite, and THE HILL, a newspaper covering
the United States Congress.
The Company's management believes that advertisers would be receptive to
the wide circulation at relatively low cost that could be offered by a related
group of publications providing a broad metropolitan area audience. Because
the marginal costs of adding editorial and advertising content are generally
significantly lower than the additional advertising revenues that would be
derived, management believes that it can offer potential new advertisers low
rates and still increase its operating profits. It also believes the Company
can take advantage of economies of scale, combination of operations and other
synergies not available to individual publications. In management's opinion,
businesses of the type that advertise in local newspapers such as those
published by the Company, such as merchants and other local businesses, are
apt to consider such newspapers favorably when compared to other advertising
media because of the ability of such newspapers to reach specifically targeted
audiences. The advertisers need not pay rates that are based on broader
audiences not of interest to them.
THE MANHATTAN SPIRIT
Access publishes the MANHATTAN SPIRIT, a weekly free circulation
newspaper founded in 1985, which focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of interest to the West Side and
lower Manhattan. Access editors and support staff, together with a variety of
contributing free-lance writers and columnists, write and edit all material
for each weekly issue of the MANHATTAN SPIRIT and perform all composition,
layout, and typesetting work. Printing is performed by outside contractors.
In addition, the MANHATTAN SPIRIT offers graphics and printing services to its
customers.
The MANHATTAN SPIRIT has won many awards, including, in the past two
fiscal years, New York State Bar Association awards for excellence in
journalism. Various national and international magazines have reprinted
articles from the MANHATTAN SPIRIT, including Glamour Magazine and
----------------
Cosmopolitan International, but this is not a significant source of revenue.
--------------------------
Editorial content includes columns by well-known columnists in the fields of
food and wine, movies and social advice. Other columnists and writers focus
on finance, theatre and topics of community interest.
The MANHATTAN SPIRIT is printed in a tabloid format with a 4-color front
page. It is distributed Thursday and Friday of each week by independent
contractors in bulk to locations throughout Manhattan. The principal places
of distribution are lobbies of luxury apartment buildings, restaurants, banks,
supermarkets and various other business establishments as well as in sidewalk
distribution boxes.
OUR TOWN
OUR TOWN, a 25-year-old weekly publication distributed in a single
edition predominantly on Manhattans Upper East Side, was acquired by the
Company in May 1991. The Company believes it is Manhattans largest free
circulation weekly community newspaper. Almost all of its income derives from
display and classified advertising.
OUR TOWN is published in a 4-color tabloid format. Delivery is made by
independent contractors to apartment house lobbies, banks, supermarkets and
sidewalk distribution boxes.
The stock of MPC is pledged to secure payment of a portion of the
acquisition price of OUR TOWN.
21
<PAGE>
DAN'S PAPERS
DAN'S PAPERS, published by DPI, focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of interest to the resort areas of
the South and North Forks of Eastern Long Island, New York, particularly the
wealthy resort area known as the Hamptons. Its articles and columns include
humor, news, celebrity profiles, reviews of art gallery shows, restaurants,
concerts, nightclubs and movies, social satire, editorial cartoons, local
environmental and political issues, as well as a special section on real
estate. DAN'S PAPERS is published in tabloid format (with a glossy cover for
approximately 17 summer and 9 other issues) on a weekly basis. It is
distributed each week to locations on Eastern Long Island, including art
galleries, gift shops, supermarkets, newspaper and card shops, restaurants and
boutiques. There is also weekly distribution in Manhattan. Management of the
Company believes that DAN'S PAPERS has the largest circulation in Eastern Long
Island of any publication.
DPI also publishes the MONTAUK PIONEER, which has been designated by the
Montauk Village Association as the official newspaper of the community of
Montauk.
DAN'S PAPERS was first published in 1960 by Mr. Daniel Rattiner, and is
believed by the Company to be the first free resort newspaper in the United
States. The Company acquired its 80% interest in DPI (Mr. Rattiner is the
owner of the other 20%) in October 1988. Mr. Rattiner continues to be the
publisher and editor of DAN'S PAPERS under an employment agreement with DPI
expiring in 1998, subject to earlier termination on certain conditions.
QUEENS TRIBUNE
In May 1989, Tribco acquired, by way of merger, all the outstanding stock
of two companies which, together, published and distributed the QUEENS
TRIBUNE, which now consists of eight free circulation editions and one paid-
circulation edition weekly community newspapers serving areas in Queens County
in New York City. Included in such editions are three editions of the WESTERN
QUEENS TRIBUNE, a four-year old weekly publication distributed in areas in
western Queens County not previously served by the QUEENS TRIBUNE.
The QUEENS TRIBUNE was started in 1970 and is believed by the Company to
have the largest circulation of any weekly community newspaper in Queens
County. The format is a tabloid with four-color front and additional pages.
Editorial content focuses on local, borough-wide and occasionally city-wide
political and social issues. Features include community news and activities
of the week, crime reports, restaurant reviews and similar matters of interest
to the targeted circulation area. Substantially all of the articles and
columns are written by Tribco's editors and support staff. The QUEENS TRIBUNE
has won numerous awards for journalistic excellence. Delivery is made by
independent contractors to heavy traffic locations, such as banks,
supermarkets, and sidewalk distribution boxes. Printing, graphics,
consulting, distribution, flyer and insert revenue are significant sources of
income to the QUEENS TRIBUNE operation, providing approximately 17% of its
revenues in the fiscal year ended November 30, 1994.
THE BRONX PRESS REVIEW, RIVERDALE REVIEW AND WESTCHESTER LIFESTYLES
On December 18, 1992, the Company acquired Parkchester Publishing Co.,
Inc., publisher of the BRONX PRESS REVIEW for a net amount of approximately
$336,600. The BRONX PRESS REVIEW is a fifty-three year old paper which took
on a Bronx-wide identity to fill a vacuum left by the absorption of the daily
Bronx Home News by the New York Post in the late 1940s. It is a tabloid paper
with a 4-color front and back page that presently prints 12,000 copies weekly.
It has a paid circulation of about 6,000. As a promotion effort to increase
subscribers, the paper is being distributed on a complimentary basis to 5,000
families a week. The BRONX PRESS REVIEW has been designated by the New York
City Council as the official newspaper of Bronx County for the publication of
he Concurrent Resolutions of the Legislature.
22
<PAGE>
In the last quarter of 1993, the Company began two new publications - the
RIVERDALE REVIEW, which serves the affluent Riverdale area of the Bronx, and
WESTCHESTER LIFESTYLES, which is directed to persons residing in Westchester
County, the county with the greatest number of households having annual
incomes in excess of $100,000 in the United States.
The RIVERDALE REVIEW is a community weekly covering the news, events,
people and lifestyles of the Riverdale community. It is distributed free of
charge throughout the affluent northwest Bronx community which it serves.
19,000 copies are distributed door-to-door to private homes, in bulk to the
lobbies and mailrooms of the 175 apartment buildings in the area, and through
street distribution boxes and other bulk distribution to high traffic
businesses and religious and educational institutions.
WESTCHESTER LIFESTYLES is a free distribution bi-weekly newspaper which
covers the dining, entertainment and leisure fields. It is directed to readers
over 35 years of age in most affluent towns and villages in this well-to-do
county and is distributed to hundreds of high traffic locations in these
areas.
THE NASSAU NEWSPAPERS
On December 9, 1993, the Company, through its wholly-owned subsidiary,
LONG ISLAND COMMUNITY NEWSPAPER GROUP, INC. ("LICNG"), acquired the assets of
the eight Nassau Newspapers from a group of sellers for an aggregate purchase
price of approximately $350,000 in cash and 162,143 shares of Common Stock,
which will be issued on the three anniversary dates of the closing beginning
on December 9, 1996. The shares of Common Stock to be issued had an aggregate
market value of $709,375 but, because of the deferral of their issuance and
their nature as restricted securities, have been valued by the Company at
approximately $355,000 for financial accounting purposes. Mr. Barry Manning
has been employed by LICNG to continue as publisher of the Nassau Newspapers.
Each of the Nassau Newspapers serves a community in Nassau County, New
York, a suburban county adjacent to Queens County in New York City. The oldest
of the Nassau Newspapers has been in continuous publication for 87 years. The
group averages over 50 years of continuous weekly publication per paper. Each
of the Nassau Newspapers has been designated as the official newspaper of its
community. The Company has expanded into six additional Nassau County
communities with a shopper-type publication called the LONG ISLAND MARKET.
Recently the Company has developed a new publication, LONG ISLAND
LIFESTYLES, which serves as a second section to its fourteen existing Nassau
publications and is also distributed by itself in heavily trafficked areas.
This new product offers moderately priced advertising to the central and south
Nassau marketplace.
MANHATTAN FILE
MANHATTAN FILE is a monthly (plus 2 special issues annually), 4-color,
perfect bound, glossy magazine that debuted in August 1994. It targets 25-45
year-old young, affluent Manhattan residents who are fashion and style
conscious. With stories on the latest fashion trends for young men and women,
ideas on interior decorating, dining tips, profiles and interviews with
successful thirtysomethings and a comprehensive arts and entertainment guide
for the young and wealthy. MANHATTAN FILE fills a local niche that the
Company believes is not served by any other New York publication.
During the first week of each month, 50,000 complimentary copies are
distributed to the luxury buildings on the upper East Side, upper West Side,
SoHo and the West Village neighborhoods of Manhattan, as well as to various
restaurants, boutiques, salons, nightclubs, health clubs and in 100 signature
distribution boxes throughout Manhattan. In all, there are more than 800
distribution sites where young people live or frequent.
23
<PAGE>
National advertisers targeted are high-end fashion, jewelry, liquor,
tobacco, and automotive; on the local front, categories targeted include
health clubs, restaurants, boutiques, art auction houses, hotels and cultural
institutions. Well-known national advertisers have been joined by many local
advertisers including prestigious restaurants, auction houses and hotels.
MANHATTAN FILE is one of only two free distributed glossy magazines
targeting young people in Manhattan. The other is City magazine, which
----
debuted a few months before MANHATTAN FILE. To a lesser extent, other
competitors include national magazines like Details and Rolling Stone. Also,
------- -------------
locally there is a small competitive overlap for advertising with the paid
weekly newspaper The Village Voice and the free weekly newspaper The New York
----------------- ------------
Press.
-----
BROOKLYN SKYLINE
The BROOKLYN SKYLINE, which was acquired by the Company in August 1994,
is published weekly in four editions which are distributed door-to-door in
Brooklyn's southern tier, saturating an area of more than 100,000 families.
Originally a tabloid shopper-type publication, the Company is in the on-going
process of converting the BROOKLYN SKYLINE to a community newspaper to
complement its other publications. The introduction of "Koch at the Movies,"
the News Communication Telephone Poll and the Company's Citywide political
page "NYConfidential" in addition to local news coverage by newly hired
Brooklyn reporters distinguish the BROOKLYN SKYLINE from its major
competition, The Marketeer, an established door-to-door shopper. In addition
-------------
to its established display sales effort, the Company introduced a classified
advertising section. Additional revenue is also generated by the occasional
sale of distribution of circulars to accompany the door-to-door distribution
of BROOKLYN SKYLINE. The BROOKLYN SKYLINE operates out of a small office in
the Mill Basin section of Brooklyn. It is printed on newsprint with the use
of spot color and is distributed by crews supervised and trained by the
Company. Gregg Linder, BROOKLYN SKYLINE'S former owner and publisher, signed
a five year contract to remain with the Company.
CHELSEA-CLINTON NEWS AND WESTSIDER
The CHELSEA-CLINTON NEWS and WESTSIDER are the only paid circulation
weekly newspapers on the West Side of Manhattan. The WESTSIDER, a 24-year-old
community newspaper, covers the area from 59th-125th Streets from Riverside
Drive to Central Park West. The CHELSEA-CLINTON NEWS, a 56-year-old community
newspaper, covers the area from 14th-59th Streets from 5th Avenue to 11th
Avenue. These two publications rely on revenue from display advertising,
classified advertising, subscriptions, newsstand sales, legal advertising and
from an in-house typesetting shop that brings in more than 20% of the annual
revenue. The CHELSEA-CLINTON NEWS and WESTSIDER were acquired by the Company
in October 1994.
THE HILL
In September 1994, the Company embarked on its most ambitious undertaking
to date -- the publication of THE HILL, a new weekly newspaper devoted to the
coverage of the United States Congress. Martin Tolchin, an award-winning,
forty year veteran of the New York Times signed a five year contract to serve
as publisher and editor and chief of THE HILL. The paper, which offers
comprehensive coverage of every aspect of Congress and life in the Capitol, is
distributed free of charge to members of Congress and their staffs. THE HILL
derives the largest portion of its revenue from the sale of display
advertising to companies wishing to influence the decisions of Congress.
Additional revenues come from classified advertising, local retail
advertising, subscriptions and the sale of the paper outside of the Capitol
area. THE HILL is operated out of its own offices in Washington, D.C. It is
printed on newsprint in black ink and process four color. It is distributed
on Capitol Hill through the Capitol's Post Office.
24
<PAGE>
PRINTING AND PRODUCTION
The printing of each of the Company's publications is presently done by
independent printing shops. The Company sends to the printer completely
composed, laid-out, typeset pages for photo-offset reproduction. In each
case, the printer is able to provide all of the necessary materials (i.e.,
----
paper, ink, etc.) for printing, and bills the Company for its services and
materials used. In some instances, the Company purchases its own paper rather
than that supplied by the printer. The Company believes that it obtains its
printing services at competitive prices, and if, for any reason, the
arrangements that it has with its printers should terminate, management
believes that similarly favorable arrangements could be had with several other
printing shops in or around New York City.
ADVERTISERS AND READERS; MARKETING ACTIVITIES
Most of the Company's publications are primarily distributed free of
charge to their readers. The BRONX PRESS REVIEW, the eight NASSAU NEWSPAPERS,
the WESTSIDER and CHELSEA-CLINTON NEWS and one edition of the QUEENS TRIBUNE
are paid circulation publications. The primary source of the Company's
revenue is through the sale of advertising space in the publications, although
several of the weekly publications also offer graphics and printing services
to outside service purchasers, including several school publications. The
advertising revenues of each of the Company's publications ar derived from a
wide variety of businesses and individuals reflecting the varied
opportunities, tastes and demands of the residents of each of the targeted
distribution areas. Currently, at least 85% of the advertising space in the
Company's publications which have been in existence at least six months
represents multiple insertion advertising (where an advertising client runs an
advertisement in two or more issues of a publication). This percentage has
remained fairly stable for the Company's publications over the last three
years. On a year-to-year basis, the Company estimates that, over the last
three fiscal years, approximately two-thirds of its display advertising
revenues have been from advertisers who were advertisers in the prior year.
No one advertising client represents more than 5% of the Company's advertising
revenues. Classified advertising has been a growing area of revenues for the
weekly publications, as has been advertising directed to telephonic response.
The Company employs sales representatives who are compensated, for the
most part, with incentive-based compensation packages. The Company has
commenced supplementing the sales activities of the individual publications
with centralized group sales activities seeking advertisers for all or a
combination of the Company's publications. Management believes such a program
is particularly attractive to advertisers who seek audiences throughout the
greater New York metropolitan area, such as chain store and franchise
operations.
COMPETITION
The Company competes directly for advertising revenues with newspapers
and magazines which are sold to readers or are distributed free, as well as
other advertising media. The Company does not significantly compete, however,
with other publishers of newspapers or magazines for paid circulation revenues
as most of its publications are distributed free of charge to its readers.
Those newspapers and magazines competing with the MANHATTAN SPIRIT and
OUR TOWN for advertising and targeted at Manhattan or parts thereof include,
among others, the Resident, New York Press, New York Observer, New York
-----------------------------------------------------
Magazine and The Village Voice. In order to compete with the lower
-------- ------------------
advertising rates of smaller publications in the MANHATTAN SPIRIT'S market
area, the Company utilizes a split zone program whereby advertisers may
purchase space in only half of the MANHATTAN SPIRIT'S copies at an
appropriately reduced rate. During the months from May through September,
DAN'S PAPERS serves the same market as Hampton Magazine, a free circulation
-----------------
publication. DAN'S PAPERS is aimed at the same market as the East Hampton
------------
Star and the Southampton Press, which are sold to readers and not
---- ------------------
25
<PAGE>
distributed free of charge. The MONTAUK PIONEER is the only paper that serves
Montauk. The QUEENS TRIBUNE competes with many publications, including
Newsday and the free circulation publications Queens Chronicle and Queens
------- ---------------- ------
Courier, both of which are somewhat smaller in circulation and advertising
-------
revenue than the QUEENS TRIBUNE. The BRONX PRESS REVIEW competes against
community newspapers such as the Bronx Times Reporter and the Bronx News.
-------------------- -----------
The RIVERDALE REVIEW is the only saturation circulation, free
distribution newspaper serving that affluent community. The Riverdale Press, a
---------------
paid circulation weekly, has a smaller circulation. The Company believes that
there is no similar publication distributed in the same manner as WESTCHESTER
LIFESTYLES in Westchester County. The Gannett Suburban Newspapers have a
weekend section, published in their paid-circulation daily papers on
Thursdays, which contain some similar information and advertising, and a new
weekly publication, Westchester Weekly, published by the Advocate of Stamford,
-------------------
Connecticut, a free circulation paper directed to a younger audience.
In addition to Newsday, the daily newspaper in Nassau County, the NASSAU
--------
NEWSPAPERS have several other weekly competitors in the south-west section of
the county. These include the South Shore Tribune, a free circulation
--------------------
newspaper, a group of paid circulation newspapers published by Richner
Publications, and Pennysaver/This Week and Shoppers Guide, two free
-------------------- --------------
circulation shopper publications. In addition, there is a free circulation
television listing magazine entitled Prime Time.
-----------
MANHATTAN FILE is one of only two free distributed glossy magazines
targeting young people in Manhattan. The other is City magazine, which
----
debuted a few months before MANHATTAN FILE. To a lesser extent, other
competitors include national magazines like Details and Rolling Stone. Also,
------- -------------
locally there is a small competitive overlap for advertising with the paid
weekly newspaper The Village Voice and the free weekly newspaper The New York
----------------- ------------
Press.
-----
Although there is no competition for subscriptions or legal revenue
because there are no other paid circulation weeklies on the West Side, the
CHELSEA-CLINTON NEWS and WESTSIDER do compete for display and classified
advertising with other free weeklies on the West Side, including the MANHATTAN
SPIRIT and The Resident.
------------
The BROOKLYN SKYLINE is one of a number of free distribution papers in
Brooklyn. The Marketeer, an established door-to-door shopper, is its primary
---------
competitor.
THE HILL services the same market as Roll Call, an established newspaper
---------
published twice weekly.
There are numerous other publications distributed in the Company's
circulation areas, some of which have resources substantially greater than
those of the Company, which compete for advertising against the Company's
publications. Management of the Company expects to be competitive because the
Company can offer customers the ability to focus its advertisements on a
specific market, thereby giving the customer a chance to control costs by
narrowing its advertising scope and eliminating waste. Management believes
that, over the years of publication, the Company's newspapers have developed a
favorable reputation and following. The Company also believes it can compete
favorably by offering advertisers the opportunity to choose from a menu of
the Company's publications, by offering advertisers more favorable rates as
the number of publications increases and by affording advertisers the ability
to pinpoint a specific group or geographic area or combination thereof. The
major barrier to the entry of new competitive publications is the need for
sufficient capital to start up and continue operations until a sufficient
advertising base is created.
26
<PAGE>
EMPLOYEES
As of May 31, 1995, the Company had 302 full- and part-time employees, 57
of whom were editorial; 117 were engaged as display and classified advertising
sales personnel; 59 were engaged in production; and 69 were engaged in
administrative and clerical activities. The Company also maintains a roster
of free-lance contractors. Management considers its relations with the
Company's employees to be satisfactory.
SEASONALITY
DAN'S PAPERS and the MONTAUK PIONEER, which are resort area newspapers,
have significant seasonal variations in revenues. This seasonality may cause
operating results to vary significantly from quarter to quarter, with the
third fiscal quarter being the most significant in terms of revenues and
income. It is also expected that revenues of THE HILL will vary, depending
upon the periods Congress is in session.
PROPERTIES
The Company and its subsidiaries operate out of eight separate locations.
As of February 28, 1995, the MANHATTAN SPIRIT, OUR TOWN, CHELSEA-CLINTON NEWS
and the WESTSIDER share 7,000 square foot premises at both 242 West 30th
Street, New York, New York, under a lease with an unaffiliated landlord which
terminates in January 2001, at an annual rental of $52,000 for the first year,
increasing over the term to $75,380 in the last year.
DPI leases from Mr. Daniel Rattiner, current 20% owner and President of
DPI, 1,910 square feet of office space in a building on Montauk Highway,
Bridgehampton, New York, at an annual rate of $38,200 (plus cost-of-living
increases) for a term of ten years terminating in October 1998. The Company
has an option to renew its lease for an additional five-year term.
Tribco has entered into a ten year lease, which commenced on November 1,
1990, with an unaffiliated landlord to rent approximately 8,000 square feet of
office space and space for publication of the QUEENS TRIBUNE in Fresh Meadows,
New York, for annual base rents ranging from $88,000 to $128,000. The lease
is renewable for five years at a $152,000 base annual rent. These premises
also serve as the Company's executive and financial offices.
Parkchester Publishing Co., Inc. has entered into a five year lease for
2,500 square feet of office space at 170 West 233rd Street, Bronx, New York,
commencing June 1994, at an annual rental of $34,200, increasing over the term
to $38,500 in the last year.
LICNG has entered into a five year lease for 7,600 square feet of office
space at 216 East 2nd Street, Mineola, New York, commencing November 1994, at
an annual rental of $53,400, increasing over the term to $62,350 in the last
year. The Company has an option to renew its lease for an additional five
years.
Manhattan File Publishing, Inc. has entered into a five and one-half year
lease for 3,500 square feet of office space at 594 Broadway, New York, New
York, commencing March 1994, at an annual rental of $56,000.
Capitol Hill Publishing, Inc. has entered into a five year lease for
3,735 square feet of office space at 733 15th Street, N.W., Washington, D.C.,
commencing August 1994, at an annual rental of $68,880.
27
<PAGE>
Brooklyn Newspaper Publishing, Inc. has entered into a three year lease
for 2,500 square fee of office space at 2123 Utica Avenue, Brooklyn, New York,
commencing November 1994, at an annual rental of $18,000, increasing over the
term to $19,800 in the last year.
The Company believes that its present space is adequate for current
purposes and offers moderate expansion possibilities.
LEGAL PROCEEDINGS
An action entitled Jean Jee v. News Communications, Inc., was instituted
-------------------------------------
in the Supreme Court, New York County, in January 1991. The complaint alleges
libel claims against the Company in connection with an article printed in the
MANHATTAN SPIRIT which accused Ms. Jee, then principal of a Manhattan public
school, of running her own computer business out of the school, beating
special education students and having been suspended by the New York City
Board of Education. Promptly after the complaint was served, the MANHATTAN
SPIRIT printed a retraction concerning the suspension accusations. In fact,
Ms. Jee had taken a leave of absence. Ms. Jee is suing for $2,000,000 in
compensatory damages and unspecified punitive damages. The Company intends to
vigorously defend the suit and has filed an answer denying the material
allegations of the complaint and has served demands for document production.
Ms. Jee's motion for a protective order in connection with such demands was
granted. Discovery has not yet commenced. Management believes, although
there can be no assurance, that, based upon the application of the relevant
law (as explained to management by counsel representing the Company) to the
facts known to it, the claims asserted in this action are without merit. It
is the policy of such counsel not to express opinions as to the outcome of
actions such as this.
28
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors, executive officers and other significant
employees and their ages and positions are as follows:
NAME OF INDIVIDUAL AGE POSITION WITH COMPANY AND SUBSIDIARIES
- ------------------ --- --------------------------------------
Gary Ackerman 52 Director of the Company
Thomas Allon 32 Executive Vice President of the Company
Robert Berkowitz 46 Controller of the Company
Eric Breindel 39 Director of the Company
John Catsimatidis 46 Director of the Company
Jerry Finkelstein 79 Chairman of the Board, Director of the Company
and officer of subsidiaries
Joseph K. Fisher 48 Director of the Company
David Jaroslawicz 48 Director of the Company
William J. Kelleher, Jr. 48 Director of the Company
Andrew J. Maloney 63 Director of the Company
Christopher C. McGrath 58 Director and Treasurer of the Company; Director
of Access
Martin J. McLaughlin 56 Director and Secretary of the Company and
officer
of a subsidiary
Daniel Rattiner 55 President, Publisher, Editor and Director of
DPI
Michael Schenkler 49 Director and President of the Company and
director and officer of subsidiaries
Andrew J. Stein 50 Director of the Company
Arthur Tarlow 65 Director of the Company
Gary Ackerman has been a director of the Company since March 1990. He
has served in the United States House of Representatives as a Representative
from New York since March 1983. From 1979 until 1983, Mr. Ackerman was a
member of the New York State Senate. From 1970 to 1979, Mr. Ackerman was the
founder, editor and publisher of the QUEENS TRIBUNE.
Thomas Allon was elected Executive Vice President of the Company in
November 1994. He has been Publisher of the MANHATTAN SPIRIT and OUR TOWN
since 1992. From 1990 to 1991 he was Managing/Associate Publisher of the
MANHATTAN SPIRIT.
Robert Berkowitz has served as Controller of the Company since December
1992. From November 1991 to November 1992, Mr. Berkowitz was a financial and
management consultant with Gobstein, Weingarten & Goldfarb, a certified public
accounting firm. From August 1989 to November 1991
29
<PAGE>
he was the Chief Accounting Officer for Meringoff Equities, an owner and
manager of commercial real estate. From August 1980 to August 1989 he was
Vice-President and Controller of the Trump Group, a private investment company
specializing in the acquisition and operation of both public and private
companies. From 1977 to 1980 he was with the public accounting firm of Price
Waterhouse.
Eric Breindel has been a director of the Company since October 1993.
Since 1986, Mr. Breindel has been Editorial Page Editor of the New York Post.
-------------
He also writes for Commentary, The New Republic, The Wall Street Journal and
---------- ---------------- -----------------------
other periodicals. He is the recipient of numerous professional awards and
honors and appears regularly as a commentator on both television and radio
news programs. Mr. Breindel is a graduate of Harvard College and Harvard Law
School.
John Catsimatidis has been a director of the Company since December 3,
1991. Mr. Catsimatidis is also the Chairman of Red Apple Companies, Inc., a
holding company for supermarket chains in New York and Florida. Since July
1988, Mr. Catsimatidis has served as Chairman of the Board, Chief Executive
Officer, Treasurer and director of Designcraft Industries, Inc., an American
Stock Exchange listed company. Mr. Catsimatidis is also currently the
Chairman of the Board, Chief Executive Officer, President and director of
United Refining Company, a refiner and retailer of petroleum products.
Jerry Finkelstein has been a director of the Company since December 1987
and became Chairman of the Board in August 1993. He served as publisher of
The New York Law Journal from 1960 to 1984. Mr. Finkelstein was Chairman of
------------------------
the Board of Struthers Wells corporation for more than five years prior to
November 1993, when he resigned. Struthers Wells Corporation filed for
protection under Chapter XI of the United States Bankruptcy Code in February
1994. Mr. Finkelstein is a former member of the Board of Directors of
Rockefeller Center, Inc., Chicago Milwaukee Corporation, Chicago Milwaukee
Railroad Corporation and TPI Enterprise, Inc. (formerly Telecom Plus
International Inc.), a communications company. He is also a former
Commissioner of the Port Authority of New York and New Jersey.
Joseph K. Fisher has been a director of the Company since March 1990. He
has served as President and Chief Executive Officer of Fisher & Company, a New
York-based marketing communications firm, since March 1988. From 1978 to
1988, he was Chairman and Chief Executive Officer of Fisher, Jackson, Levy,
Flaxman, an advertising company, and, from 1981 to 1987, he was President of
Steadman, Sheehan, Meara and Fisher, a public relations firm. Mr. Fisher has
been a director of International Thoroughbred Breeders, an American Stock
Exchange company, since 1986, and a director of the New York Drama League
since 1987.
David Jaroslawicz has been a director of the Company since March 1990.
He has been an attorney in private practice in New York and California for
more than the past five years. He is a member of the Bar of New York,
California and Florida.
William J. Kelleher, Jr. has been a director of the Company since July
1994. Since November 1993, he has been General Counsel to Colonia Insurance
Company. Previously, from 1983, he was in private practice, specializing in
litigation in federal and state courts. From 1981 to 1983, he was Chief,
Market Integrity Section, of the United States Commodity Futures Trading
Commission. From 1979 to 1981, he was Chief Counsel to the New York State
Senate Committee on Investigations, Taxation and Government Operations. From
1978 to 1979, he was Chief of Investigations for the District Attorney of
Queens County, New York, and from 1973 to 1978, he was an Assistant United
States Attorney for the United States Attorney's Office for the Southern
District of New York.
Andrew Maloney has been a director of the Company since September 1993.
He is a partner at the New York law firm of Brown & Wood. From 1986 until
December 1992, Mr. Maloney was United States Attorney for the Eastern District
of New York. Mr. Maloney is a graduate of the United States Military Academy
at West Point and Fordham Law School.
30
<PAGE>
Christopher McGrath has been a director and Treasurer of the Company
since December 1987. He has been a government relations consultant since
August 1988. Prior to that time, from November 1986 through July 1988, he was
Executive Director of the New York State Petroleum Council, a subsidiary of
the American Petroleum Institute, a trade association representing major oil
companies. Previously, he was Director of Government Relations of the New
York State Petroleum Council.
Martin J. McLaughlin has been a director of the Company since December
1990 and became Secretary of the Company in March 1991. Mr. McLaughlin has
been a local government lobbyist since 1982 for corporate clients in various
industries, such as real estate and utilities. Mr. McLaughlin also performs
public relations work for various corporate clients.
Daniel Rattiner is Publisher and Editor of DAN'S PAPERS, having held
these positions since he began the publication in 1960. He has also been
President and a director of DPI since its organization in October 1988.
Michael Schenkler has been a director of the Company since March 1990,
became a Vice President in August 1990 and was elected President in December
1991. He has been President of the QUEENS TRIBUNE since 1979 and is its
publisher. Prior to taking over the QUEENS TRIBUNE full time in 1982, Mr.
Schenkler spent 15 years as an educator employed by the Board of Education of
New York City, where he served as a teacher, assistant principal and
principal.
Andrew J. Stein has been a director of the Company since July 1994. He
is President of Benake Corporation, a management consulting firm. Prior to
assuming such position in 1993, Mr. Stein was actively involved in public
affairs. From 1986 to 1993, he was President of the Council, New York City.
From 1978 to 1985, he was President of the Borough of Manhattan and from 1969
to 1977, he was a member of the New York State Assembly. He was also Chairman
of the New York City Commission on Public Information and Communication, and
has been a Trustee of the New York City Employees Retirement System and an ex
officio member of The Museum of The City of New York, The New York Public
Library, The Metropolitan Museum of Art and The Queens Borough Public Library.
Mr. Stein is a son of Mr. Finkelstein.
Arthur Tarlow has been a director of the Company since August 1993. He
is an attorney currently of counsel to Meyer, Suozzi, English & Klein, P.C. of
Mineola, New York, where he has been practicing for more than 10 years as a
specialist in taxation, estates and trusts. He is also a Certified Public
Accountant and has been a partner in the accounting firm of David Tarlow &
Company for more than 25 years. He is a member of the New York State Bar
Association, admitted to practice before the U.S. Tax Court, and a member of
the New York State Society of CPAs and the American Institute of Certified
Public Accountants.
The directors serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified. Officers serve
at the discretion of the Board of Directors.
31
<PAGE>
EXECUTIVE COMPENSATION
The following tables show compensation paid by the Company and its
subsidiaries to certain of its executive officers (including the chief
executive officer) for the fiscal years ended November 30, 1994, 1993 and 1992
and certain information with respect to stock options granted to such
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
---------------------------- ------------
AWARDS
------------
OTHER
ANNUAL
COMPENSA-
SALARY BONUS TION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- --------------------------- ---- ------- ------ --------- -----------
<S> <C> <C> <C> <C> <C>
MICHAEL SCHENKLER, President and Chief Exec- 1994 142,553 --- --- 67,500
utive Officer of the Company and officer of 1993 142,553 --- --- 45,000
subsidiaries 1992 142,553 --- --- ___
DANIEL RATTINER, Officer of Dan's Papers, Inc. 1994 124,016 39,367 15,000(1) ---
1993 120,406 20,285 15,000(1) 35,000
1992 117,231 10,203 15,000(1) ---
JERRY FINKELSTEIN, Chairman of the Board of 1994 175,392 --- --- 217,500
the Company and officer of subsidiaries 1993 --- --- --- 310,000
1992 --- --- --- ---
</TABLE>
______________________________________
(1) Mr. Rattiner is entitled to receive an aggregate of $15,000 per year for
discounted trade-sale merchandise from advertisers (who provide such
merchandise to Mr. Rattiner in lieu of paying the Company for
advertising).
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Granted (#) in Fiscal Year ($/Sh) Expiration Date
------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Michael Schenkler 7,500 1.1 2.00 4/8/99
10,000 1.4 2.625 8/17/99
50,000 7.1 2.00 11/7/99
Jerry Finkelstein 7,500 1.1 2.00 4/8/99
150,000 21.4 2.625 8/12/99
10,000 1.4 2.625 8/17/99
50,000 7.1 2.00 11/7/99
</TABLE>
32
<PAGE>
AGGREGATE YEAR-END OPTION VALUES
(NOVEMBER 30, 1994)
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)
----------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Michael Schenkler 122,500 --- 35,625 ---
Jerry Finkelstein 527,500 --- 67,500 ---
Daniel Rattiner 35,000 --- 4,375 ---
</TABLE>
EMPLOYMENT CONTRACTS AND OTHER EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement entered into by the Company and
Michael Schenkler as of October 15, 1994, and terminating October 14, 1999,
Mr. Schenkler is employed as President of the Company and President of Tribco.
Mr. Schenkler earns a base salary of $150,000 per year (subject to cost-of-
living increases) and such annual bonuses as the Board of Directors of the
Company may determine in its sole discretion. The agreement requires Mr.
Schenkler to protect confidential information of the Company and restricts him
from engaging in certain competitive activities during the term of his
employment and for one year thereafter.
Pursuant to an employment agreement terminating in 1998, as amended, as
compensation for his services to DPI, Daniel Rattiner earns a base salary from
DPI of $100,000 per year, adjusted for increases in the consumer price index
after 1988, plus a bonus in each fiscal year based on net profits (as defined)
of DPI. Mr. Rattiner may terminate his employment at any time. Mr. Rattiner
has pledged to keep secret DPI's confidential matters and, in the event he
leaves the employ of DPI, not to compete with DPI for specific periods of
time, depending on the reasons for his separation.
Pursuant to an employment agreement entered into by the Company and Jerry
Finkelstein as of August 20, 1993, and terminating on August 19, 1998, Mr.
Finkelstein is employed as Chairman of the Board of Directors of the Company
("Board")at an annual salary of $195,000. Mr. Finkelstein may also be paid
annual bonuses at the discretion of the Board, based upon such factors as the
Company's results of operations and transactions involving the Company which
are introduced to the Company by Mr. Finkelstein or in which he is otherwise
involved on behalf of the Company. The Company also provides Mr. Finkelstein
with medical and other benefits and perquisites, including reimbursement for
expenses relating to maintenance of appropriate office space for him,
including rent and secretarial costs. Mr. Finkelstein may terminate the
agreement at any time on at least 10 days' notice to the Company. In the
event of his permanent disability or death, salary and bonuses shall continue
to paid to him or the legal representative of his estate until the end of the
term of the agreement. Under the agreement, Mr. Finkelstein is required to
devote such time to the affairs of the Company as he deems necessary and
appropriate.
Pursuant to an employment agreement entered into by the Company and
Thomas Allon as of November 1, 1994, and terminating November 30, 1997, Mr.
Allon is employed as Executive Vice President of the Company. Mr. Allon earns
a base salary of $80,000 per year (subject to cost-of-living increases) and,
for fiscal years beginning December 1, 1994, is entitled to a bonus of 5% of
the net profits of the Company derived from the Company's publications
MANHATTAN SPIRIT, OUR TOWN, MANHATTAN FILE, CHELSEA-CLINTON NEWS and
WESTSIDER, but in no event shall such bonus be less than $45,000 nor more than
$70,000 for any fiscal year. The agreement requires Mr. Allon to protect
confidential information of
33
<PAGE>
the Company and restricts him from engaging in certain competitive activities
during the term of his employment and for one year thereafter.
The Company has no established compensation arrangements with its
directors. See "Directors' and Officers' Options," below.
DIRECTORS' AND OFFICERS' OPTIONS
On August 17, 1993, the Board adopted a "Discretionary Directors and
Officers Stock Option Plan" (the "Discretionary Option Plan") pursuant to
which, as amended, the Board may award options to purchase an aggregate of
2,000,000 shares of Common Stock to directors and officers of the Company and
its subsidiaries which shall be exercisable at the market price on the date of
grant for periods, and under conditions, specified by the Board in such
grants. Options under the Discretionary Option Plan are non-qualified and non-
incentive options for purposes of income taxation and are not intended to
qualify under Section 422A of the Internal Revenue Code of 1986. During the
fiscal year ended November 30, 1994, the following grants of five-year options
were made to executive officers and directors of the Company under the
Discretionary Option Plan (not including grants to Messrs. Finkelstein and
Schenkler which are reported in the second table above):
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE
OPTIONEE DATE OF GRANT SUBJECT TO GRANT PRICE
- ------------------------ ------------- ---------------- --------
<S> <C> <C> <C>
Thomas Allon 8/12/94 40,000 $2.625
Eric Breindel 4/8/94 7,500 $ 2.00
11/7/94 15,000 $ 2.00
John Catsimatidis 4/8/94 10,000 $ 2.00
8/12/94 5,000 $2.625
Joseph K. Fisher 4/8/94 7,500 $ 2.00
David Jaroslawicz 4/8/94 7,500 $ 2.00
Andrew J. Maloney 4/8/94 10,000 $ 2.00
8/12/94 3,000 $2.625
Christopher J. McGrath 4/8/94 7,500 $ 2.00
Martin J. McLaughlin 4/8/94 10,000 $ 2.00
8/12/94 5,000 $2.625
11/7/94 15,000 $ 2.00
Arthur Tarlow 4/8/94 7,500 $ 2.00
8/12/94 5,000 $2.625
11/7/94 15,000 $ 2.00
</TABLE>
On June 22, 1995, Mr. Finkelstein was granted a five-year option to
purchase 350,000 shares of Common Stock at $2.00 per share pursuant to the
Discretionary Option Plan.
On August 17, 1993, the Board also adopted a "Non-Discretionary Directors
Stock Option Plan" (the "Non-Discretionary Option Plan") pursuant to which
each director is granted on August 17, 1993 and
34
<PAGE>
each anniversary thereof on which he or she continues to be a director, a
five-year option to purchase 10,000 shares of Common Stock at the market price
on the date of grant. The Non-Discretionary Plan also provides that any
person becoming a director within the six month after any August 17 will be
granted an option for 10,000 shares on the date he or she becomes a director.
The Non-Discretionary Option Plan was approved by the shareholders of the
Company on July 15, 1994. Pursuant to the Non-Discretionary Option Plan, each
person who was a director of the Company (other than Mr. Ackerman) received,
on August 17, 1994, a grant of an option to purchase 10,000 shares of Common
Stock exercisable at $2.625 per share.
CERTAIN TRANSACTIONS
The Company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. Mr. Rattiner can require the Company to purchase
his 20% interest in DPI at any time on or after October 13, 1993 for a price
equal to 20% of DPI's retained earnings (if any) plus the greater of $200,000
or 20% of DPI's gross collected revenues (after deduction of advertising
agency commissions) for the full fiscal year prior to the year in which notice
is given; provided, however, that DPI's after-tax profits are at least equal
to 7% of the gross collected revenues (after deduction of advertising agency
commissions).
DPI leases from Mr. Rattiner 1,910 square feet of office space at an
annual rate of $38,200 (plus cost-of-living adjustments) in a building on
Montauk Highway, Bridgehampton, New York, for a term of ten years terminating
in October 1998 (plus a five-year option).
Gristede's and Sloan's, supermarket chains that are owned by Red
Apple Companies, Inc., of which Mr. Catsimatidis is Chairman, advertise in the
Company's MANHATTAN SPIRIT, OUR TOWN and DAN'S PAPERS publications. Such
advertising is placed at the Company's standard rates and has not exceeded
$50,000 in any year.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Company's Common Stock, as of June 30, 1995, by each person known to the
Company to own beneficially more than 5% of the outstanding Common Stock, by
each person who is a director of the Company, by each executive officer of the
Company listed in the executive compensation tables and by all directors and
officers of the Company as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
- ---------------- ------------------ -----------
Gary Ackerman 466,001 (2) 6.0%
218-14 Northern Boulevard
Bayside, N.Y. 11432
Thomas Allon 61,666 (3) *
255 West 92nd Street
New York, N.Y. 10025
Eric Breindel 42,500 (3) *
210 South Street
New York, N.Y. 10022
John Catsimatidis 35,000 (3) *
832 11th Avenue
New York, N.Y. 10019
Jerry Finkelstein 1,469,503 (3) (4) 17.4%
150 East 58th Street
33rd Floor
New York, N.Y. 10158
Joseph K. Fisher 29,167 (3) *
301 East 57th Street
New York, N.Y. 10021
David Jaroslawicz 29,834 (3) *
150 Williams Street
New York, N.Y. 10038
William J. Kelleher, Jr. 10,000 (3) *
100 Merrick Road
Rockville Center, N.Y. 11570
Andrew J. Maloney 33,000 (3) *
1 World Trade Center
New York, N.Y. 10001
Christopher C. McGrath 29,167 (3) *
120 Washington Avenue
Albany, New York 12210
Martin J. McLaughlin 51,751 (3) *
36 West 44th Street
New York, N.Y. 10036
_____________________________
Continued on next page.
36
<PAGE>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
- ---------------- ------------------ -----------
Daniel Rattiner 172,318 (3) (5) 2.2%
26 Three Mile Harbor
Hog Creek Road
East Hampton, N.Y. 11932
Michael Schenkler 477,599 (3) (6) 6.0%
174-15 Horace Harding
Expressway
Fresh Meadows, N.Y. 11365
Andrew J. Stein 160,000 (3) 2.0%
625 Madison Avenue
New York, N.Y. 10022
Arthur Tarlow 63,726 (3) (7) *
1505 Kellum Place
Mineola, N.Y. 11501
All Directors and 3,148,890 (3) (8) 34.2%
Executive Officers as
a Group
(16 persons)
J. Morton Davis(9) 951,619 11.6%
D.H. Blair Holdings, Inc.(9)
D.H. Blair Investment
Banking Corp.(9)
44 Wall Street
New York, N.Y. 10005
___________________________________________
* Less than one percent.
(1) Based upon information furnished by the persons listed. Except as
otherwise indicated, the stockholders listed possess sole voting and
investment power with respect to the shares listed.
(2) Includes (i) 5,334 shares owned by Mr. Ackerman's children for whom Mr.
Ackerman is custodian and (ii) 44,560 shares, of which (a) 22,280 are
issuable together with 200,000 Class B Warrants upon the exercise of
200,000 presently exercisable Class A Warrants, and (b) 22,280 are
issuable upon the subsequent exercise of the 200,000 Class B Warrants,
which may be immediately exercised upon their acquisition.
(3) Includes the following numbers of shares purchasable upon the exercise of
presently exercisable options: Mr. Allon - 61,666; Mr. Breindel - 42,500;
Mr. Catsimatidis - 35,000; Mr. Finkelstein - 677,500; Mr. Fisher -29,167;
Mr. Jaroslawicz - 27,500; Mr. Kelleher - 10,000; Mr. Maloney - 33,000; Mr.
McGrath - 27,500; Mr. McLaughlin - 50,000; Mr. Rattiner - 35,000; Mr.
Schenkler - 122,500; Mr. Stein 110,000; Mr. Tarlow - 47,500.
(4) Includes (i) 29,834 shares owned by The Jerry Finkelstein Foundation,
Inc., of which Mr. Finkelstein is President, and (ii) 200,000 shares owned
by Mr. Finkelstein's wife.
37
<PAGE>
__________________________________________________
(Footnotes continued from prior page)
(5) Includes (i) 500 shares owned by Mr. Rattiner's wife, (ii) 1,800 shares
issuable upon conversion of the Company's 10% Preferred Stock, and (iii)
4,010 shares, of which (a) 2,005 are issuable together with 18,000
presently exercisable Class A Warrants, and (b) 2,005 are issuable upon
the subsequent exercise of the 18,000 Class B Warrants, which may be
immediately exercised upon their acquisition.
(6) Includes 22,280 shares of which (i) 11,140 are issuable, together with
100,000 Class B Warrants, upon the exercise of 100,000 presently
exercisable Class A Warrants, and (ii) 11,140 are issuable upon the
subsequent exercise of the 100,000 Class B Warrants, which may be
immediately exercised upon their acquisition. Also includes 41,304 shares
owned by Mr. Schenkler's wife as custodian for two minor children of which
Mr. Schenkler disclaims beneficial ownership. Such shares include (i)
9,000 shares that are issuable upon conversion of the Company's 10% Non-
Voting Preferred Stock, and (ii) 10,026 shares that are issuable, together
with 90,000 Class B Warrants, upon the exercise of 90,000 presently
exercisable Class A Warrants, and (iii) 10,026 shares issuable upon the
subsequent exercise of the 90,000 Class B Warrants, which may be
immediately exercised on their acquisition.
(7) Includes 4,010 shares of which (i) 2,005 are issuable, together with
18,000 Class B Warrants, upon the exercise of 18,000 presently Class A
Warrants, and (ii) 2,005 are issuable upon the subsequent exercise of the
18,000 Class B Warrants, which may be immediately exercised upon their
acquisition.
(8) Includes shares issuable upon the exercise of the options referred to in
(3) above and 17,000 shares issuable to Mr. Robert Berkowitz, Controller
of the Company, upon exercise of presently exercisable stock options.
(9) Includes (i) 440,914 shares of Common Stock owned by D.H. Blair Investment
Banking Corp. ("Blair Investment"), a wholly-owned subsidiary of D.H.
Blair Holdings, Inc. ("Blair Holdings"), of which J. Morton Davis is a
shareholder and director, (ii) 61,915 shares owned by Rivkalex Corporation
("Rivkalex"), a private corporation owned by Rosalind Davidowitz, Mr.
Davis's wife, (iii) 7,200 shares owned by Rosalind Davidowitz, and (iv)
441,590 shares issuable upon exercise of 76 Units of an option owned by
Blair Investment, of which each Unit consists of one share of 10%
Preferred Stock and 18,000 Class A Warrants. Each share of 10% Preferred
Stock is convertible at any time into 1,800 shares of Common Stock. Each
Class A Warrant entitles the holder thereof to purchase .1114 shares of
Common Stock and one Class B Warrant. Each Class B Warrant, when issued,
entitles the holder to purchase .1114 shares of Common Stock. Mr. Davis,
Blair Holdings and Blair Investment expressly disclaim beneficial
ownership of all securities held by Rivkalex and Rosalind Davidowitz.
38
<PAGE>
DESCRIPTION OF SECURITIES
The Company is presently authorized to issue 100,000,000 shares of Common
Stock, par value $.01 per share, and 500,000 shares of Preferred Stock, par
value $1.00 per share.
COMMON STOCK
The holders of shares of Common Stock have equal, ratable rights to
dividends from funds legally available therefor, when, as and if declared by
the Board of Directors of the Company, and are entitled to share ratably in
all of the assets of the Company available for distribution to holders of
Common Stock upon the liquidation, dissolution or winding up of the affairs of
the Company. Holders of Common Stock do not have preemptive, subscription or
conversion rights to purchase or subscribe to securities of the Company.
There are no redemption or sinking fund provisions in the Company's Articles
of Incorporation. Holders of Common Stock are entitled to one vote per share
on all matters which stockholders are entitled to vote upon at all meetings of
stockholders. There is no cumulative voting. Thus, the holders of more than
50% of the shares voting for election of directors can elect all the members
of the Board of Directors and can decide any question brought before the
stockholders requiring approval by a simple majority. In such event, the
holders of the remaining shares will not be able to elect any directors or
carry out any other matter brought before the stockholders. As of June 30,
1995, 7,783,376 shares of Common Stock were outstanding. See "Principal
Stockholders."
PREFERRED STOCK
The Articles of Incorporation of the Company authorize the issuance of up
to 500,000 shares of Preferred Stock, $1.00 par value per share. The Board of
Directors is authorized to issue shares of Preferred Stock from time to time
in one or more series and, subject to the limitations contained in the
Articles of Incorporation and any limitations prescribed by law, to establish
and designate any such series and to fix the number of shares and the relative
rights, conversion rights, voting rights and terms of redemption (including
sinking fund provisions) and liquidation preferences. If shares of Preferred
Stock with voting rights are issued, such issuance could affect the voting
rights of the holders of the Company's Common Stock by increasing the number
of outstanding shares having voting rights, and by the creation of class or
series voting rights. If the Board authorizes the issuance of shares of
Preferred Stock with conversion rights, the number of shares of Common Stock
outstanding could potentially be increased up to the authorized amount.
Issuance of Preferred Stock, could, under certain circumstances, have the
effect of delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of Common Stock such as by placing
restrictions upon payments of dividends to holders of Common Stock or by
diluting the voting power of such holders. Similarly, issuance of Preferred
Stock could inhibit a third-party tender offer for the Common Stock and thus
deprive stockholders of an opportunity to receive a premium over the market
price. Also, Preferred Stock could have preferences over the Common Stock
(and other series of Preferred Stock) with respect to dividend and liquidation
rights. The Company has no present plans to issue any additional shares of
Preferred Stock other than the three series of Convertible Preferred Stock
presently authorized: 10% Convertible Preferred Stock ("10% Preferred
Stock"), of which 1,250 shares are authorized, 1,150 shares were issued and 32
shares remain outstanding; 8% Convertible Preferred Stock ("8% Preferred
Stock"), of which 500 shares are authorized and 217 shares are issued and
outstanding; and 12% Convertible Preferred Stock ("12% Preferred Stock"), of
which 200 shares are authorized, issued and outstanding (collectively, the
"Convertible Preferred Stock"). For purposes of paying interest and
liquidation preference, the shares of 10% Preferred Stock have a stated value
of $5,000 per share and the shares of 8% Preferred Stock and 12% Preferred
Stock have stated values of $1,000 per share. At the option of the Company,
interest on the 10% Preferred Stock may be paid in an equivalent value of
shares of Common Stock. Presently, the 10% Preferred Stock, 8% Preferred
Stock and 12% Preferred Stock are convertible into shares of Common Stock at
the rates of 1,800 shares of Common Stock per share of 10% Preferred Stock,
476.19 shares of Common
39
<PAGE>
Stock per share of 8% Preferred Stock and 476.19 shares of Common Stock per
share of 12% Preferred Stock. In addition, upon conversion of the 8%
Preferred Stock the holder is entitled to receive 5-year warrants to purchase
an equivalent number of shares of Common Stock at an exercise price equal to
the per share conversion price. Reference is made to the resolutions of the
Board of Directors fixing the terms of the Convertible Preferred Stock, copies
of which are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
WARRANTS
The following discussion sets forth all of the terms and provisions of
the Warrants which the Company believes are material. The complete terms are
set forth in the Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company (the "Warrant Agent"), filed as an exhibit to the
Registration Statement, and also the detailed provisions of the forms of A
Warrant and B Warrant attached to the Warrant Agreement.
Each A Warrant presently entitles the holder to purchase, at any time
through September 19, 1995 (the "Expiration Date"), .1114 shares of Common
Stock and one B Warrant at an exercise price of $0.50 per A Warrant ($4.49 per
share). Each B Warrant presently entitles the holder, upon issuance, to
purchase .1114 shares of Common Stock at a price of $0.75 per B Warrant ($6.73
per share). Unless extended by the Company at its discretion, the Warrants
will expire at 5:00 p.m. New York City time on the Expiration Date. In the
event a holder of Warrants fails to exercise the Warrants prior to their
expiration, the Warrants will expire and the holder thereof will have no
further rights with respect to the Warrants.
The Common Stock to be issued upon the exercise of the A and B Warrants
will be fully paid and nonassessable. Holders of the Warrants will have no
voting, preemptive, liquidation or other rights of a stockholder and no
dividends will be declared on the Warrants.
The A Warrants and the B Warrants are subject to redemption by the
Company on not less than 30 days' notice at $.05 per Warrant provided the
average closing bid price of the Common Stock exceeds 140% of their respective
current per share exercise prices for any 30 consecutive trading days (or such
other period as Blair may consent to) ending within 15 days prior to the date
on which the notice of redemption is given. During the 30-day notice period,
a holder shall have the option to exercise his Warrants. The Warrants may
only be redeemed if a current registration statement is in effect. Any
Warrantholders who do not exercise prior to the redemption date will forfeit
their rights to purchase the securities underlying the Warrants and, after the
redemption date, any outstanding Warrants will become void and be of no
further force and effect. If the Company does not redeem the Warrants, they
will expire, become void and of no further force or effect on the conclusion
of the exercise period. The Company's right of redemption does not apply to
the Warrants that are components of the Blair Option.
A Warrant, when exercisable, may be exercised upon the surrender of a
duly completed certificate and exercise form on or prior to its expiration at
the office of the Warrant Agent, accompanied by cash or a certified or
official bank check payable to the order of the Company for the exercise
price. Warrants are generally more speculative than the common stock which is
purchasable upon the exercise thereof. A Warrant may become valueless, or of
reduced value, if the market price of the Common Stock decreases, or increases
only modestly, over the term of the Warrant.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events such as stock
dividends, splits, recapitalizations, mergers or consolidations. No
adjustment in the number of shares purchasable upon exercise of the Warrants
will be required until cumulative adjustments in any fiscal year require an
adjustment of more than 2% thereof. Cash payments will be made in lieu of
fractional shares upon any exercise of Warrants. If less than all
40
<PAGE>
of the Warrants evidenced by a warrant certificate are exercised, a new
warrant certificate representing the remaining number of Warrants will be
issued to the Warrantholder by the Warrant Agent.
The Board of Directors of the Company may amend the terms of the Warrants
to reduce their exercise prices or extend their exercise periods. The Company
and the Warrant Agent may make changes to the Warrant Agreement to cure
ambiguities, correct inconsistencies or manifest mistakes or as they otherwise
may deem necessary or desirable and which do not adversely affect the
interests of the holders. However, no other change may be made without the
written consent of the holders of at least 50% of the outstanding Warrants and
no decrease in the number or change in nature of the securities issuable upon
exercise of a Warrant or increase in the exercise price or acceleration of the
exercise period of a Warrant may be made without the written consent of the
holder of such Warrant.
The Warrants will not be exercisable unless a registration statement
pursuant to the Securities Act covering the shares of Common Stock issuable
upon exercise of the Warrants has been filed, declared effective, and is
current and such shares of Common Stock have been registered or qualified, or
there is an exemption from such registration or qualification requirements,
under the securities laws of the state of residence of the holder of such
Warrant. The Company has filed a registration statement pursuant to the
Securities Act with the Commission and will use its best efforts to maintain a
current prospectus relating thereto, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there is no
assurance that it will be able to do so. Since the Warrants are only
redeemable by the Company at such time as they are exercisable, the Warrants
will not be redeemable by the Company unless prior to redemption a
registration statement covering the shares of Common Stock issuable upon
exercise of the Warrants has been filed, declared effective, and is current.
For the life of the Warrants, the holders thereof are given the
opportunity to profit from a rise in the market price of the Common Stock
which may result in a dilution of the interest of other stockholders. In
addition, the Company may find it more difficult to raise equity capital if it
should be needed for the business of the Company while Warrants are
outstanding. At any time when the holders of the Warrants might be expected
to exercise them, the Company would probably be able to obtain additional
equity capital on terms more favorable than those provided in the Warrants.
The exercise prices of the Warrants were arbitrarily determined by
negotiations between the Company and Blair, and, at the time of such
determination, did not, and do not now, bear any relationship to the market
price of the Common Stock, the Company's assets, book value, net worth,
results of operations or to any other established criterion of value, and they
should not be considered any indication of the actual value of the Company.
However, among the factors considered in determining the public offering price
of the units of which the A Warrants were a part in the 1990 Offering,
consideration was given to prevailing market conditions, the industry in which
the Company operates, an assessment of the Company's management, its capital
structure, the business potential of the Company and the demand for similar
securities of comparable companies, as such factors existed at the time of the
1990 Offering.
BLAIR OPTION AND WARRANT SOLICITATION FEE
In connection with the 1990 Offering, the Company sold Blair, for nominal
consideration, a Unit Purchase Option (the "Blair Option"), exercisable
between September 19, 1992, and September 19, 1995, which gives the holders
the right to purchase up to 100 units of securities, each unit consisting of
one share of 10% Preferred Stock and 18,000 A Warrants, at $7,250 per unit.
The securities purchasable upon exercise of the Blair Option are identical to
the other 10% Preferred Stock, A Warrants and B Warrants except that they are
non-redeemable. If fully exercised and converted, the holders of the Blair
Option would receive 581,040 shares of Common Stock, subject to adjustment.
For the life of the Blair Option, the holders thereof are given the
opportunity to profit from a rise in the market price of such units or the
underlying securities with a resulting dilution in the interest of other
stockholders. The Company may find it more difficult to raise additional
equity capital if it should be needed for the business of the Company
41
<PAGE>
while the Blair Option is outstanding; and at any time when the holders of the
Blair Option might be expected to exercise, the Company would probably be able
to obtain additional equity capital on terms more favorable than those
provided in the Blair Option. The Company has agreed to register under the
1933 Act, at its expense on one occasion, and at the expense of Blair or other
holder on another occasion, the Blair Option, and/or the underlying securities
at the request of the holders of a majority thereof. The Company has also
agreed to certain "piggy-back" registration rights for the holders of the
Blair option and the securities issuable upon exercise thereof. In
consideration for Blair agreeing to waive its "piggy-back" right of
registration in connection with the offering of securities pursuant to this
Prospectus, the Company granted Blair an additional such "demand" right at the
Company's expense.
Upon the exercise of Warrants, the Company will pay Blair a fee of 4% (of
which 1% may be reallowed to the dealer who solicited the exercise) of the
aggregate exercise price if (i) the market price of the Common Stock on the
date the Warrant is exercised is greater than the then exercise price of the
Warrants; (ii) the exercise of the Warrant was solicited by a member of the
NASD; (iii) the Warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (v) the solicitation
of the Warrant was not in violation of Rule 10b-6 promulgated under the
Securities and Exchange Act of 1934. In addition, unless granted an exemption
by the Securities and Exchange Commission from Rule 10b-6, Blair will be
prohibited from engaging in any market-making activities or solicited
brokerage activities with regard to the Company's securities during the
periods prescribed by Rule 10b-6 before the solicitation of the exercise of
any Warrant until the later of (i) the termination of such solicitation
activity, or (ii) the termination by waiver or otherwise of any right Blair
may have to receive a fee for the exercise of the Warrants following such
solicitations. The Company has agreed not to solicit Warrant exercises other
than through Blair.
PUBLIC C WARRANTS AND PUBLIC D WARRANTS
Each Public C Warrant entitles the holder to purchase one share of Common
Stock of the Company commencing October 9, 1993, and ending October 9, 1996,
at a per share price of $2.00, subject to adjustment. Each Public D Warrant
entitles the holder to purchase one share of Common Stock of the Company
commencing October 9, 1993, and ending October 9, 1998, at a per share price
of $3.00, subject to adjustment. The Company may call the Public C Warrants
and Public D Warrants for redemption, in whole or in part, at any time
commencing October 9, 1993, upon a minimum of 30 days' prior written notice to
holders, at a redemption price of $0.01 per warrant, provided that the average
of the means of the closing bid and closing asked quotations of the Common
Stock on Nasdaq (or the last sales price if principally traded on a national
securities exchange or the Nasdaq National Market System) exceeds 125% of the
then respective exercise prices of such warrants being redeemed for any 20
consecutive trading days ending within 15 days prior to the day on which
notice is given.
DIVIDENDS
To date, the Company has not paid any dividends on its Common Stock. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not intend to declare any dividends in the foreseeable future, but
instead intends to retain all earnings, if any, for use in the Company's
business. See "Dividend Policy."
TRANSFER AND WARRANT AGENT
The Company's Transfer and Warrant Agent is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 7,783,376 shares of Common Stock outstanding.
Of this amount, approximately 2,254,000 shares of Common Stock are
"restricted" securities as that term is defined under Rule 144 promulgated
under the Securities Act of 1933. Of the restricted shares, approximately
2,117,000 have been held for at least two years.
Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company (or
persons whose shares are aggregated), who has owned restricted shares of
Common Stock beneficially for at least two years, is entitled to sell, within
any three month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class or, if the
stock is quoted on Nasdaq or a securities exchange, the average weekly trading
volume during a specified four-week period preceding the sale. A person who
has not been an affiliate of the Company for at least 3 months and who has
beneficially owned shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to such volume limitations.
The Company is unable to predict the effect that sales made under Rule
144, or pursuant to other exemptions under the Securities Act of 1933, may
have on the then prevailing market price of the Common Stock.
As of the date of this Prospectus, without taking into effect the
securities offered hereby, there were outstanding shares of Preferred Stock
and immediately exercisable options and warrants which, upon conversion or
exercise, would enable their holders to purchase up to 1,428,283 restricted
shares of Common Stock at prices ranging from $0.30 to $9.00 per share and
exercisable over periods of up to ten years. The exercise of any of the
aforementioned options may have a dilutive effect on the Common Stock.
Moreover, the terms upon which the Company may be able to obtain additional
equity capital may be adversely affected because the holders of such warrants
and options can be expected to exercise their warrants and options at a time
when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided by the
terms of such warrants or options. In addition, certain holders of options,
warrants and stock of the Company have received registration rights with
respect to the securities held by or issuable to them. These registration
rights could result in substantial future expense to the Company and could
adversely affect any future equity or debt financing. Furthermore, the sale
of such shares of Common Stock held by or issuable to the holders of
registration rights, or even the potential of such sales, could have an
adverse effect on the then current market price of the Company's securities.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon
for the Company by Graubard Mollen Horowitz Pomeranz & Shapiro ("GMHP&S"),
600 Third Avenue, New York, New York 10016, counsel to the Company. GMHP&S
owns 1,334 shares of the Company's Common Stock.
EXPERTS
The Consolidated Financial Statements of the Company included in this
Prospectus have been audited by Mortenson and Associates, P.C., independent
auditors, to the extent and for the periods indicated in their reports
appearing elsewhere herein and are included in reliance upon the authority of
said firm as experts in accounting and auditing.
43
<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Articles of Incorporation of the Company, as amended, provide that
the Company shall indemnify, to the full extent permitted by Nevada law, its
officers, directors, employees and agents. The Articles of Incorporation, as
amended, also provide for the elimination, with certain exceptions, of
personal liability of directors and officers to the Company and its
stockholders for damage for breach of fiduciary duty as directors and
officers.
The underwriting agreements that the Company entered into with Blair and
Hibbard Brown & Company, Inc. in connection with the public offerings of
securities of the Company underwritten by those firms each provide for
reciprocal indemnification between the Company and its controlling persons, on
the one hand, and the underwriters and their controlling persons, on the other
hand, against certain liabilities in connection with such offerings, including
liabilities under the Securities Act of 1933, as amended.
The Company has obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000 (subject to a $100,000 per
claim deductible). The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
would reimburse the Company for such loss for which the Company has lawfully
indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement (the "Registration
Statement") under the Securities Act of 1933 (File No. 33-46467) with respect
to the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and such securities,
reference is hereby made to the Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement. The Registration Statement, together with the
exhibits, may be inspected at the Commission's principal office in Washington,
D.C. and copies may be obtained upon payment of the fees prescribed by the
Commission.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE TO PAGE
<S> <C> <C>
Report of Independent Auditors................... F-2
Consolidated Balance Sheet....................... F-3......... F-4
Consolidated Statements of Operations............ F-5......... F-6
Consolidated Statements of Stockholders' Equity.. F-7......... F-9
Consolidated Statements of Cash Flows............ F-10........ F-12
Notes to Financial Statements.................... F-13........ F-21
</TABLE>
. . . . . . . . . .
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
News Communications, Inc. and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and its subsidiaries as of November 30, 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two fiscal years in the period ended November 30, 1994.
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.
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
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of News
Communications, Inc. and its subsidiaries as of November 30, 1994, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period ended November 30, 1994, in conformity with
generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 8, 1995
F-2
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
------------ ------------
ASSETS: 1995 1994
------------ ------------
Unaudited
----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 844,198 $ 842,857
Marketable Securities 52,027 924,633
Accounts Receivable [Less: Allowance for Doubtful
Accounts of $964,620 and $979,962, Respectively] 3,779,524 3,763,136
Other Current Assets 92,596 162,204
Due from Related Parties 169,706 80,121
---------- -----------
TOTAL CURRENT ASSETS 4,938,051 5,772,951
Property and Equipment At Cost - Net of Accumulated
Depreciation and Amortization of $550,931 and
$500,156, Respectively 688,954 688,505
Goodwill - Net 3,838,668 3,903,111
Other Assets 173,818 193,037
---------- -----------
TOTAL ASSETS $9,639,491 $10,557,604
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY: 1995 1994
------------- ------------
(Unaudited)
-------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 857,816 $ 516,287
Accrued Expenses 244,221 893,795
Accrued Payroll Taxes 131,281 130,867
Notes Payable ---- 75,747
Other Current Liabilities 121,888 6,440
----------- -----------
TOTAL CURRENT LIABILITIES 1,355,206 1,623,136
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
Stockholders' Equity:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
10% Convertible Preferred Stock, 1,250 Shares Authorized;
32 Issued and Outstanding, $500 Per Share Per Annum
Cumulative Dividends, $160,000 Liquidation Value 32 32
8% Convertible Preferred Stock, 500 Shares Authorized,
217 Issued and Outstanding, $80 Per Share Per Annum
Cumulative Dividends, $217,000 Liquidation Value 217 217
12% Convertible Preferred Stock, 200 Shares Authorized,
200 Shares Issued and Outstanding, $120 Per Share Per
Annum Cumulative Dividends, $200,000 Liquidation Value 200 200
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 7,915,776 and 7,920,576 Shares Issued, Respectively 79,206 79,157
Paid-in Capital - Preferred Stock 519,873 519,873
Paid-in-Capital - Common Stock 13,657,406 13,648,238
[Deficit] (5,563,920) (4,904,520)
----------- -----------
Totals 8,693,014 9,343,197
Less: Treasury Stock [151,000 Common Shares] - At Cost (408,729) (408,729)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,284,285 8,934,468
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,639,491 $10,557,604
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Years ended
February 28, November 30,
----------------------- -------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
----------- ---------- ----------- ----------
(Unaudited) (Unaudited)
----------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $3,384,111 $2,197,153 $13,718,175 $8,927,704
---------- ---------- ----------- ----------
EXPENSES:
Direct Mechanical Costs 1,220,708 674,936 4,718,501 2,718,946
Salaries, Benefits and Outside Labor Costs 2,063,502 1,225,769 6,883,500 4,067,880
Rent, Occupancy and Utilities 190,708 104,235 587,871 337,864
Provision for Doubtful Accounts 36,000 31,000 376,000 219,000
General and Administrative 523,815 368,186 1,847,492 1,301,021
---------- ---------- ----------- ----------
TOTAL EXPENSES 4,034,733 2,404,126 14,413,364 8,644,711
---------- ---------- ----------- ----------
Operating Income [Loss] Before Interest
Expense, Interest Income, and Other Income (650,622) (206,973) (695,189) 282,993
Interest [Expense] (6,475) (6,875) (24,797) (62,461)
Interest Income 8,037 13,526 61,993 12,097
Other Income ---- ---- 94,642 ---
---------- ---------- ----------- ----------
INCOME [LOSS] BEFORE FEDERAL AND STATE INCOME
Taxes and Extraordinary Item - Forward (649,060) (200,322) (563,351) 232,629
</TABLE>
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Years ended
----------------------- -----------------------
February 28, November 30,
----------------------- -----------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME [LOSS] BEFORE FEDERAL AND STATE INCOME
TAXES AND EXTRAORDINARY ITEM - FORWARDED (649,060) (200,322) (563,351) 232,629
LESS: FEDERAL AND STATE INCOME TAXES --- ---- --- 192,533
---------- ---------- ---------- ----------
INCOME [LOSS] BEFORE EXTRAORDINARY ITEM (649,060) (200,322) (563,351) 40,096
EXTRAORDINARY ITEM: REDUCTION OF INCOME TAXES RESULTING
FROM UTILIZATION OF OPERATING LOSS CARRYFORWARDS ---- ---- --- 192,533
---------- ---------- ---------- ----------
NET INCOME [LOSS] (649,060) (200,322) (563,351) 232,629
LESS: PREFERRED STOCK DIVIDENDS 10,340 10,340 41,360 41,360
---------- ---------- ---------- ----------
NET INCOME [LOSS] AVAILABLE TO COMMON STOCKHOLDERS $ (659,400) $ (210,662) $ (604,711) $ 191,269
========== ========== ========== ==========
PER COMMON SHARE:
Income [Loss] Before Extraordinary Item $ ( .08) $ ( .03) $ ( .07) $ .01
Income [Loss] Per Common Share (.08) (.03) (.08) 03
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,768,776 7,353,942 7,580,203 6,232,630
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN PAID-IN
---------- -----------
PREFERRED CAPITAL COMMON CAPITAL
---------- ---------- ------- -----------
STOCK PREFERRED PREFERRED STOCK COMMON COMMON TREASURY
---------- ---------- --------- --------- ------- ----------- ----------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK [DEFICIT] STOCK TOTAL
---------- ---------- --------- --------- ------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -
NOVEMBER 30, 1992 - 453 $ 453 $534,385 6,088,719 $60,888 $ 9,082,407 $(4,457,578) $(408,729) $4,811,826
Conversion from Preferred
Stock to Common (3) (3) (10,884) 5,400 54 10,833 -- -- --
Stock Issued in Connection
with Exercise of C and
D Warrants -- -- -- 872,760 8,726 2,071,768 -- -- 2,080,494
Additional Cost of Public
Offering -- -- -- (5,000) -- -- (5,000)
Dividend on Preferred
Stock -- -- -- -- -- -- (41,360) -- (41,360)
Stock Issued as Preferred
Dividend -- -- -- 5,463 55 17,445 (17,500) -- --
Stock Issued in Connection
with Exercise of Stock
Options -- -- -- 1,667 17 3,533 -- -- 3,550
Net Income -- -- -- -- -- -- 232,629 -- 232,629
--------- --------- --------- --------- ------- ----------- ----------- --------- ----------
BALANCE -
NOVEMBER 30, 1993 -
FORWARD 450 $ 450 $523,501 6,974,009 $69,740 $11,180,986 $(4,283,809) $(408,729) $7,082,139
========= ========= ========= ========= ======= =========== =========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN PAID-IN
---------- -----------
PREFERRED CAPITAL COMMON CAPITAL
---------- ---------- ------- -----------
STOCK PREFERRED PREFERRED STOCK COMMON COMMON TREASURY
---------- ---------- --------- --------- ------- ----------- ----------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK [DEFICIT] STOCK TOTAL
---------- ---------- --------- --------- ------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
November 30, 1993 -
FORWARDED 450 $450 $523,501 6,974,009 $69,740 $11,180,986 $(4,283,809) $(408,229) $7,082,139
Conversion from Preferred
Stock to Common (1) (1) (3,628) 1,800 18 3,611 -- -- --
Stock Issued in Connection
With Exercise of C and D
Warrants -- -- -- 807,887 8,079 1,943,268 -- -- 1,951,347
Stock Issued for
Acquisitions -- -- -- 122,123 1,221 143,535 -- -- 144,756
Stock Issuable for
Acquisitions -- -- -- -- -- 354,687 -- -- 354,687
Stock Issued in Connection
with Exercise of Options -- -- -- 3,333 33 6,217 -- -- 6,250
Stock Issued as Preferred
Dividend -- -- -- 6,624 66 15,934 (16,000) -- --
Dividend on Preferred
Stock -- -- -- -- -- -- (41,360) -- (41,360)
Net [Loss] -- -- -- -- -- -- (563,351) -- (563,351)
--------- --------- --------- --------- ------- ----------- ----------- --------- ----------
BALANCE - NOVEMBER 30,
1994 - FORWARD 449 $449 $519,873 7,915,776 $79,157 $13,648,238 $(4,904,520) $(408,729) $8,934,468
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN PAID-IN
---------- -----------
PREFERRED CAPITAL COMMON CAPITAL
---------- ---------- ------- -----------
STOCK PREFERRED PREFERRED STOCK COMMON COMMON TREASURY
---------- ---------- --------- --------- ------- ----------- ----------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK [DEFICIT] STOCK TOTAL
---------- ---------- --------- --------- ------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 30,
1994 - FORWARDED 449 $449 $519,873 7,915,776 $79,157 $13,648,238 $(4,904,520) $(408,229) $8,934,468
Stock Issued in
Connection With
Exercise of C and
D Warrants -- -- -- 4,800 48 9,168 -- -- 9,216
Rounding -- -- -- -- 1 -- -- -- 1
Dividend on Preferred
Stock -- -- -- -- -- -- (10,340) -- (10,340)
Net [Loss] -- -- -- -- -- -- (649,060) -- (649,060)
--------- --------- --------- --------- ------- ----------- ----------- --------- ----------
BALANCE -
FEBRUARY 28, 1995 449 $449 $519,873 7,920,576 $79,206 $13,657,406 $(5,563,920) $(408,729) $8,284,285
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years ended
------------------------- ------------------------------
February 28, November 30,
------------------------- ------------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income [Loss] $(649,060) $(200,322) $ (563,351) $ 232,629
Adjustments to Reconcile Net Income [Loss] to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 126,372 70,765 413,062 340,287
Provision for Losses on Accounts Receivable 36,000 31,000 376,000 219,000
Expense Related to Exercise of Options -- - 5,250 -
Gain on Sale of Building -- - (94,642) -
Change in Assets and Liabilities:
[Increase] in Accounts Receivable (52,388) (124,331) (1,982,551) (779,022)
[Increase] in Other Current Assets (19,978) (123,054) (87,113) (54,477)
[Increase] Decrease in Other Assets 7,624 (25,727) (106,344) 20,031
Increase in Accounts Payable and Accrued Expenses (308,044) (42,357) 583,779 75,349
[Decrease] in Payroll Taxes Payable 414 (11,768) (7,494) (84,684)
[Decrease] Increase in Other Current Liabilities 115,448 (55,261) (66,024) 64,862
[Decrease] in Other Payables - -- - (6,265)
--------- --------- --------- -----------
Total Adjustments (94,552) (280,733) (966,077) (204,919)
--------- --------- --------- -----------
NET CASH PROVIDED [USED] BY - OPERATING ACTIVITIES - FORWARD (743,612) (481,055) (1,529,428) 27,710
--------- --------- --------- -----------
</TABLE>
F-10
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years ended
------------------------- ------------------------------
February 28, November 30,
------------------------- ------------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Capital Expenditures (50,783) (7,039) (422,193) (255,548)
Proceeds from Sale of Building -- -- 100,000 -
Investment in Marketable Securities 872,607 -- (924,633) -
Puchase of Brooklyn -- -- (32,750) -
Puchase of Nassau Newspapers -- -- (319,906) -
Prchase 0f Bronx Press Review -- -- (25,676) (90,000)
Purchase of Westside -- (313,000) (194,898) -
--------- --------- --------- -----------
NET CASH [USED] BY - INVESTING ACTIVITIES - FORWARD 821,824 (320,039) (1,820,056) (345,548)
--------- --------- --------- -----------
FINANCING ACTIVITIES:
Principal Payments Long-Term Debt (75,747) (220,250) (470,250) (521,250)
Proceeds from Exercise of Stock Options --- 1,000 1,000 500
Proceeds from Exercise of Warrants and Underwriter Option 9,216 2,026,435 1,951,347 2,080,494
Principal Payments on Notes Payable --- --- (81,254) -
Costs of Public Offering --- --- - (5,000)
Dividend on Preferred Stock (10,340) (10,340) (41,360) (41,360)
--------- --------- --------- -----------
NET CASH PROVIDED BY - FINANCING ACTIVITIES - FORWARD $ (76,871) $1,796,845 $ 1,359,483 $1,513,384
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years ended
------------------------- ------------------------------
February 28, November 30,
------------------------- ------------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
NET CASH PROVIDED [USED] BY - OPERATING ACTIVITIES -
FORWARDED $(743,612) $ (481,055) $(1,529,428) $ 27,710
--------- ---------- ----------- ----------
NET CASH [USED] BY - INVESTING ACTIVITIES - FORWARDED (821,824) (320,039) (1,820,056) (345,548)
--------- ---------- ----------- ----------
NET CASH PROVIDED BY - FINANCING ACTIVITIES - FORWARDED (76,871) 1,796,845 1,359,483 1,513,384
--------- ---------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,341 995,751 (1,990,001) 1,195,546
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 842,857 2,832,858 2,832,858 1,637,312
--------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 844,198 $3,828,609 $ 842,857 $2,832,858
========= ========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 9,574 $ 44,927 $ 8,240 $ --
Income Taxes $ -- $ -- $ -- $ --
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Note 3 to financial statements relating to acquisitions consummated in
December 1993, August 1994 and September 1994 and Note 9 relating to capital
transactions.
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] ORGANIZATION AND INDUSTRY SEGMENT
News Communications, Inc. ["the Company"] was incorporated in the State of
Nevada and is primarily engaged, through various wholly- owned and two eighty
percent owned subsidiaries, in the publication and distribution of advertiser
supported, community oriented newspapers and a magazine. The Company's
subsidiaries are Access Network Corp. ("Access"), Manhattan Publishing Corp.
("MPC"), Tribco Incorporated ("Tribco"), Dan's Papers Inc. ("DPI"), Parkchester
Publishing Co., Inc. ("Bronx Press Review"), Long Island Community Newspaper
Group, Inc. ("Nassau Newspapers"), Manhattan File Publishing, Inc, ("Manhattan
File"), Capitol Hill Publishing, Inc ("Capitol Hill"), Brooklyn Newspaper
Publishing, Inc. ("Brooklyn") and Westside Newspaper Corp. ("Westside"). The
Company functions primarily in one industry segment, that is the news
publication business.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements of the Company include the
accounts of the parent company and its wholly-owned and majority owned
subsidiaries. All material intercompany transactions have been eliminated.
PROPERTY AND EQUIPMENT - All expenditures for betterments and additions are
capitalized. Expenditures for normal repairs and maintenance are charged
against income as incurred. Depreciation and amortization are provided for
financial reporting purposes on the basis of the various estimated useful lives
of the assets, using the straight-line method as follows:
YEARS
-----
Transportation Equipment 5
Furniture, Fixtures and Office Equipment 5 - 10
Leasehold Improvements Shorter of Useful Life of Asset or
Length of Lease
Depreciation and amortization expense for the years ended November 30, 1994 and
1993 amounted to $123,503 and $118,873, respectively.
ACCOUNTS RECEIVABLE - The Company uses the allowance method based on a
percentage of accounts receivable to provide for uncollectible trade
receivables.
GOODWILL - Goodwill represents the excess of the cost of acquired assets over
their fair values at dates of acquisition and is being amortized over ten
($199,654) to twenty ($3,703,457) years on a straight-line basis. Amortization
expense and accumulated amortization amounted to $264,079 and $1,151,730,
resepctively, for the year ended November 30, 1994. Amortization expense for the
year ended November 30, 1993 amounted to $221,414. The Company's policy is to
record an impairment loss against the net unamortized cost of goodwill in the
period when it is determined that the carrying amount of the asset may not be
recoverable. At each balance sheet date, the Company evaluates the realizability
of goodwill for each subsidiary having a material goodwill balance. This
determination is based on an evaluation of such factors as the occurrence of a
significant event, a significant change in the environment in which the business
operates or if the expected future non-discounted net income of the subsidiary
would become less than the carrying amount of the goodwill asset. Based upon its
most recent analysis, the Company believes that no impairment of goodwill exists
at November 30, 1994.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows the
Company considers all highly liquid instruments purchased with original
maturities of three months or less to be cash equivalents
F-13
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
REVENUE RECOGNITION - Revenues are earned as the advertisements are run, in
accordance with customer agreements. Unearned revenues of $14,225 at November
30, 1994 are included in accrued expenses and represent future advertisements
that have been paid for by customers in advance.
COVENANT NOT TO COMPETE - Included in other assets is a covenant not to compete
with an initial cost of $127,400, which is being amortized over five years on a
straight-line basis. At November 30, 1994 accumulated amortization amounted to
$76,990. Amortization expense amounted to $25,480 for each of the years ended
November 30, 1994 and 1993.
SEASONALITY - One of the Company's publications [which generated approximately
21% of revenues in fiscal 1994 and 25% of revenues in fiscal 1993] is a resort
area newspaper, which has most of its revenue generated during the summer.
CONCENTRATION OF CUSTOMERS - The majority of the Company's customers are located
in four of the boroughs of New York City, in Nassau County and on Eastern Long
Island.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts investments of
temporary cash investments to financial institutions with high credit standing.
At November 30, 1994, the Company had cash and invested assets of approximately
$1,425,358 which were subject to credit risk in excess of insured amounts.
Credit risk on trade receivables is minimized as a result of the large number of
customers comprising the Company's customer base and their dispersion across
different businesses.
[3] ACQUISITIONS
On December 9, 1993, the Company, through its wholly-owned subsidiary, Nassau
Newspapers, acquired certain assets of Long Island News Group [LING] and MB
Publishing Co. [MB] publishers of eight paid weekly newspapers in Nassau County,
New York for $300,000 in cash and stock valued at approximately $355,000. The
stock was valued by the Company at approximately $2.20 per share. This valuation
represents a discount from the December 9, 1993, quoted market price of the
stock. Such discount was reflected due to the restricted nature of the
securities and the deferral of their issuance. The stock is scheduled to be
issued to the seller as follows:
<TABLE>
<CAPTION>
Date Shares
- ---- -------
<S> <C>
December 9, 1996 103,857
December 9, 1997 21,714
December 9, 1998 36,572
-------
Total 162,143
-------
</TABLE>
On August 18, 1994, the Company acquired through its wholly owned subsidiary,
Brooklyn, certain assets of Brooklyn Skyline Publications, Inc. ("Brooklyn
Skyline") for cash and stock valued at approximately $104,000.
On September 27, 1994, the Company acquired through its wholly owned subsidiary,
Westside, certain assets of Enlightenment Press, Inc. ("Enlightenment"), the
publisher of the Chelsea Clinton News and the Westsider, for cash and stock
valued at approximately $246,000.
F-14
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
A summary of the purchase price details is as follows:
<TABLE>
<CAPTION>
Nassau
Newspapers Brooklyn Westside Total
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Cash $300,000 $ 25,000 $180,000 $ 505,000
Common Stock at Par
(284,266 shares) --- 600 621 1,221
Additional Paid-In Capital 354,687 78,150 65,385 498,222
-------- -------- -------- ----------
$654,687 $103,750 $246,006 $1,004,443
-------- -------- -------- ----------
</TABLE>
The transactions above were accounted for by the purchase method of accounting
under which purchase prices were allocated to the acquired assets based on
estimated fair values at the date of acquisition.The assets purchased consisted
primarily of the common law rights in the trade marks, trade names and
publication names of the newspapers published by the previous owners. The value
of the assets purchased amounted to $1,036,997 of which $32,554 was for legal
and other costs directly related to the acquisitions. The cost, which has been
allocated to goodwill, will be amortized on a straight-line basis over twenty
years.
The results of operations of the above publications are included in the
consolidated statement of operations for the year ended November 30, 1994, only
for the periods from the dates of purchase to such year end.
The following proforma combined results of operations are adjusted for the
amortization of goodwill purchased in connection with the acquisitions as though
they had occurred on December 1, 1992:
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, November 30,
1994 1993
------------- ------------
<S> <C> <C>
Net Revenues $15,999,000 $12,866,000
Net Income (Loss) $ (364,000) $ 127,000
Net Income (Loss) Per share $ (.05) $ .02
</TABLE>
The proforma financial information is not necessarily indicative either of the
results of operations that would have occurred had the mergers been effected
December 1, 1992, or of the future results of operations.
Certain former owners of the publications purchased have entered into employment
contracts with the Company (see Note 10).
[4] ACCRUED PAYROLL TAXES
Accrued payroll taxes represent past-due amounts owed, plus interest and
penalties.
[5] NOTES PAYABLE
In connection with the purchase of the Parkchester Publishing Co., Inc.
[Publisher of the "Bronx Press Review"] the Company incurred indebtedness of
$235,000, of which $75,747 was remaining at November
F-15
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
30, 1994. Interest accrues on the unpaid balance at the rate of prime plus one
[approximately 7% at November 30, 1994].
Following are the maturities of notes payable:
November 30,
1995 $75,747
-------
TOTAL $75,747
----- =======
Interest expense related to the above indebtedness for the years ended November
30, 1994 and 1993 amounted to approximately $8,100 and $14,100, respectively.
[6] RELATED PARTIES
Certain Company office facilities are leased from an officer of a subsidiary of
the Company. Rental expense amounted to approximately $46,000 and $45,300 for
the years ended November 30, 1994 and 1993, respectively. The lease commitment
is adjusted annually based on the consumer price index as of November of each
year with an option for five additional years. At November 30, 1994 interest
bearing advances and loans due from related parties amounted to $80,121.
Interest income earned on such amounts as relflected in the statement of
operations for the year ended November 30, 1994, amounted to approximately
$3,500.
[7] LEASES
The Company leases all operating facilities under operating leases expiring
through October, 2000. Rent expense under operating leases was approximately
$280,000 and $163,000 for years ending November 30, 1994 and 1993, respectively.
The future minimum payments under non-cancelable operating leases consisted of
the following at November 30, 1994 [including amounts in Note 6]:
<TABLE>
<CAPTION>
Operating
----------
Leases
----------
<S> <C>
1995 $ 402,100
1996 440,400
1997 446.200
1998 451,900
1999 335,800
Thereafter 214,300
----------
TOTAL MINIMUM LEASE PAYMENTS $2,290,700
- ------------------------------ ==========
</TABLE>
The operating leases also provide for cost escalation payments and payments for
maintenance and real estate taxes.
[8] TREASURY STOCK
Treasury stock is shown at cost and consists of 151,000 shares of Common Stock.
F-16
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[9] PREFERRED STOCK
[A] The 10% Convertible Preferred Stock is redeemable at the option of the
Company, under certain circumstances.
In September 1994, the Company distributed 6,624 shares of its Common Stock in
payment of a $500 dividend per share due holders as of September 19, 1994 on
each of 32 shares of 10% Convertible Preferred Stock. As a result, Common Stock
at par was increased by $66, additional paid-in capital - Common Stock was
increased by $15,934 and retained earnings was decreased by $16,000.
[B] ISSUANCE OF PREFERRED SHARES - On May 20, 1992, the Company issued 100
shares of its 8% Convertible Preferred Stock and 200 shares of its 12%
Convertible Preferred Stock, in exchange for an aggregate of $300,000. On July
15, 1992, an additional 117 shares of 8% Convertible Preferred Stock were issued
for $117,000. During the year ended November 30, 1994 and 1993, cash dividends
totaling $41,360 each year were paid on the 8% Convertible Preferred Stock and
the 12% Convertible Preferred Stock.
[C] CONVERSION OF PREFERRED STOCK - During 1993, 3 shares of 10% Convertible
Preferred Stock were converted to 5,400 shares of Common Stock. During 1994,
one share of 10% Convertible Preferred Stock was converted to 1,800 shares of
Common Stock.
[10] COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of "Our Town", the newspaper published by
MPC, the Company granted the seller a five year option to purchase up to 100,000
shares of its common stock at an exercise price of $2.81 per share [the average
of the closing bid and asked prices on May 21, 1991].
A subsidiary of the Company has indemnified two former employees and a director
from and against legal fees and adverse judgments arising in connection with
certain legal actions, except such adverse judgments as may be based on claims
that allege or involve wrongful conduct by said former employees and director.
The Company has an employment agreement expiring in 1998 with the President of
DPI. The agreement stipulates an annual salary of $100,000 per year, adjusted
for increases in the consumer price index, plus a bonus in each fiscal year
based on net profits [as defined] of DPI, and fringe benefits totalling
approximately $25,000 annually.
The President of DPI has the option ["put"] to require the Company to buy his
shares of DPI on or after October 13, 1993 for a price equal to 20% of the
retained earnings [if any] of DPI plus the greater of $200,000 or 20% of gross
collected revenues [net of agency commissions] for the full fiscal year prior to
exercise of the option. The option may be exercised only if the after tax
profit [for the fiscal year preceding exercise] is at least equal to seven
percent of gross revenues [net of agency commissions] for such fiscal year. The
put option, by its terms, is exercisable at November 30, 1994. Should the option
be exercised, the Company would be required to pay approximately $660,000 for
the shares. The option is related to the 1988 acquisition of DPI by the Company.
As such, if the option is exercised the Company will record the cost as
additional goodwill to be amortized over the remaining useful life of that asset
(November 1999).
The Company has an employment contract, through October 14, 1999, with its
President. The contract stipulates an annual base salary of $150,000 plus
bonuses as determined by the board of directors.
F-17
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
In August 1993, the Chairman of the Board entered into a five year employment
agreement with the Company. The agreement calls for an annual salary of
$145,000 and certain other benefits. Stock options for 300,000 shares of the
Company's Common Stock at an exercise price of approximately $2.38 per share
expiring on August 31, 1998 were awarded to the chairman in connection with the
agreement [See Note 12B].
In November 1994, the Executive Vice-President of the Company entered into a
three year employment agreement with the Company at an annual salary of $80,000
(subject ot cost-of-living increases) plus a bonus based on 5% of the net profit
(for fiscal years beginning December 1, 1994) of Access, MPC, Manhattan File and
Westside. Such bonus is to be no less than $45,000, nor more than $70,000.
The President of Nassau Newspapers has an employment agreement expiring in
December 1996. The agreement stipulates an annual salary of $99,000, plus a
bonus based upon the net profits (as defined) of Nassau Newspapers.
The Publisher of Brooklyn has an employment agreement expiring in August 1999.
The agreement stipulates an annual salary of $60,000, plus increases and bonuses
based upon the net profits (as defined) of Brooklyn.
Certain holders of options, warrants and stock of the Company have received
registration rights with respect to the securities held by or issuable to them.
These registration rights could result in substantial future expense to the
Company and could adversely affect any future equity or debt financing.
[11] LITIGATION
The Company is subject to lawsuits arising out of its business. Management,
after review and consultation with counsel, believes it has meritorious defenses
and does not believe that it is reasonably possible that there is any liability
from these matters which would materially affect the consolidated financial
position of the Company or the consolidated results of its operations.
[12] STOCK OPTIONS AND WARRANTS
[A] STOCK OPTION PLAN - The Company has a Stock Option Plan pursuant to which it
has reserved authorized, but unissued, shares of Common Stock for issuance of
both Qualified Incentive Stock Options and Non-qualified Stock Options to
employees, officers and directors of the Company. The option price will be the
fair market value [110% of the fair market value for Qualified Incentive Stock
Options granted to a holder of 10% or more of the Company's Common Stock] as
defined by the plan. Generally, options may be exercised commencing two years
from the date of grant and terminating ten years from the date of grant.
Following is a summary of transactions:
<TABLE>
<CAPTION>
Shares under Option
-------------------
November 30,
----------------
1 9 9 4 1 9 9 3
------- -------
<S> <C> <C>
Outstanding - Beginning of Periods 106,666 44,166
Granted during period 62,000 85,000
Terminated during period 32,500 22,500
------- -------
Outstanding - End of Periods [1] 136,166 106,666
======= =======
</TABLE>
[1] With an exercise price per share ranging from $2.00 to $9.00, giving effect
to the one-for-ten reverse stock split, which occurred on May 12, 1992.
F-18
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
At November 30, 1994 and 1993, there were 30,501 and 60,001 shares,
respectively, reserved for future grants.
[B] DIRECTORS AND OFFICERS STOCK OPTION PLAN - On August 17, 1993, the Board of
Directors ["the Board"] adopted a "Discretionary Directors and Officers Stock
Option Plan" [the "Discretionary Option Plan"] pursuant to which the Board may
award options to purchase an aggregate of 1,000,000 shares of Common Stock to
directors and officers of the Company and its subsidiaries which shall be
exercisable at the market price on the date of grant for periods, and under
conditions, specified by the Board in such grants. Options under the
Discretionary Option Plan are non-qualified and non-incentive options for
purposes of income taxation and are not intended to qualify under Section 422A
of the Internal Revenue Code of 1986. During the year ended November 30, 1994,
the Board granted officers and directors options to purchase up to 455,500
shares of Common Stock under the Discretionary Option Plan, which are
exercisable until August 31, 1999, at prices ranging from $2.00 to $2.63 per
share [the last sale price on the date of the grant].
On August 17, 1993, the Board also adopted a "Non-discretionary Directors Stock
Option Plan" [the "Non-discretionary Option Plan"] pursuant to which each
director will be granted, on August 17, 1993 and each anniversary thereof on
which he or she continues to be a director, a five-year option to purchase
10,000 shares of Common Stock at the market price on the date of the grant. The
Non- discretionary Plan also provides that any person becoming a director within
the six months after any August 17 will be granted an option for 10,000 shares
on the date he or she becomes a director. Pursuant to the Non-discretionary
Option Plan, Company directors each received options to purchase 10,000 shares
of Common Stock at $2.63 per share on August 17, 1994.
[C] WARRANTS - At November 30, 1994, the Company had outstanding Redeemable
Class A Warrants to purchase 2,305,980 shares of the Company's Common Stock at
approximately $4.49 per share. The Warrants became exercisable September 19,
1990 and expire September 19, 1995. The Warrants are redeemable by the Company,
under certain conditions, until September 19, 1995. During the year ended
November 30, 1994, 368,295 redeemable Class C Warrants and 289,560 redeemable
Class D Warrants were exercised. In January 1994 the underwriter of the
Company's October 1992 public offering exercised its unit option. The net
proceeds to the company as a result of these tranactions was approcimately
$1,951,000. At November 30, 1994 there remained outstanding 830,450 redeemable
Class C Warrants and 938,935 redeemable Class D Warrants. Each Class C Warrant
which entitles the holder to purchase one share of the Company's Common Stock at
$2.00 per share, became exercisable October 9, 1993 and expire October 9, 1996.
Each Class D Warrant which entitles the holder to purchase one share of the
Company's Common Stock at $3.00 per share, became exercisable October 9, 1993
and expire October 9, 1998. The warrants are redeemable by the Company under
certain conditions, after October 9, 1993.
F-19
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[13] INCOME TAXES
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
November 30,
------------------------
1 9 9 4 1 9 9 3
---------- ---------
<S> <C> <C>
Federal Currently Payable $ -- $ 146,129
State Currently Payable -- 46,404
---------- ---------
Totals -- 192,533
Less: Extraordinary Item: Reduction of
Income Taxes resulting from Utilization
of Operating Loss Carryforwards -- (192,533)
---------- ---------
$ -- $ --
========== =========
</TABLE>
The Company has net operating loss carryforwards for tax purposes which expire
as folllows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
2001 $ 25,000
2002 145,000
2003 585,000
2004 950,000
2005 370,000
2006 365,000
2007 340,000
----------
Total $2,780,000
----------
</TABLE>
As a result of the change in ownership in October 1987, the use of approximately
$460,000 of the net operating loss carryforwards to offset taxable income in any
year ending after October 1, 1987 will be limited.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective December 1, 1993. SFAS No. 109 requires
the establishment of a deferred tax asset for all deductible temporary
differences and operating loss carryforwards. The deferred tax asset
attributable to operating loss carryforwards amounted to approximately
$1,200,000 at November 30, 1994. Because of the Company's cumulative losses in
recent years, however, any deferred tax asset established for utilization of the
Company's tax loss carryforwards would correspondingly require a valuation
allowance of the same amount pursuant to SFAS No. 109. Accordingly, no deferred
tax asset is reflected in these consolidated financial statements.
[14] EARNINGS [LOSS] PER SHARE
Earnings [Loss] per share amounts are computed based on the weighted average
number of shares outstanding. Options, warrants and Convertible Preferred Stock
are assumed converted if dilutive.
[15] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
As described in Note 13, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" on December 1, 1993.
Since that implementation, the Financial Accounting Standards Board has isssued
eleven new authorative accounting pronouncements (SFAS's).
F-20
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
With the exception of SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", these new pronouncements either do not apply to the
Company, or will be implemented when the Company engages in applicable
transactions. SFAS No. 115 requires management to classify its investments in
debt and equity securities as trading, held-to-maturity, and/or available-for-
sale at the time of purchase and to reevaluate such determination at each
balance sheet date. The Company does not anticipate that it will have many
investments that will qualify as trading or held-to-maturity investments. Debt
securities for which the Company does not have the intent or ability to hold to
maturity will be classified as available-for-sale, along with most investments
in equity securities. Securities available-for-sale are to be carried at fair
value, with any unrealized holding gains and losses, net of tax, reported in a
separate component of shareholders' equity until realized. The Company will
implement SFAS No. 115 on December 1, 1994. None of these potentially applicable
accounting pronouncements is anticipated to have a material impact on the
Company's consolidated financial statements
[16] SUBSEQUENT EVENTS
[A] EXERCISE OF WARRANTS - Subsequent to November 30, 1994, 4,800 redeemable
Class C Warrants were exercised resulting in net proceeds to the Company of
approximately $9,600.
[B] PAYMENT OF DEBT - In January 1995 the Company made the scheduled payment,
including interest, described in Note 5.
[17] FOURTH QUARTER ADJUSTMENTS (UNAUDITED) - There were certain adjustments
recorded in the fourth quarter of fiscal year ended November 30, 1994, and the
aggregate effect of such adjustments was material to the results of that
quarter. Approximately $400,000 of start-up costs relating to Manhattan File and
Capitol Hill which were deferred in the third quarter were expensed in the
fourth quarter upon commencement of regular operations of those publications.
[18] UNAUDITED INTERIM FINANCIAL STATEMENTS - The financial statements as of
February 28, 1995 and for the three months ended February 28, 1995, and 1994 are
unaudited; however, in the opinion of management all adjustments [consisting
solely of normal recurring adjustments] necessary to a fair presentation of the
financial statements for these interim periods have been made. The results of
the interim periods are not necessarily indicative of the results to be obtained
for a full year.
. . . . . . . . . .
F-21
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
- ----------
PRELIMINARY PROSPECTUS DATED JULY 6, 1995
NEWS COMMUNICATIONS, INC.
1,675,785 SHARES OF COMMON STOCK
This Prospectus relates to (i) 821,850 shares of Common Stock, par value
$.01 per share ("Common Stock"), of News Communications, Inc. (the "Company") to
be issued by the Company upon exercise of the Company's Redeemable Class C
Warrants ("Public C Warrants") and offered by the Company to the holders
thereof, and (ii) 853,935 shares of Common Stock to be issued by the Company
upon exercise of the Company's Redeemable Class D Warrants ("Public D Warrants"
and, together with the Public C Warrants, collectively, the "Public Warrants")
and offered by the Company to the holders thereof. See "Description of
Securities - Public Warrants."
This Prospectus also relates to 85,000 shares of Common Stock issuable to
successors-in-interest to Hibbard Brown & Company, Inc. ("Hibbard Brown") upon
exercise of non-redeemable Class D Warrants of the Company ("Hibbard Brown D
Warrants") and the offer and sale by such person of such shares from time to
time for their own accounts. The Hibbard Brown D Warrants are not publicly
traded and differ in certain respects from the Public D Warrants. See
"Description of Securities - Hibbard Brown Option and Warrant Solicitation
Fee."
The principal market for trading of the Common Stock is the Nasdaq
SmallCap Market, under the symbol "NCOM." The Public Warrants are traded on the
Nasdaq SmallCap Market as part of units ("Public Units") consisting of one share
of Common Stock, one Public C Warrant and one Public D Warrant under the symbol
"NCOMU." On June 28, 1995, the last sale price, as reported by Nasdaq, for the
Common Stock was $2.19. On May 8, 1995, the last day prior to the date of this
Prospectus on which the Public Units were traded, the last sale price of the
Units was $2.25.
================================================================================
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
================================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
Each Public C Warrant entitles the holder to purchase one share of Common
Stock until October 9, 1996, at a per share price of $2.00, subject to
adjustment. Each Public D Warrant entitles the holder to purchase one share of
Common Stock until October 9, 1998, at a per share price of $3.00, subject to
adjustment. Cash will be paid in lieu of fractional shares upon exercise of any
Public Warrants. The Company may call the Public Warrants for redemption, in
whole or in part, at any time upon a minimum of 30 days' prior written notice to
holders, at a redemption price of $0.01 per Public Warrant, provided that the
average of the means of the closing bid and closing asked quotations of the
Common Stock on Nasdaq (or the last sale price if principally traded on a
national securities exchange or the Nasdaq National Market System) exceeds 125%
of the then respective exercise prices of the Public Warrants being redeemed for
any 20 consecutive trading days ending within 15 days prior to the day on which
notice is given. The Company has not determined whether it will exercise such
right if it should become available, although there is a good likelihood that it
would do so. If the Public Warrants are called for redemption, they must be
exercised prior to the close of business on the date of any such redemption or
the right to purchase the applicable shares of Common Stock is forfeited. See
"Description of Securities - Public Warrants."
(Cover Page continued on page 2)
================================================================================
The date of this Prospectus is ___________ __, 1995.
<PAGE>
(Continuation of Cover Page)
The shares of Common Stock issuable upon exercise of the Public
Warrants will be issued if, as and when the Public Warrants are exercised by the
holders thereof. The following table sets forth certain information with
respect to the exercise of the Public Warrants:
<TABLE>
<CAPTION>
Exercise Solicitation Proceeds to
Price(1) Fee(2) Company(3)(4)
------------- --------------- ---------------
<S> <C> <C> <C>
Per Public C Warrant.. $ 2.00 $ 0.08 $ 1.92
Per Public D Warrant.. $ 3.00 $ 0.12 $ 2.88
Total (4)............. $4,205,505 $168,220 $4,037,285
- -----------------------------------------------------------------------
</TABLE>
(1) The exercise prices of the Public C Warrants and the Public D Warrants
were determined by negotiation between the Company and Hibbard Brown.
See "Description of Securities - Public Warrants."
(2) Assumes Company will pay a successor-in-interest to Hibbard Brown or
another firm which is a member of the National Association of Securities
Dealers, Inc., as warrant solicitation agent, a fee equal to 4% of the
exercise price. Such member firm may be deemed to be an underwriter as
defined in the Securities Act of 1933, as amended. See "Description of
Securities - Public Warrants."
(3) Before deducting expenses payable by the Company estimated at $35,000.
(4) Assumes exercise of all remaining unexercised Public C Warrants (821,850)
and Public D Warrants (853,935). Prior to the date of this Prospectus
678,150 Public C Warrants and 646,065 Public D Warrants have been
exercised.
The Company will also receive the proceeds from the exercise of the
85,000 unexercised Hibbard Brown D Warrants, which will amount to $255,000 if
all such Hibbard Brown D Warrants are exercised. The Company will not receive
any proceeds from the sale of the Common Stock issuable upon exercise of the
Hibbard Brown D Warrants. The successors-in-interest to Hibbard Brown, formerly
a registered broker-dealer which is no longer in business, will sell such
securities for their own accounts from time to time at market prices prevailing
at the time of sale or at negotiated prices and may or may not incur any
brokerage commissions in connection therewith. See "Plan of Distribution."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
can be inspected and copied at the Commission's public reference facilities
located at 450 Fifth Street, N.W., Washington, D.C. 20549 and Regional
Offices located at 75 Park Place, New York, New York 10007 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601-
2511. Copies of such material may also be obtained at prescribed rates by
writing the Securities and Exchange Commission, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of
the information incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such
requests should be made to the Company at 174-15 Horace Harding Expressway,
Fresh Meadows, New York 11365, telephone (718) 357-3380.
--------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus. Any information or
representations not herein contained, if given or made, must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
security other than the securities offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the
securities by any person in any jurisdiction where such offer or
solicitation is not authorized, or in which the person making such an offer
is not qualified to do so, or to any person to whom it is unlawful to make
such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION...................................... 3
PROSPECTUS SUMMARY......................................... 4
THE COMPANY................................................ 7
RISK FACTORS............................................... 8
PRICE RANGES OF SECURITIES................................. 13
DIVIDEND POLICY............................................ 14
USE OF PROCEEDS............................................ 14
CAPITALIZATION............................................. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.. 16
BUSINESS................................................... 21
MANAGEMENT................................................. 30
PRINCIPAL STOCKHOLDERS..................................... 37
DESCRIPTION OF SECURITIES.................................. 40
PLAN OF DISTRIBUTION....................................... 44
SHARES ELIGIBLE FOR FUTURE SALE............................ 44
LEGAL MATTERS.............................................. 45
EXPERTS.................................................... 45
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES............. 45
ADDITIONAL INFORMATION..................................... 46
INDEX TO FINANCIAL STATEMENTS.............................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial data (including the Consolidated Financial
Statements and Notes thereto) appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety.
THE COMPANY
News Communications, Inc. (the "Company") is primarily engaged,
through various wholly and partly-owned subsidiaries, in the publication and
distribution of advertiser supported, community oriented newspapers and related
targeted audience publications. The community newspapers are directed at
specific geographic communities and, for the most part, are distributed free of
charge to selected residences and business establishments in those communities.
Each publication focuses on the lifestyle, culture, arts, entertainment,
politics and social issues of particular interest to the group of communities
at which it is directed. Some of the papers publish different editions (with
variations in editorial content and advertising) which are distributed to each
community in the targeted group. The principal source of the Company's
revenues (94% for the fiscal year ended November 30, 1994 and 94% for the three
months ended February 28, 1995) is the sale of advertising space in its
publications.
The Company's business plan is to develop a regional group of
publications in the greater New York metropolitan area. Toward that end it has
to date acquired or organized the following publications: the MANHATTAN
SPIRIT, which is distributed in neighborhoods of the Borough of Manhattan in
New York City; DAN'S PAPERS and the MONTAUK PIONEER, which are directed to
communities in eastern Long Island, New York; the QUEENS TRIBUNE, which,
through nine weekly editions, is directed at communities in the Borough of
Queens in New York City; OUR TOWN, which is directed to the East Side of
Manhattan; the BRONX PRESS REVIEW, which is directed at communities in the
Borough of the Bronx in New York City; the RIVERDALE REVIEW and WESTCHESTER
LIFESTYLES, which are directed at communities in the Riverdale section of the
Bronx and Westchester County, New York; LYNBROOK USA, the MALVERN TIMES, the
ROCKVILLE CENTER NEWS & OWL, the VALLEY STREAM MAILEADER, the INDEPENDENT VOICE
OF LONG BEACH, OCEANSIDE & ISLAND PARK, the ROCKVILLE CENTER-OCEANSIDE BEACON,
the BALDWIN CITIZEN, the EAST ROCKAWAY OBSERVER, six editions of LONG ISLAND
MARKET and LONG ISLAND LIFESTYLES (collectively, the "NASSAU NEWSPAPERS"),
which are directed at communities in Nassau County, New York; MANHATTAN FILE, a
monthly magazine targeted at young people in Manhattan; THE HILL, a weekly
newspaper devoted to the coverage of the United States Congress; the BROOKLYN
SKYLINE, which is directed at communities in New York City's Borough of
Brooklyn; and the CHELSEA-CLINTON NEWS and the WESTSIDER, paid circulation
newspapers directed to communities in Manhattan's West Side. The Company's
management believes that its strategy will be attractive to advertisers seeking
a broad metropolitan area audience. It also believes the Company can take
advantage of economies of scale, combination of operations and other synergies
not available to individual publications. See "Business."
THE OFFERING
Securities Offered by
Company................. 821,850 shares of Common Stock issuable upon exercise
of outstanding Public C Warrants and 853,935 shares
of Common Stock issuable upon exercise of outstanding
Public D Warrants.
Securities Offered by
successors-in-interest
to Hibbard Brown......... 85,000 shares of Common Stock.
Terms of Public Warrants. Each Public C Warrant is exercisable at any time
until October 9, 1996, and presently entitles the
holder thereof to purchase one share of Common Stock
at a price of $2.00 per Public C Warrant (subject to
adjustment). Each Public D Warrant is exercisable at
any time until October 9, 1998, and presently
entitles the holder thereof to
4
<PAGE>
purchase one share of Common Stock at a price of
$3.00 per Public D Warrant (subject to adjustment).
The Company may reduce the exercise price at any time
on notice to the holders. The Company may call the
Public Warrants for redemption, in whole or in part,
at any time upon a minimum of 30 days' prior written
notice to holders, at a redemption price of $0.01 per
Public Warrant, provided that the average of the
means of the closing bid and closing asked quotations
of the Common Stock on Nasdaq (or the last sale price
if principally traded on a national securities
exchange or the Nasdaq National Market System)
exceeds 125% of the then respective exercise prices
of the Public Warrants being redeemed for any 20
consecutive trading days ending within 15 days prior
to the day on which notice Each Public C Warrant is
exercisable at any time until October 9, is given.
See "Description of Securities -- Public Warrants."
<TABLE>
<S> <C> <C>
Securities Outstanding.... Before Offering(1)(2) After Offering(2)(3)
--------------- --------------
Common Stock............ 7,783,376 shares 9,544,161 shares
Preferred Stock
10% Convertible........ 32 shares 32 shares
8% Convertible........ 217 shares 217 shares
12% Convertible........ 200 shares 200 shares
A Warrants.............. 20,700,000 A Warrants 20,700,000 A Warrants
B Warrants.............. None None
Public C Warrants....... 821,850 Public C Warrants None
Public D Warrants....... 853,935 Public D Warrants None
Use of Proceeds........... Working capital. See "Use of Proceeds."
Risk Factors.............. The securities offered hereby involve a high degree
of risk. See "Risk Factors" and "Business."
Nasdaq Symbols............ Common Stock: NCOM
A Warrants: NCOMW
B Warrants: NCOMZ
Public C Warrants: NCOMM
Public D Warrants: NCOML
Public Units: NCOMU
</TABLE>
__________________
(1) Before giving effect to the exercise of the Public Warrants (subsequent
to March 31, 1995).
(2) Assumes no exercise of outstanding Redeemable Class A Warrants ("A
Warrants") and Redeemable Class B Warrants ("B Warrants") registered
under the Registration Statement of which this Prospectus is part but not
offered pursuant to this Prospectus. See "Description of Securities - A
Warrants and B Warrants."
(3) After giving effect to the full exercise of the Public Warrants and the
85,000 unexercised Hibbard Brown D Warrants. Does not give effect to (a)
up to 166,667 shares issuable upon the exercise of stock options granted
and that may be granted under the Company's 1987 Stock Option Plan, (b)
up to 1,000,000 shares issuable upon the exercise of options granted and
that may be granted under the Company's Discretionary Directors and
Officers Stock Option Plan, (c) up to 500,000 shares issuable upon the
exercise of options granted and that may be granted under the Company's
Non-discretionary Directors Stock Option Plan, (d) up to 256,667 shares
issuable upon the exercise of other outstanding warrants and options, (e)
up to 581,040 shares issuable upon the exercise of an option granted to
D.H. Blair & Co., Inc. (the "Blair Option") to purchase 100 units of
securities, each unit consisting of one share of 10% Convertible
Preferred Stock and 18,000 A Warrants, and the exercise and conversion of
the securities included therein, or (f) 162,143 shares reserved for
issuance in connection with the acquisition of the NASSAU NEWSPAPERS.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information is derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with such Consolidated Financial Statements and
the related Notes thereto. Information with respect to Access Network Corp.,
Dan's Papers, Inc., Tribco Incorporated, Manhattan Publishing Corp. and
Business-to-Business and Pennysavers, Incorporated is included for all periods.
Information with respect to Parkchester Publishing Co., Inc. is included
beginning December 19, 1992. Information with respect to Long Island Community
Newspaper Group, Inc. is included beginning December 10, 1993. Information
with respect to Manhattan File Publishing, Inc. is included beginning August 1,
1994. Information with respect to Brooklyn Newspaper Publishing, Inc. is
included beginning August 17, 1994. Information with respect to Capitol Hill
Publishing, Inc. is included beginning September 1, 1994. Information with
respect to Westside Newspaper Corp. is included beginning September 27, 1994.
For information relating to the Company's dividend policy, see "Dividend
Policy."
<TABLE>
<CAPTION>
INCOME STATEMENT DATA:
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
------------------------------- ---------------------------
1995 1994 1994 1993
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Net Revenues.................... $3,384,111 $ 2,197,153 $13,718,175 $8,927,704
Operating Expenses.............. $4,034,733 $ 2,404,126 $14,413,364 $8,644,711
Interest Expense................ $ 6,475 $ 6,875 $ 24,797 $ 62,461
Net Income (Loss) Available to
Common Stockholders............ $ (659,400) $ (210,662) $ (604,711) $ 191,269
Net Income (Loss) per Share of
Common Stock................... $(.08) $(.03) $(.08) $ .03
Average Number of Shares 7,768,776 7,353,942 7,580,203 6,232,630
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
FEBRUARY 28, 1995 FEBRUARY 28, 1994
--------------------------- -----------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
<S> <C> <C> <C>
Total Assets(2)................. $9,639,491 $13,896,776 $10,620,618
Long-Term Debt, excluding
current maturities............. --- --- $ 79,000
Working Capital................. $3,582,845 $ 7,840,130 $ 5,083,864
Stockholders' Equity $8,284,285 $12,541,570 $ 8,901,162
</TABLE>
(1) Gives effect to the exercise of the remaining unexercised Public Warrants
and Hibbard Brown D Warrants and the application of the estimated net
proceeds therefrom.
(2) At February 28, 1995, and 1994, and November 30, 1994 and 1993, assets
included goodwill of $3,838,668, $3,662,777, $3,903,111 and $3,092,898,
respectively.
6
<PAGE>
THE COMPANY
News Communications, Inc. (the "Company") was incorporated in Nevada
under the name Applied Resources, Inc. on May 20, 1986. In December 1987,
the Company consummated an Agreement and Plan of Reorganization with Mr.
Jerry Finkelstein and a former director and officer whereby the Company
acquired from them all of the issued and outstanding shares of Access
Network Corp. ("Access"), a New York corporation which was and is the
publisher of the MANHATTAN SPIRIT, and they together acquired 70.77% of the
then issued and outstanding shares of the Company. Access thereby became a
wholly-owned subsidiary of the Company. The business of Access is the
publication and distribution of the MANHATTAN SPIRIT, a weekly, free
circulation newspaper directed toward the West Side of Manhattan, New York
City.
In October 1988, the Company acquired an 80% interest in Dan's
Papers, Inc. ("DPI"), a New York corporation organized to buy substantially
all of the assets and assume certain of the liabilities of Dan's Papers,
Ltd., the publisher and distributor of DAN'S PAPERS and the MONTAUK PIONEER,
weekly free circulation newspapers distributed in eastern Long Island, New
York. In October 1988, the Company acquired 50% of the common stock of
Business-To-Business and Pennysavers, Incorporated ("Pennysavers"), a newly-
formed New York corporation which thereafter commenced publication and
distribution of OFFICE LIFE, which, during the fiscal year ended November
30, 1991, was restructured as a periodic supplement to the MANHATTAN SPIRIT.
The Company now owns all of the Pennysavers stock. In May 1989, the
Company, through Tribco Incorporated ("Tribco"), a wholly-owned subsidiary,
acquired, by way of merger, all the stock of two companies which, together,
published and distributed the QUEENS TRIBUNE, a weekly newspaper serving the
Borough of Queens, New York City. In May 1991, the Company, through
Manhattan Publishing Corp. ("MPC"), a wholly-owned subsidiary, acquired
substantially all of the assets of a company which published OUR TOWN, a
weekly free circulation newspaper distributed in Manhattan's Upper East
Side. In December 1992, the Company acquired all of the outstanding stock
of Parkchester Publishing Co., Inc. ("Parkchester"), the publisher of the
BRONX PRESS REVIEW, a weekly paid circulation newspaper distributed in the
Borough of the Bronx of the City of New York. In December 1993, the
Company, through Long Island Community Newspaper Group, Inc. ("LICNG"), a
wholly-owned subsidiary, acquired substantially all of the assets of a
company which was the publisher of the NASSAU NEWSPAPERS. In August, 1994,
the Company, through Brooklyn Newspaper Publishing, Inc. ("BNP"), a wholly-
owned subsidiary, acquired substantially all of the assets of a company
which was the publisher of the BROOKLYN SKYLINE. In September, 1994, the
Company, through Westside Newspaper Corp. ("WNC"), a wholly-owned
subsidiary, acquired substantially all of the assets of a company which was
the publisher of the CHELSEA-CLINTON NEWS and the WESTSIDER. In January,
1994, the Company initiated publication of MANHATTAN FILE through its 80%-
owned subsidiary, Manhattan File Publishing, Inc. ("MFP"). In July, 1994,
the Company initiated publication of THE HILL through its wholly-owned
subsidiary, Capitol Hill Publishing, Inc. ("Capitol Hill"). In connection
with various of its acquisitions, the Company incurred significant deferred
purchase price obligations. See "Business."
The Public Warrants were originally issued as part of units ("Public
Units," each consisting of one share of Common Stock, one Public C Warrant
and one Public D Warrant) offered pursuant to a public offering under the
Registration Statement of which the Prospectus is a part, which became
effective on October 9, 1992 (the "1992 Offering").
As used in this Prospectus, unless the context requires otherwise,
the term "Company" refers to News Communications, Inc. together with Access,
DPI, Tribco, MPC, Parkchester, LICNG, Pennysavers, BNP, WNC, MFP and Capitol
Hill. The Company's principal executive offices are located at 174-15
Horace Harding Expressway, Fresh Meadows, New York 11365. Its telephone
number is (718) 357-3380.
7
<PAGE>
RISK FACTORS
The securities being offered hereby involve a high degree of risk,
including, but not limited to, the risks described below. Each prospective
investor should carefully consider the following risk factors affecting the
business of the Company and this Offering before making an investment
decision:
1. History of Losses; Accumulated Deficit. The Company's revenues
--------------------------------------
have not been sufficient to satisfy its ongoing expenses of operation.
Although it operated on a profitable basis for the 1993 fiscal year, it had
net losses of $604,711, $994,431 and $652,154 for the fiscal years ended
November 30, 1994, 1992 and 1991, respectively, and a net loss of $649,060
for the three months ended February 28, 1995. As of February 28, 1995, the
Company's accumulated deficit was $(5,563,920). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
2. Dividend Restrictions. The Company has not paid any dividends on
---------------------
its Common Stock since its inception and does not contemplate paying any
dividends on its Common Stock in the foreseeable future. The Company has
the option to pay dividends on its outstanding 10% Convertible Preferred
Stock ("10% Preferred Stock") in cash or in shares of Common Stock, valued
at their "fair market value." Fair market value of a share of Common Stock
shall mean the average of the closing bid and asked priced of the Common
Stock for the ten business days prior to the dividend payment date. If
there is no trading market for the Common Stock during such period, then the
fair market value of the Common Stock shall be determined by the Company's
Board of Directors. To date, all dividends on the 10% Preferred Stock have
been paid in shares of Common Stock. It is anticipated that dividends on
the 10% Preferred Stock will, at least in the foreseeable future, continue
to be paid in shares of Common Stock. Applicable provisions of Nevada
corporate law affect the ability of the Company to declare and pay dividends
and could materially limit, or even prohibit, the Company's ability to pay
dividends in the future. Applicable provisions of the Company's outstanding
series of Preferred Stock also restrict its ability to pay dividends on its
Common Stock in certain circumstances. See "Dividend Policy."
3. Uncertainties Regarding Company Operations. The likelihood of
------------------------------------------
success of the Company must be considered in light of the difficulties in
enhancing and sustaining the readership interest necessary to attract and
hold advertisers, which represent the primary source of revenue for the
Company. There can be no assurance that the Company's existing publications
will retain or increase their present level of acceptance to advertisers,
or, if they attain greater acceptance, that such greater acceptance will
allow the Company to recoup its development and acquisition costs or achieve
profitability on an ongoing basis.
4. Highly Competitive Industry. The newspaper business is extremely
---------------------------
competitive. The Company's publications compete for advertising revenue
directly with other newspapers and magazines which are distributed without
charge in the areas in which the Company's publications are distributed.
The Company's publications also compete with newspapers and magazines which
are sold in the areas in which the Company's publications are distributed,
as well as with other advertising media such as radio and television. Many
of the Company's competitors have established market positions and name
recognition, as well as marketing and financial resources greater than those
of the Company. See "Business - Competition."
5. Dependence Upon Key Personnel. The success of the Company is
-----------------------------
dependent upon the personal efforts and abilities of its officers, including
Michael Schenkler, the Company's President. The Company is also dependent
upon certain key personnel who are publishers and/or editors of some of the
publications the Company has acquired. Such persons include Mr. Dan
Rattiner, who is the publisher and editor of DAN'S PAPERS. If the
affiliation of any of these persons were to cease before a qualified
successor could be found, there could be a material adverse effect on the
business and prospects of the
8
<PAGE>
publications of which such person is a publisher, editor or operator and on
the business and prospects of the Company as a whole. See "Management."
6. Significant Seasonality of Certain Publications. DAN'S PAPERS,
-----------------------------------------------
which is a resort area newspaper, has significant seasonal variations in
revenues. This seasonality has historically caused operating results to
vary significantly from quarter to quarter, with the third fiscal quarter
being the most significant in terms of revenues and income. Failure of
DAN'S PAPERS to have sales of advertising space increase in the prime summer
season after losses carried during the off-season will have a material
adverse effect on the Company's operating results and profitability. THE
HILL is also expected to be subject to variations in revenues, depending
upon the periods that Congress is in session.
7. Potential Dilutive Effect of Outstanding Options and Convertible
----------------------------------------------------------------
Securities; Registration Rights. As of the date of this Prospectus, without
-------------------------------
taking into account the exercise of the A Warrants, B Warrants, Public C
Warrants, Public D Warrants, Hibbard Brown D Warrants or Blair Option, there
were outstanding various options, warrants and shares of Preferred Stock
which, if exercised or converted by the holders thereof, would entitle such
holders to purchase up to 1,428,283 shares of Common Stock at prices ranging
from $0.30 to $9.00 per share.
The exercise or conversion of any of such securities will most likely
have a dilutive effect on the Company's Common Stock. Moreover, the terms
upon which the Company may be able to obtain additional capital may be
adversely affected because the holders of such securities can be expected to
exercise or convert their securities at a time when the Company would, in
all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided by the terms thereof. In addition,
certain holders of Common Stock, Preferred Stock and options of the Company
have received registration rights with respect to the securities held by or
issuable to them and the Company has granted certain registration rights
with respect to the other securities. These registration rights could
result in substantial future expense to the Company and could adversely
affect any future equity or debt financing. Furthermore, the sale of such
shares of Common Stock held by or issuable to the holders of registration
rights, or even the potential of such sales, could have an adverse effect on
the then current market price of the Company's securities. See "Description
of Securities."
8. Control of the Company by Certain Principal Stockholders.
--------------------------------------------------------
Messrs. Michael Schenkler, President and a director of the Company, Jerry
Finkelstein, Chairman of the Board of Directors of the Company, and Gary
Ackerman, a director of the Company, beneficially own, in the aggregate
approximately 19.5% (3.9%, 10.2% and 5.4%, respectively) of the issued and
outstanding Common Stock on the date of this Prospectus and, accordingly,
may be able to influence the election of all directors and to control the
affairs of the Company. Because the Company's stockholders do not have
cumulative voting rights, the other stockholders may not have the ability to
materially influence the election of all directors of and to control the
affairs of the Company. See "Principal Stockholders" and "Description of
Securities."
9. Non-Registration in Certain Jurisdictions of Shares Underlying
--------------------------------------------------------------
Public Warrants; Current Prospectus and State Registration Required to
----------------------------------------------------------------------
Exercise Public Warrants. Holders of Public Warrants may reside in or may
------------------------
move to jurisdictions in which the shares of Common Stock underlying the
Public Warrants are not registered or qualified for issuance or sale under
the applicable state securities laws at a time when they may wish to
exercise the Public Warrants. In this event, the Company would be unable to
issue shares of Common Stock to the person desiring to exercise the Public
Warrants unless the shares could be registered or otherwise qualified for
sale in the jurisdiction in which such purchaser resides, or an exemption
from such registration or qualification exists in such jurisdiction. There
can be no assurance that the Company will be able to effect any required
registration or qualification.
A holder will be able to exercise the Public Warrants only if a
current prospectus relating to the securities underlying the Public Warrants
is then in effect and only if such securities are qualified for sale
9
<PAGE>
or exempt from qualification under the applicable securities laws of the
state in which the holder resides. Although the Company will undertake to
use its best efforts to maintain the effectiveness of a current prospectus
covering such securities, there can be no assurance that the Company will be
able to do so. The value of the Public Warrants may be greatly reduced if a
current prospectus covering the securities issuable upon the exercise of the
Public Warrants is not kept effective or if such securities are not
qualified or exempt from qualification in the states in which the holders
reside.
10. Qualification Requirements for Nasdaq Securities. The Common
------------------------------------------------
Stock and Public Units are presently quoted in the Nasdaq system, which is
administered by the National Association of Securities Dealers, Inc. For
the Company's securities to continue to be eligible for inclusion in the
Nasdaq system, the Company must, among other things, maintain at least
$2,000,000 in total assets and have at least $1,000,000 of capital and
surplus and the bid price of the Common Stock must be at least $1.00 per
share, provided, however, that, if a company's stock falls below such
minimum bid prices, it will remain eligible for continued inclusion if the
market value of the public float is at least $1,000,000 and the company has
at least $2,000,000 in capital and surplus. While the Company presently
meets the required standards, there can be no assurance that it will
continue to be able to do so. If it should fail to meet one or more of such
standards, its securities would be subject to deletion from the Nasdaq
system. If this should occur, trading, if any, in the Common Stock and the
Public Warrants would then continue to be conducted in the over-the-counter
market in what are commonly referred to as "pink sheets." As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities. In
addition, if the Company's securities cease to be quoted on Nasdaq and the
Company fails to meet certain other criteria, they would be subject to a
Securities and Exchange Commission rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors. For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, the rule may affect
the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this offering to sell their securities
in the secondary market.
11. Factors Affecting Exercise Price of Public Warrants; Possible
-------------------------------------------------------------
Volatility of Stock Price. The exercise prices and other terms of the
-------------------------
Public Warrants were arbitrarily determined by negotiation between the
Company and Hibbard Brown and do not necessarily bear any relationship to
the risk of the investment in these securities, the value of the assets of
the Company, the earnings of the Company, or any other traditional indicia
of the worth of securities. Although the Company may reduce the exercise
prices of the Public Warrants at any time on notice to the holders, the
exercise prices might never be less than the fair market value of the shares
of Common Stock of the Company during the exercise period of the Public
Warrants. Accordingly, the Public Warrants may expire before achieving any
value. The market prices for shares of Common Stock and the Public Warrants
may be significantly affected by such factors as the Company's financial
performance, the results of the Company's efforts to increase circulation
and advertising copy of its publications, the Company's acquisition and/or
development of publications and services with a complementary focus, and
various factors affecting the newspaper industry generally. Additionally,
in recent years, the stock market has experienced a high level of price and
volume volatility and market prices for many companies, particularly small
and emerging growth companies traded on the over-the-counter market, and
these wide price fluctuations are not necessarily related to the operating
performance of these companies. Accordingly, there may be significant
volatility in the market for the securities of the Company and there can be
no assurance that the shares of Common Stock issuable upon exercise of the
Public Warrants can be resold at or near the exercise prices. See "Price
Ranges of Securities."
12. Potential Depressive Effect of Shares Eligible for Future Sale
--------------------------------------------------------------
Pursuant to Rule 144; Other Potential Sales. At present, approximately
-------------------------------------------
2,254,000 shares of the Company's outstanding Common Stock are "restricted"
securities as that term is defined in Rule 144 under the Securities Act of
1933. Of the restricted shares, approximately 2,117,000 have presently been
held for over two years. Possible or
10
<PAGE>
actual sales of such restricted Common Stock by current stockholders of the
Company under Rule 144 may in the future have a depressive effect upon the
price of the Common Stock in any market which exists or which may develop.
In general, under Rule 144, a person who has satisfied a two year holding
period may, under certain circumstances, sell publicly, in each three month
period thereafter, an amount of restricted securities that does not exceed
the greater of (i) 1% of the number of outstanding shares of Common Stock or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks immediately preceding such sale. Persons who have not been
affiliated with the Company for at least three months and who have held
their restricted securities for at least three years are not subject to the
volume and certain other limitations with respect to the sale of such
securities. Sales of restricted securities may also be made at any time
pursuant to an effective registration statement under the Securities Act of
1933. See "Shares Eligible for Future Sale."
13. Potential Dilutive Effect of Authorized and Unissued Shares of
--------------------------------------------------------------
Common Stock Issuable in Discretion of Management; Authorization of
-------------------------------------------------------------------
Preferred Stock. The Company is authorized to issue 100,000,000 shares of
---------------
Common Stock, of which 7,783,376 shares are outstanding, 359,504 are
reserved for issuance upon conversion of outstanding Preferred Stock and
warrants issuable upon such conversion, 4,611,960 are reserved for issuance
upon exercise of the A Warrants and B Warrants, 581,040 are reserved for
issuance upon the exercise of the Blair Option and the conversion of the
Preferred Stock and exercise of A Warrants included therein and B Warrants
issuable upon exercise of the A Warrants issuable thereunder, 1,675,785 are
reserved for issuance upon exercise of the Public C Warrants and Public D
Warrants, 85,000 are reserved for issuance upon exercise of the outstanding
Hibbard Brown D Warrants, 1,923,334 are reserved for issuance pursuant to
the Company's stock option plans and other outstanding options and warrants,
of which options and warrants to purchase 1,428,283 shares are issued and
outstanding, and 162,143 shares are reserved for issuance in connection with
the acquisition of the NASSAU NEWSPAPERS. The balance of the authorized but
unissued shares of Common Stock will be issuable, in the discretion of the
Board of Directors, without seeking stockholder approval. Management has no
plans at the present time to issue any of these authorized but unissued
shares except in payment of dividends on the 10% Preferred Stock. The
Company is also authorized to issue 500,000 shares of "blank check"
Preferred Stock (of which 1,567 shares have been issued) with such
designations, rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue the balance of the
Company's authorized Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or
other rights of the holders of the Company's Common Stock or other series of
Preferred Stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company, which could have the
effect of discouraging bids for the Company and thereby prevent stockholders
from receiving the maximum value for their shares. See "Description of
Securities."
14. Potential Loss of Rights Upon Redemption of Public Warrants. The
-----------------------------------------------------------
Company may call the Public Warrants for redemption, in whole or in part, at
any time upon a minimum of 30 days' prior written notice to holders, at a
redemption price of $0.01 per Public Warrant, provided that the average of
the means of the closing bid and closing asked quotations of the Common
Stock on Nasdaq (or the last sale price if principally traded on a national
securities exchange or the Nasdaq National Market System) exceeds 125% of
the then respective exercise prices of the Public Warrants being redeemed
for any 20 consecutive trading days ending within 15 days prior to the day
on which notice is given. If the Public Warrants are called for redemption,
holders of the Public Warrants will lose their right to exercise the Public
Warrants except during the 30-day period after the date of the Company's
written notice of redemption. Notice of redemption of the Public Warrants
may, under certain circumstances, force the holder either to (i) exercise
his Public Warrants to Common Stock at a time when it may be disadvantageous
for such holder to do so, or to (ii) accept the redemption price, which is
likely to be substantially less than the market value of the Public Warrants
at the time of redemption. The Company has not determined whether it will
exercise such right if it should become available, although there is a good
likelihood that it would do so. See "Description of Securities - Public
Warrants."
11
<PAGE>
15. Dilution. This Offering involves an immediate and substantial
--------
dilution to investors who exercise their Public Warrants because the net
tangible book value per share of the Common Stock of the Company after
exercise will be substantially less than the per share exercise prices of
the Public C Warrants ($2.00) and Public D Warrants ($3.00). If all of the
Public C Warrants but none of the Public D Warrants are exercised, such
dilution would be 66% to the holders of the Public C Warrants. If all of
the Public C Warrants and Public D Warrants were exercised, such dilution
would be 56% to the holders of the Public C Warrants and 70% to the holders
of the Public D Warrants. (Because the exercise price of the Public D
Warrants is greater than that of the Public C Warrants, it is unlikely,
during the period that both classes may be exercised, that Public D Warrants
would be exercised by their holders but Public C Warrants would not be
exercised.)
16. Potential Litigation Exposure. The Company is a defendant in a
-----------------------------
litigation in which the plaintiff has claimed significant amounts of
damages. See "Business - Legal Proceedings." Although management believes
that the claims are without merit and that the Company has meritorious
defenses, there can be no assurance that the Company will prevail in such
action. An adverse judgment in such action may have a materially adverse
effect upon the financial condition of the Company, depending upon the
amount of such judgment.
17. Possible Adverse Effect of Termination of Existence of Hibbard
--------------------------------------------------------------
Brown. Hibbard Brown, the Company's warrant solicitation agent for the
-----
Public Warrants, has terminated its business. As a result thereof, the
liquidity and market prices of the Company's securities, particularly the
Public Warrants and the Public Units, could be adversely affected.
12
<PAGE>
PRICE RANGES OF SECURITIES
The Company's Common Stock has been quoted on Nasdaq under the symbol
NCOM since September 19, 1990. The A Warrants (symbol NCOMW) were quoted on
Nasdaq from September 19, 1990 to April 7, 1995, when trading of the A
Warrants on Nasdaq ceased because the price dropped below $.03125 (1/32).
The Public Units (symbol NCOMU), each consisting of one share of Common
Stock, one Public C Warrant (symbol NCOMM) and one Public D Warrant (symbol
NCOML), have been quoted on Nasdaq since October 9, 1992. The Public C
Warrants and Public D Warrants became separately tradeable on February 12,
1993; however, through the date of this Prospectus there has been no
separate trading in either the Public C Warrants or the Public D Warrants
and they continue to be traded as part of the Units.
<TABLE>
<CAPTION>
REDEEMABLE
CLASS A
COMMON STOCK WARRANTS UNITS
------------ ---------- ----------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------- ----- ----- ----- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
February 28, 1993 1.00 0.88 .12 .06 1.50 1.00
May 31, 1993 1.88 1.00 .16 .12 1.75 1.00
August 31, 1993 2.69 2.88 .38 .22 2.50 1.75
November 30, 1993 4.25 2.56 .50 .38 8.00 2.50
February 28, 1994 4.25 2.00 .50 .09 7.00 2.00
May 31, 1994 2.38 1.25 .13 .06 2.50 1.50
August 31, 1994 3.50 2.00 .16 .06 5.00 2.00
November 30, 1994 3.00 1.88 .09 .06 3.00 1.75
February 28, 1995 3.06 1.94 .13 .03 4.00 2.00
May 31, 1995 2.75 1.88 .06 .03 2.75 2.25
</TABLE>
On June 28, 1995, the last sale price of the Common Stock was $2.19.
On May 8, 1995, the last day prior to the date of this Prospectus on which
the Units were traded, the last sale price of the Units was $2.25.
As the B Warrants have not been issued, no market yet exists for
their trading. They have been approved for quotation on Nasdaq under the
symbol NCOMZ upon issuance. There can be no assurance that a market for the
B Warrants will develop.
At June 28, 1995, there were approximately 1,000 record owners of the
Company's Common Stock, approximately 38 record owners of the A Warrants,
approximately 80 record owners of the Units, approximately 80 record holders
of the Public C Warrants and approximately 80 record holders of the Public D
Warrants. The Company estimates there are approximately 2,100 beneficial
owners of its Common Stock, approximately 800 beneficial owners of the A
Warrants, approximately 650 beneficial owners of the Units, approximately
650 beneficial owners of the Public C Warrants and approximately 650
beneficial owners of the Public D Warrants.
13
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
Common Stock and does not intend to pay cash dividends on its Common Stock
in the foreseeable future. The Company intends to retain any future
earnings to finance the growth of the Company. Applicable provisions of
Nevada corporate law may affect the ability of the Company to declare and
pay cash dividends and common stock dividends on the Common Stock as well as
Preferred Stock. Under Nevada law, dividends may be paid from a
corporation's excess of assets over its liabilities including capital (based
upon certain computations) or in case there shall be no such excess, out of
its net profits for the current fiscal year and the preceding fiscal year or
out of its net profits for the preceding fiscal year. Dividends on the 10%
Preferred Stock are payable annually in an amount of $500 per share of 10%
Preferred Stock, in cash or in shares of Common Stock having a fair market
value of $500, payable on September 19th of each year. Dividends on the 10%
Preferred Stock may be paid in shares of Common Stock to the extent the
Company has sufficient authorized but unissued Common Stock even if the
Company has sufficient assets or net profits to pay such dividends in cash.
It is anticipated that any permitted dividends will, at least in the
foreseeable future, continue to be paid in shares of Common Stock. There
can be no assurance that, in the future, the Company will have sufficient
surplus available for payment of cash or Common Stock dividends. See
"Description of Securities" and Consolidated Financial Statements and Notes
thereto.
USE OF PROCEEDS
The net proceeds to be received by the Company upon the full exercise
of the outstanding Public Warrants and Hibbard Brown D Warrants, if, as and
when such securities are exercised by the holders thereof, are estimated to
be approximately $4,257,000. Such amounts will be used for working capital
and other general corporate purposes as and when received. A portion of
such proceeds may be used in the future for additional acquisitions of or
investments in other businesses, both related or non-related to the
Company's newspaper business. Such investments could include controlling or
non-controlling or minority interests. The Company is in the process of
identifying appropriate candidates for acquisitions. There can be no
assurance that the Company can make additional acquisitions acceptable to
it. Until utilized, the net proceeds of this offering will be invested in
short-term United States Government securities, certificates of deposit,
money market funds and other short-term or long-term interest-bearing
investments and investment grade common equities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
(a) February 28, 1995; and (b) as adjusted to give effect to the issuance of
(i) 821,850 shares of Common Stock upon the exercise of the Public C
Warrants and 853,935 shares of Common Stock upon exercise of the Public D
Warrants and (ii) 85,000 shares of Common Stock upon exercise of the
outstanding Hibbard Brown D Warrants, and the application of the estimated
net proceeds therefrom:
<TABLE>
<CAPTION>
Actual As Adjusted(1)
------------- --------------
<S> <C> <C>
Stockholders' Equity:
Preferred Stock, $1.00 par value, 500,000 shares authorized.......
10% Convertible Preferred Stock, 1,250 shares authorized, 32
outstanding and as adjusted(1)................................. $ 32 $ 32
8% Convertible Preferred Stock, 500 shares authorized, 217
outstanding and as adjusted................................... 217 217
12% Convertible Preferred Stock, 200 shares authorized,
outstanding and as adjusted.................................... 200 200
Paid-in Capital Preferred Stock................................ 519,873 519,873
Common Stock, $.01 par value, 100,000,000 shares authorized,
7,920,576 issued, 9,681,361 as adjusted(1)(2).................. 76,206 96,815
Paid-in Capital Common Stock................................... 13,657,406 17,897,082
(Deficit)......................................................... ($5,563,920) ($5,563,920)
------------ ------------
Totals............................................................ $ 8,693,014 $ 12,950,299
Less: Treasury Stock, 151,000 shares actual and as adjusted....... (408,729) (408,729)
------------ ------------
Total stockholder's equity..................................... $ 8,284,285 $ 12,541,570
------------ ------------
</TABLE>
(1) Does not give effect to exercise of 8,600 Public C Warrants subsequent
to March 30, 1994.
(2) Does not reflect (i) issuance of 13,800 shares of Common Stock
subsequent to February 28, 1995; (ii) 359,504 shares of Common Stock
reserved for conversion of Preferred Stock and exercise of warrants
issuable upon such conversion; (iii) 2,305,980 shares of Common Stock
reserved for issuance upon exercise of A Warrants and 2,305,980 shares
of Common Stock reserved for issuance upon exercise of B Warrants
issuable upon exercise of A Warrants; (iv) 581,040 shares of Common
Stock reserved for issuance upon exercise of the Blair Option and the
conversion of Preferred Stock and exercise of warrants issuable
thereunder; (v) 1,666,667 shares reserved for issuance upon exercise of
options which have been or may be granted under the Company's stock
option plans; (vi) 256,667 shares reserved for issuance upon the
exercise of other outstanding options and warrants; and (vii) 162,143
shares reserved for issuance in connection with the acquisition of the
NASSAU NEWSPAPERS.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The table on page 18 sets forth, for the periods indicated, certain
information relating to each of the Company's publications and to certain
expenses incurred by the parent company, News Communications, Inc. The
numbers set forth below reflect the operations of the following acquired or
start-up publications from the dates indicated: BRONX REVIEW -- December
1992; NASSAU NEWSPAPERS -- December 1993; BROOKLYN SKYLINE -- August 1994;
MANHATTAN FILE -- August 1994; THE HILL -- September 1994; CHELSEA-CLINTON
NEWS and WESTSIDER -- September 1994. For information with respect to the
Company's financial position and actual results of operations on a
consolidated basis, please refer to Consolidated Financial Statements and
Notes thereto.
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED FEBRUARY 28, 1995
COMPARED TO THREE MONTHS ENDED FEBRUARY 28, 1994
------------------------------------------------
NET REVENUES
Total revenues from existing publications were up over 13%. The
addition of Long Island Lifestyles, a four color lifestyle section which is
included in all the existing Nassau Newspapers publications has enabled
advertisers to make an effective regional buy and helped increase revenues
for the NASSAU NEWSPAPERS (42%). DAN'S PAPERS has continued to expand its
geographic base to the north fork of Long Island and further west in the
Hamptons, increasing its revenues (26%). Moderate increases in revenues by
the other existing publications and the additional revenues generated by the
acquisitions and start-ups has brought the total revenues for the quarter to
more than $3,380,000, an increase of 54%.
INCOME (LOSS) -- PUBLICATIONS
Net income from existing publications increased by more than 80%.
The increase in income for the QUEENS TRIBUNE (13%) is attributed to more
effective management. DAN'S PAPERS had a decrease in its loss (14%) as a
result of the increase in revenues and tighter financial controls. The
BRONX PRESS REVIEW had a slight loss compared to a small profit last year as
a result of an increase in sales related expenses incurred in order to
increase future revenues. The increase in sales for NASSAU NEWSPAPERS
resulted in a profit this year as compared to a loss of over $40,000 last
year. The MANHATTAN SPIRIT and OUR TOWN both had small increases in income
as a result of increases in sales. The Company is continuing to focus on
increasing sales and controlling costs. As newsprint prices have increased,
the Company has been engaging in ongoing negotiations with papers suppliers
and reviewing contracts with printers to enable it to control the costs of a
very significant item of production expense.
PARENT COMPANY EXPENSES
The increase in parent company expenses (28%) was primarily a result
of increased personnel costs required for the continuing corporate growth
and expansion.
16
<PAGE>
FISCAL YEAR ENDED NOVEMBER 30, 1994
COMPARED TO FISCAL YEAR ENDED NOVEMBER 30, 1993
-----------------------------------------------
NET REVENUES
Existing Publications
---------------------
The QUEENS TRIBUNE had an increase in revenues (21%) as a result of
an increased display and classified sales effort. The MANHATTAN SPIRIT
(10%) and OUR TOWN (3%) had slight increases in revenues. Display sales
staff turnover prevents greater growth. Classified sales remains strong.
DAN'S PAPERS increase in revenue (29%) was primarily from increased display
sales due to greater recognition in the marketplace and increased efforts,
capturing a greater market share in its North Fork and East-End communities,
which continue to prosper economically. The BRONX PRESS REVIEW had an
increase in revenues (81%) primarily as a result of its two new
publications, RIVERDALE REVIEW and WESTCHESTER LIFESTYLES.
Acquisitions and Start-ups
--------------------------
NASSAU NEWSPAPERS were acquired in December 1993, BROOKLYN SKYLINE
was acquired in August 1994, WESTSIDE was acquired in September 1994 and THE
HILL and MANHATTAN FILE were started during 1994.
INCOME (LOSS) -- PUBLICATIONS
Existing Publications
---------------------
The substantial increases in income for the QUEENS TRIBUNE (53%),
DAN'S PAPERS (54%), MANHATTAN SPIRIT (57%) and OUR TOWN (11%) were a result
of increased sales and/or reductions in operating expenses. In addition, as
newsprint prices have increased greatly, the parent company has engaged in
ongoing negotiations securing new suppliers and contracts mitigating the
negative effect on income. The BRONX PRESS REVIEW sold its building this
year, with much of the profit being offset by start-up costs associated with
the RIVERDALE REVIEW and WESTCHESTER LIFESTYLES, resulting in a slight
increase in income.
Acquisitions and Start-ups
--------------------------
NASSAU NEWSPAPERS were acquired in December 1993, BROOKLYN SKYLINE
was acquired in August 1994, WESTSIDE was acquired in September 1994 and THE
HILL and MANHATTAN FILE were started during 1994.
Parent Company Expenses
-----------------------
The large increase in parent company expenses are primarily a result
of additional personnel costs and professional fees required for the
continuing corporate growth expansion.
17
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
------------------------------------ -------------------------------------
1994 1993 1994 1993
---------- ---------- ----------- -----------
NET REVENUES
Existing Publications:
<S> <C> <C> <C> <C>
Queens Tribune.......... $ 668,868 $ 666,673 $ 3,252,008 $2,682,422
Dan's Papers............ 234,067 186,367 2,921,469 2,270,956
Manhattan Spirit........ 369,436 345,368 1,802,405 1,781,839
Our Town................ 386,515 372,545 1,678,349 1,634,792
Nassau Newspapers....... 599,572 422,841 --- ---
Bronx Press Review...... 226,167 203,359 1,009,769 557,695
---------- ---------- ----------- ----------
Total Net Revenues - 2,484,625 2,197,153 10,664,020 8,927,704
Existing Publications ---------- ---------- ----------- ----------
Acquisitions and Start-ups:
The Hill................ 177,482 --- 216,962 ---
Manhattan File.......... 316,721 --- 392,070 ---
Nassau Newspapers....... --- --- 2,197,906 ---
Brooklyn Skyline........ 203,469 --- 206,323 ---
Westside Publications... 201,814 --- 135,536 ---
---------- ---------- ----------- ----------
Total Net Revenues - 899,486 --- 3,148,797 ---
Acquisitions and ---------- ---------- ----------- ----------
Start-ups:
Total Net Revenues $3,384,111 $2,197,153 $13,812,817 $8,927,704
========== ========== =========== ==========
INCOME (LOSS) PUBLICATIONS BEFORE GOODWILL
Existing Publications:
Queens Tribune.......... $ 148,739 $ 131,391 $ 715,593 $ 468,111
Dan's Papers............ (67,991) (78,836) 713,290 464,450
Manhattan Spirit........ 14,024 10,336 145,278 92,493
Our Town................ 64,155 63,714 253,244 228,197
Nassau Newspapers....... 3,371 (42,691) --- ---
Bronx Press Review...... (7,368) 1,826 23,572 6,203
---------- ---------- ----------- ----------
Net Income - Existing 154,930 85,740 1,850,977 1,259,454
Publications ---------- ---------- ----------- ----------
Acquisitions and Start-ups
The Hill(3)............. (262,210) --- (387,887) ---
Manhattan File(3)....... (146,158) --- (462,753) ---
Nassau Newspapers....... --- --- (46,836) ---
Brooklyn Skyline........ (38,954) --- (59,825) ---
Westside Publications... 5,724 --- (13,309) ---
---------- ---------- ----------- ----------
Income (Loss) -- 441,598 --- (970,610) ---
Acquisitions and ---------- ---------- ----------- ----------
Start-ups:................
Income (Loss) -- $ 286,668 $ 85,740 $ 880,367 $1,259,454
Publications ========== ========== =========== ==========
INCOME (LOSS) PUBLICATIONS AFTER GOODWILL(1)
Existing Publications:
Queens Tribune.......... $ 122,022 $ 104,674 $ 608,725 $ 361,243
Dan's Papers............ (80,666) (91,511) 662,589 413,749
Manhattan Spirit........ 14,024 10,336 145,278 92,493
Our Town................ 50,694 50,253 199,399 174,352
Nassau Newspapers....... (4,378) (50,191) --- ---
Bronx Press Review...... (10,930) (674) 9,324 (3,797)
---------- ---------- ----------- ----------
Net Income - Existing 90,766 22,887 1,625,315 1,038,040
Publications ---------- ---------- ----------- ----------
Acquisitions and Start-ups:
The Hill(3)............. (262,210) --- (387,887) ---
Manhattan File(3)....... (146,158) --- (462,753) ---
Nassau Newspapers....... --- --- (77,813) ---
Brooklyn Skyline........ (40,348) --- (61,865) ---
Westside Publications... 2,463 --- (17,090) ---
---------- ---------- ----------- ----------
Income (Loss) -- (446,253) --- (1,007,408) ---
Acquisitions and ---------- ---------- ----------- ----------
Start-ups:
Income (Loss) -- $ (355,487) $ 22,887 $ 617,907 $1,038,040
Publications ========== ========== =========== ==========
PARENT COMPANY EXPENSES
Personnel, Rent, General $ 295,135 $ 229,860 $ 1,218,454 $ 741,244
and Administrative
Interest (Income) (1,562) (6,651) (37,196) 64,167
Expense(2) ---------- ---------- ----------- ----------
Total Parent Company $ 293,573 $ 223,209 $ 1,181,258 $ 805,411
Expenses ========== ========== =========== ==========
$ (649,060) $ (200,322) $ (563,351) $ 232,629
NET INCOME (LOSS) ---------- ---------- ----------- ----------
</TABLE>
- ---------------------------
(Footnotes to table are on following page)
18
<PAGE>
_____________________________
(Footnotes to table on preceding page)
(1) Reflects expense for amortization of goodwill by publication as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
----------------------- -----------------------
1995 1994 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
Queens Tribune......... $26,717 $26,717 $106,868 $106,868
Dan's Papers........... 12,675 12,675 50,701 50,701
Our Town............... 13,461 13,461 53,845 53,845
Bronx Press Review..... 3,562 2,500 14,248 ---
Nassau Newspapers...... 7,749 --- 30,977 ---
Brooklyn Skyline....... 1,394 --- 2,040 ---
Westside Publications.. 3,261 --- 3,781 ---
------- ------- -------- --------
$68,819 $62,853 $262,460 $221,414
======= ======= ======== ========
</TABLE>
(2) Net of interest income of $8,037 and $13,526 for the three months ended
February 28, 1995 and 1994, and $61,993 and $12,097 for the years ended
November 30, 1994 and 1993, respectively.
(3) Approximately $400,000 of start-up costs related to MANHATTAN FILE and
THE HILL which were deferred in the third quarter were expensed in the
fourth quarter upon commencement of regular operations of the
publications.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1995, the Company had an excess of current assets over
current liabilities in the amount of approximately $3,580,000. Through
February 28, 1995, approximately $1,951,000 net proceeds were realized,
after costs and expenses, upon conversion of Class C and D Warrants. Until
utilized, available cash is invested in short-term United State Government
securities, certificates of deposit, money market funds, other short-term
and long-term interest bearing investments, and investment grade common
equities. Through February 28, 1995 approximately $320,000 was used to
acquire the NASSAU NEWSPAPERS; $190,000 was used to acquire WESTSIDE, and
$30,000 to purchase BROOKLYN SKYLINE; $175,000 was used to pay notes and
accrued interest incurred with the reacquisition in 1991 of Common Stock
from a former officer; $250,000 was used to pay the remaining notes due to
the former owner of OUR TOWN; and approximately $180,000 was used to repay
notes and accrued interest incurred with the acquisition of the BRONX PRESS
REVIEW.
For the three months ended February 28, 1995, the Company had a cash
increase of approximately $1,300, resulting from (a) a deficit of
approximately $743,000 in cash from operating activities, made up of an
operating loss of $649,000 increased by non-cash items such as depreciation
and amortization ($126,000) and changes in balance sheet items such as
increases in accounts receivable ($52,000) and decreases in current
liabilities ($193,000); (b) reduced by approximately $822,000 cash provided
from investing activities; and (c) increased by approximately $77,000 cash
used for financing activities, principally repayment of long-term debt. See
"Consolidated Statements of Cash Flows."
For the year ended November 30, 1994, the Company had a cash decrease
of approximately $2,000,000 resulting from (a) operating activities, made up
of operating loss of $563,000, increased by non-cash items such as
depreciation and amortization ($413,000), and changes in balance sheet items
19
<PAGE>
such as increases in accounts receivable ($1,983,000) and increase in
accounts payable and accrued expenses ($584,000); (b) reduced by $1,820,000
for investing activities (see Consolidated Statements of Cash Flows); (c)
increased by financing activities (including $1,951,000 provided from the
exercise of Class C and Class D Warrants less payments of long-term debt
($470,000)).
For the year ended November 30, 1993, the Company had a cash increase
of approximately $1,200,000 resulting from (a) operating activities, made up
of operating income of $233,000, increased by non-cash items such as
depreciation and amortization ($340,000), and changes in balance sheet items
such as increases in accounts receivable ($779,000); (b) reduced by $256,000
for capital expenditures; (c) increased by $1,513,000 provided by financing
activities (including $2,080,000 provided from the exercise of Class C and
Class D Warrants).
Although there can be no assurance, management believes that the
Company's operations will generate positive cash flow for the fiscal year
ending November 30, 1995. It is the opinion of management that cash on hand
and cash from operations are expected to be sufficient to meet the Company's
cash needs on an ongoing basis.
The Company's terms of payment for its advertising sales are generally
net 30 days. However, the Company's experience, which management believes is
typical of the weekly newspaper industry, is that payments are received over
much longer periods. As of February 28, 1995, the average age of the
Company's receivables was about 120 days. Management has recognized the
continued adverse economic conditions and has taken that into consideration
in identifying those accounts which require a reserve. As a result, the
Company's reserve for bad debts is believed to be sufficient to avoid the
need for further material write-offs. At February 28, 1995, the Company had
sufficient cash on hand to fund the purchase of stock of DPI if Mr. Rattiner
exercised his option requiring the Company to do so (see "Management --
Certain Transactions"). The Company had no material commitments for capital
expenditures at February 28, 1995.
In recent months, the cost of newsprint has increased significantly.
As newsprint is a material expense of production, the Company's results of
operations have been adversely affected.
20
<PAGE>
BUSINESS
News Communications, Inc., a Nevada corporation formed in 1986 (the
Company), has been primarily engaged, through various wholly owned and
partly-owned subsidiaries, in the publication and distribution of advertiser
supported, community oriented newspapers and related targeted audience
publications. The community newspapers are directed at specific geographic
communities and, for the most part, distributed free of charge to selected
residences and business establishments in those communities. Each
publication focuses on the lifestyle, culture, arts, entertainment, politics
and social issues of particular interest to the group of communities at
which it is directed. Some of the papers publish different editions (with
variations in editorial content and advertising) which are distributed to
each community in the targeted group. The principal source of the Company's
revenues (94% for the three months ended February 28, 1995, and 94% for the
fiscal year ended November 30, 1994) is the sale of advertising space in its
publications.
As used herein, unless the context requires otherwise, the term Company
refers to News Communications, Inc. together with its subsidiaries, Access
Network Corp. ("Access"), publisher of the MANHATTAN SPIRIT (formerly called
the West Side Spirit), Tribco Incorporated ("Tribco"), publisher of the
QUEENS TRIBUNE and the WESTERN QUEENS TRIBUNE, Dan's Papers Inc. ("DPI"),
publisher of DAN'S PAPERS and the MONTAUK PIONEER, Manhattan Publishing
Corp. ("MPC"), publisher of OUR TOWN, and Parkchester Publishing Co., Inc.,
publisher of the BRONX PRESS REVIEW, RIVERDALE REVIEW, and WESTCHESTER
LIFESTYLES, Long Island Community Newspaper Group, Inc. ("LICNG"), publisher
of LYNBROOK USA, the MALVERN TIMES, the ROCKVILLE CENTER NEWS & OWL, the
VALLEY STREAM MAILEADER, the INDEPENDENT VOICE OF LONG BEACH, OCEANSIDE &
ISLAND PARK, the ROCKVILLE CENTER-OCEANSIDE BEACON, the BALDWIN CITIZEN, the
EAST ROCKAWAY OBSERVER, six editions of LONG ISLAND MARKET and LONG ISLAND
LIFESTYLES (collectively, the "Nassau Newspapers"), Manhattan File
Publishing, Inc. ("Manhattan File"), publisher of MANHATTAN FILE, Capitol
Hill Publishing, Inc. ("Capitol Hill"), publisher of THE HILL, Brooklyn
Newspaper Publishing, Inc. ("Brooklyn"), publisher of BROOKLYN SKYLINE, and
Westside Newspaper Corp. ("Westside"), publisher of CHELSEA-CLINTON NEWS and
the WESTSIDER.
While the Company is also striving to expand the business of its
current publications through more intensive sales efforts, it believes that
the major opportunities for growth in community newspapers lie through
acquisitions of existing publications. Such acquisitions would afford the
Company an established presence in the marketing and circulation areas
covered by the acquired publications. As opposed to starting up new
publications, an acquisition policy also changes a competitor into an ally
and, management believes, offers a faster possible return on investment. On
the other hand, acquisitions may carry with them negative attributes of
their predecessors, such as duplicative staffing which may be costly and
disruptive to eliminate and policies, procedures and matters of corporate
culture which could be well-established but different from or contrary to
those of the acquiring entity. Acquisitions can also be costly to
effectuate and may subject the Company to large charges against earnings to
amortize their good will, as has been the Company's experience.
Consequently, the Company is also considering low-cost methods to initiate
new publications to complement its existing newspapers.
The Company's business plan is to develop a regional group of
publications in the greater New York metropolitan area. The Company's
management intends to seek acquisition candidates and other expansion
opportunities in the New York region. The Company also desires to expand to
other areas as resources permit, including areas such as New Jersey,
Connecticut, Massachusetts and resort communities throughout the United
States.
In furtherance of its business plan, the Company underwent considerable
expansion in 1994. This included the acquisition of community newspapers in
Nassau County (the suburban Long Island county just east of New York City),
Brooklyn and Manhattan.
21
<PAGE>
The Company also believes that it has developed the talent and
expertise to expand into media ventures other than community newspapers.
Thus, in 1994, the Company launched two new products -MANHATTAN FILE, a
glossy magazine directed at the young urban Manhattanite, and THE HILL, a
newspaper covering the United States Congress.
The Company's management believes that advertisers would be receptive
to the wide circulation at relatively low cost that could be offered by a
related group of publications providing a broad metropolitan area audience.
Because the marginal costs of adding editorial and advertising content are
generally significantly lower than the additional advertising revenues that
would be derived, management believes that it can offer potential new
advertisers low rates and still increase its operating profits. It also
believes the Company can take advantage of economies of scale, combination
of operations and other synergies not available to individual publications.
In management's opinion, businesses of the type that advertise in local
newspapers such as those published by the Company, such as merchants and
other local businesses, are apt to consider such newspapers favorably when
compared to other advertising media because of the ability of such
newspapers to reach specifically targeted audiences. The advertisers need
not pay rates that are based on broader audiences not of interest to them.
THE MANHATTAN SPIRIT
Access publishes the MANHATTAN SPIRIT, a weekly free circulation
newspaper founded in 1985, which focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of interest to the West Side and
lower Manhattan. Access editors and support staff, together with a variety
of contributing free-lance writers and columnists, write and edit all
material for each weekly issue of the MANHATTAN SPIRIT and perform all
composition, layout, and typesetting work. Printing is performed by outside
contractors. In addition, the MANHATTAN SPIRIT offers graphics and printing
services to its customers.
The MANHATTAN SPIRIT has won many awards, including, in the past two
fiscal years, New York State Bar Association awards for excellence in
journalism. Various national and international magazines have reprinted
articles from the MANHATTAN SPIRIT, including Glamour Magazine and
----------------
Cosmopolitan International, but this is not a significant source of revenue.
--------------------------
Editorial content includes columns by well-known columnists in the fields of
food and wine, movies and social advice. Other columnists and writers focus
on finance, theatre and topics of community interest.
The MANHATTAN SPIRIT is printed in a tabloid format with a 4-color
front page. It is distributed Thursday and Friday of each week by
independent contractors in bulk to locations throughout Manhattan. The
principal places of distribution are lobbies of luxury apartment buildings,
restaurants, banks, supermarkets and various other business establishments
as well as in sidewalk distribution boxes.
OUR TOWN
OUR TOWN, a 25-year-old weekly publication distributed in a single
edition predominantly on Manhattans Upper East Side, was acquired by the
Company in May 1991. The Company believes it is Manhattans largest free
circulation weekly community newspaper. Almost all of its income derives
from display and classified advertising.
OUR TOWN is published in a 4-color tabloid format. Delivery is made by
independent contractors to apartment house lobbies, banks, supermarkets and
sidewalk distribution boxes.
The stock of MPC is pledged to secure payment of a portion of the
acquisition price of OUR TOWN.
22
<PAGE>
DAN'S PAPERS
DAN'S PAPERS, published by DPI, focuses on the lifestyle, culture,
arts, entertainment, politics and social issues of interest to the resort
areas of the South and North Forks of Eastern Long Island, New York,
particularly the wealthy resort area known as the Hamptons. Its articles
and columns include humor, news, celebrity profiles, reviews of art gallery
shows, restaurants, concerts, nightclubs and movies, social satire,
editorial cartoons, local environmental and political issues, as well as a
special section on real estate. DAN'S PAPERS is published in tabloid format
(with a glossy cover for approximately 17 summer and 9 other issues) on a
weekly basis. It is distributed each week to locations on Eastern Long
Island, including art galleries, gift shops, supermarkets, newspaper and
card shops, restaurants and boutiques. There is also weekly distribution in
Manhattan. Management of the Company believes that DAN'S PAPERS has the
largest circulation in Eastern Long Island of any publication.
DPI also publishes the MONTAUK PIONEER, which has been designated by
the Montauk Village Association as the official newspaper of the community
of Montauk.
DAN'S PAPERS was first published in 1960 by Mr. Daniel Rattiner, and is
believed by the Company to be the first free resort newspaper in the United
States. The Company acquired its 80% interest in DPI (Mr. Rattiner is the
owner of the other 20%) in October 1988. Mr. Rattiner continues to be the
publisher and editor of DAN'S PAPERS under an employment agreement with DPI
expiring in 1998, subject to earlier termination on certain conditions.
QUEENS TRIBUNE
In May 1989, Tribco acquired, by way of merger, all the outstanding
stock of two companies which, together, published and distributed the QUEENS
TRIBUNE, which now consists of eight free circulation editions and one paid-
circulation edition weekly community newspapers serving areas in Queens
County in New York City. Included in such editions are three editions of
the WESTERN QUEENS TRIBUNE, a four-year old weekly publication distributed
in areas in western Queens County not previously served by the QUEENS
TRIBUNE.
The QUEENS TRIBUNE was started in 1970 and is believed by the Company
to have the largest circulation of any weekly community newspaper in Queens
County. The format is a tabloid with four-color front and additional pages.
Editorial content focuses on local, borough-wide and occasionally city-wide
political and social issues. Features include community news and activities
of the week, crime reports, restaurant reviews and similar matters of
interest to the targeted circulation area. Substantially all of the
articles and columns are written by Tribco's editors and support staff. The
QUEENS TRIBUNE has won numerous awards for journalistic excellence.
Delivery is made by independent contractors to heavy traffic locations, such
as banks, supermarkets, and sidewalk distribution boxes. Printing,
graphics, consulting, distribution, flyer and insert revenue are significant
sources of income to the QUEENS TRIBUNE operation, providing approximately
17% of its revenues in the fiscal year ended November 30, 1994.
THE BRONX PRESS REVIEW, RIVERDALE REVIEW AND WESTCHESTER LIFESTYLES
On December 18, 1992, the Company acquired Parkchester Publishing Co.,
Inc., publisher of the BRONX PRESS REVIEW for a net amount of approximately
$336,600. The BRONX PRESS REVIEW is a fifty-three year old paper which took
on a Bronx-wide identity to fill a vacuum left by the absorption of the
daily Bronx Home News by the New York Post in the late 1940s. It is a
tabloid paper with a 4-color front and back page that presently prints
12,000 copies weekly. It has a paid circulation of about 6,000. As a
promotion effort to increase subscribers, the paper is being distributed on
a complimentary basis to 5,000 families a week. The BRONX PRESS REVIEW has
been designated by the New York City Council as the official newspaper of
Bronx County for the publication of he Concurrent Resolutions of the
Legislature.
23
<PAGE>
In the last quarter of 1993, the Company began two new publications -
the RIVERDALE REVIEW, which serves the affluent Riverdale area of the Bronx,
and WESTCHESTER LIFESTYLES, which is directed to persons residing in
Westchester County, the county with the greatest number of households having
annual incomes in excess of $100,000 in the United States.
The RIVERDALE REVIEW is a community weekly covering the news, events,
people and lifestyles of the Riverdale community. It is distributed free of
charge throughout the affluent northwest Bronx community which it serves.
19,000 copies are distributed door-to-door to private homes, in bulk to the
lobbies and mailrooms of the 175 apartment buildings in the area, and
through street distribution boxes and other bulk distribution to high
traffic businesses and religious and educational institutions.
WESTCHESTER LIFESTYLES is a free distribution bi-weekly newspaper which
covers the dining, entertainment and leisure fields. It is directed to
readers over 35 years of age in most affluent towns and villages in this
well-to-do county and is distributed to hundreds of high traffic locations
in these areas.
THE NASSAU NEWSPAPERS
On December 9, 1993, the Company, through its wholly-owned subsidiary,
LONG ISLAND COMMUNITY NEWSPAPER GROUP, INC. ("LICNG"), acquired the assets
of the eight Nassau Newspapers from a group of sellers for an aggregate
purchase price of approximately $350,000 in cash and 162,143 shares of
Common Stock, which will be issued on the three anniversary dates of the
closing beginning on December 9, 1996. The shares of Common Stock to be
issued had an aggregate market value of $709,375 but, because of the
deferral of their issuance and their nature as restricted securities, have
been valued by the Company at approximately $355,000 for financial
accounting purposes. Mr. Barry Manning has been employed by LICNG to
continue as publisher of the Nassau Newspapers.
Each of the Nassau Newspapers serves a community in Nassau County, New
York, a suburban county adjacent to Queens County in New York City. The
oldest of the Nassau Newspapers has been in continuous publication for 87
years. The group averages over 50 years of continuous weekly publication per
paper. Each of the Nassau Newspapers has been designated as the official
newspaper of its community. The Company has expanded into six additional
Nassau County communities with a shopper-type publication called the LONG
ISLAND MARKET.
Recently the Company has developed a new publication, LONG ISLAND
LIFESTYLES, which serves as a second section to its fourteen existing Nassau
publications and is also distributed by itself in heavily trafficked areas.
This new product offers moderately priced advertising to the central and
south Nassau marketplace.
MANHATTAN FILE
MANHATTAN FILE is a monthly (plus 2 special issues annually), 4-color,
perfect bound, glossy magazine that debuted in August 1994. It targets 25-
45 year-old young, affluent Manhattan residents who are fashion and style
conscious. With stories on the latest fashion trends for young men and
women, ideas on interior decorating, dining tips, profiles and interviews
with successful thirtysomethings and a comprehensive arts and entertainment
guide for the young and wealthy. MANHATTAN FILE fills a local niche that
the Company believes is not served by any other New York publication.
During the first week of each month, 50,000 complimentary copies are
distributed to the luxury buildings on the upper East Side, upper West Side,
SoHo and the West Village neighborhoods of Manhattan, as well as to various
restaurants, boutiques, salons, nightclubs, health clubs and in 100
signature distribution boxes throughout Manhattan. In all, there are more
than 800 distribution sites where young people live or frequent.
24
<PAGE>
National advertisers targeted are high-end fashion, jewelry, liquor,
tobacco, and automotive; on the local front, categories targeted include
health clubs, restaurants, boutiques, art auction houses, hotels and
cultural institutions. Well-known national advertisers have been joined by
many local advertisers including prestigious restaurants, auction houses and
hotels.
MANHATTAN FILE is one of only two free distributed glossy magazines
targeting young people in Manhattan. The other is City magazine, which
----
debuted a few months before MANHATTAN FILE. To a lesser extent, other
competitors include national magazines like Details and Rolling Stone.
------- -------------
Also, locally there is a small competitive overlap for advertising with the
paid weekly newspaper The Village Voice and the free weekly newspaper The
----------------- ---
New York Press.
--------------
BROOKLYN SKYLINE
The BROOKLYN SKYLINE, which was acquired by the Company in August 1994,
is published weekly in four editions which are distributed door-to-door in
Brooklyn's southern tier, saturating an area of more than 100,000 families.
Originally a tabloid shopper-type publication, the Company is in the on-
going process of converting the BROOKLYN SKYLINE to a community newspaper to
complement its other publications. The introduction of "Koch at the
Movies," the News Communication Telephone Poll and the Company's Citywide
political page "NYConfidential" in addition to local news coverage by newly
hired Brooklyn reporters distinguish the BROOKLYN SKYLINE from its major
competition, The Marketeer, an established door-to-door shopper. In
-------------
addition to its established display sales effort, the Company introduced a
classified advertising section. Additional revenue is also generated by the
occasional sale of distribution of circulars to accompany the door-to-door
distribution of BROOKLYN SKYLINE. The BROOKLYN SKYLINE operates out of a
small office in the Mill Basin section of Brooklyn. It is printed on
newsprint with the use of spot color and is distributed by crews supervised
and trained by the Company. Gregg Linder, BROOKLYN SKYLINE'S former owner
and publisher, signed a five year contract to remain with the Company.
CHELSEA-CLINTON NEWS AND WESTSIDER
The CHELSEA-CLINTON NEWS and WESTSIDER are the only paid circulation
weekly newspapers on the West Side of Manhattan. The WESTSIDER, a 24-year-
old community newspaper, covers the area from 59th-125th Streets from
Riverside Drive to Central Park West. The CHELSEA-CLINTON NEWS, a 56-year-
old community newspaper, covers the area from 14th-59th Streets from 5th
Avenue to 11th Avenue. These two publications rely on revenue from display
advertising, classified advertising, subscriptions, newsstand sales, legal
advertising and from an in-house typesetting shop that brings in more than
20% of the annual revenue. The CHELSEA-CLINTON NEWS and WESTSIDER were
acquired by the Company in October 1994.
THE HILL
In September 1994, the Company embarked on its most ambitious
undertaking to date -- the publication of THE HILL, a new weekly newspaper
devoted to the coverage of the United States Congress. Martin Tolchin, an
award-winning, forty year veteran of the New York Times signed a five year
contract to serve as publisher and editor and chief of THE HILL. The paper,
which offers comprehensive coverage of every aspect of Congress and life in
the Capitol, is distributed free of charge to members of Congress and their
staffs. THE HILL derives the largest portion of its revenue from the sale
of display advertising to companies wishing to influence the decisions of
Congress. Additional revenues come from classified advertising, local
retail advertising, subscriptions and the sale of the paper outside of the
Capitol area. THE HILL is operated out of its own offices in Washington,
D.C. It is printed on newsprint in black ink and process four color. It is
distributed on Capitol Hill through the Capitol's Post Office.
25
<PAGE>
PRINTING AND PRODUCTION
The printing of each of the Company's publications is presently done by
independent printing shops. The Company sends to the printer completely
composed, laid-out, typeset pages for photo-offset reproduction. In each
case, the printer is able to provide all of the necessary materials (i.e.,
----
paper, ink, etc.) for printing, and bills the Company for its services and
materials used. In some instances, the Company purchases its own paper
rather than that supplied by the printer. The Company believes that it
obtains its printing services at competitive prices, and if, for any reason,
the arrangements that it has with its printers should terminate, management
believes that similarly favorable arrangements could be had with several
other printing shops in or around New York City.
ADVERTISERS AND READERS; MARKETING ACTIVITIES
Most of the Company's publications are primarily distributed free of
charge to their readers. The BRONX PRESS REVIEW, the eight NASSAU
NEWSPAPERS, the WESTSIDER and CHELSEA-CLINTON NEWS and one edition of the
QUEENS TRIBUNE are paid circulation publications. The primary source of the
Company's revenue is through the sale of advertising space in the
publications, although several of the weekly publications also offer
graphics and printing services to outside service purchasers, including
several school publications. The advertising revenues of each of the
Company's publications ar derived from a wide variety of businesses and
individuals reflecting the varied opportunities, tastes and demands of the
residents of each of the targeted distribution areas. Currently, at least
85% of the advertising space in the Company's publications which have been
in existence at least six months represents multiple insertion advertising
(where an advertising client runs an advertisement in two or more issues of
a publication). This percentage has remained fairly stable for the
Company's publications over the last three years. On a year-to-year basis,
the Company estimates that, over the last three fiscal years, approximately
two-thirds of its display advertising revenues have been from advertisers
who were advertisers in the prior year. No one advertising client
represents more than 5% of the Company's advertising revenues. Classified
advertising has been a growing area of revenues for the weekly publications,
as has been advertising directed to telephonic response.
The Company employs sales representatives who are compensated, for the
most part, with incentive-based compensation packages. The Company has
commenced supplementing the sales activities of the individual publications
with centralized group sales activities seeking advertisers for all or a
combination of the Company's publications. Management believes such a
program is particularly attractive to advertisers who seek audiences
throughout the greater New York metropolitan area, such as chain store and
franchise operations.
COMPETITION
The Company competes directly for advertising revenues with newspapers
and magazines which are sold to readers or are distributed free, as well as
other advertising media. The Company does not significantly compete,
however, with other publishers of newspapers or magazines for paid
circulation revenues as most of its publications are distributed free of
charge to its readers.
Those newspapers and magazines competing with the MANHATTAN SPIRIT and
OUR TOWN for advertising and targeted at Manhattan or parts thereof include,
among others, the Resident, New York Press, New York Observer, New York
-----------------------------------------------------
Magazine and The Village Voice. In order to compete with the lower
-------- ------------------
advertising rates of smaller publications in the MANHATTAN SPIRIT'S market
area, the Company utilizes a split zone program whereby advertisers may
purchase space in only half of the MANHATTAN SPIRIT'S copies at an
appropriately reduced rate. During the months from May through September,
DAN'S PAPERS serves the same market as Hampton Magazine, a free circulation
-----------------
publication. DAN'S PAPERS is aimed at the same market as the East Hampton
------------
Star and the Southampton Press, which are sold to readers and not
---- ------------------
26
<PAGE>
distributed free of charge. The MONTAUK PIONEER is the only paper that
serves Montauk. The QUEENS TRIBUNE competes with many publications,
including Newsday and the free circulation publications Queens Chronicle and
------- ----------------
Queens Courier, both of which are somewhat smaller in circulation and
--------------
advertising revenue than the QUEENS TRIBUNE. The BRONX PRESS REVIEW
competes against community newspapers such as the Bronx Times Reporter and
--------------------
the Bronx News.
-----------
The RIVERDALE REVIEW is the only saturation circulation, free
distribution newspaper serving that affluent community. The Riverdale Press,
---------------
a paid circulation weekly, has a smaller circulation. The Company believes
that there is no similar publication distributed in the same manner as
WESTCHESTER LIFESTYLES in Westchester County. The Gannett Suburban
Newspapers have a weekend section, published in their paid-circulation daily
papers on Thursdays, which contain some similar information and advertising,
and a new weekly publication, Westchester Weekly, published by the Advocate
-------------------
of Stamford, Connecticut, a free circulation paper directed to a younger
audience.
In addition to Newsday, the daily newspaper in Nassau County, the
--------
NASSAU NEWSPAPERS have several other weekly competitors in the south-west
section of the county. These include the South Shore Tribune, a free
--------------------
circulation newspaper, a group of paid circulation newspapers published by
Richner Publications, and Pennysaver/This Week and Shoppers Guide, two free
-------------------- --------------
circulation shopper publications. In addition, there is a free circulation
television listing magazine entitled Prime Time.
-----------
MANHATTAN FILE is one of only two free distributed glossy magazines
targeting young people in Manhattan. The other is City magazine, which
----
debuted a few months before MANHATTAN FILE. To a lesser extent, other
competitors include national magazines like Details and Rolling Stone.
------- -------------
Also, locally there is a small competitive overlap for advertising with the
paid weekly newspaper The Village Voice and the free weekly newspaper The
----------------- ---
New York Press.
--------------
Although there is no competition for subscriptions or legal revenue
because there are no other paid circulation weeklies on the West Side, the
CHELSEA-CLINTON NEWS and WESTSIDER do compete for display and classified
advertising with other free weeklies on the West Side, including the
MANHATTAN SPIRIT and The Resident.
------------
The BROOKLYN SKYLINE is one of a number of free distribution papers in
Brooklyn. The Marketeer, an established door-to-door shopper, is its
---------
primary competitor.
THE HILL services the same market as Roll Call, an established
---------
newspaper published twice weekly.
There are numerous other publications distributed in the Company's
circulation areas, some of which have resources substantially greater than
those of the Company, which compete for advertising against the Company's
publications. Management of the Company expects to be competitive because
the Company can offer customers the ability to focus its advertisements on a
specific market, thereby giving the customer a chance to control costs by
narrowing its advertising scope and eliminating waste. Management believes
that, over the years of publication, the Company's newspapers have developed
a favorable reputation and following. The Company also believes it can
compete favorably by offering advertisers the opportunity to choose from a
menu of the Company's publications, by offering advertisers more favorable
rates as the number of publications increases and by affording advertisers
the ability to pinpoint a specific group or geographic area or combination
thereof. The major barrier to the entry of new competitive publications is
the need for sufficient capital to start up and continue operations until a
sufficient advertising base is created.
27
<PAGE>
EMPLOYEES
As of May 31, 1995, the Company had 302 full- and part-time employees,
57 of whom were editorial; 117 were engaged as display and classified
advertising sales personnel; 59 were engaged in production; and 69 were
engaged in administrative and clerical activities. The Company also
maintains a roster of free-lance contractors. Management considers its
relations with the Company's employees to be satisfactory.
SEASONALITY
DAN'S PAPERS and the MONTAUK PIONEER, which are resort area newspapers,
have significant seasonal variations in revenues. This seasonality may
cause operating results to vary significantly from quarter to quarter, with
the third fiscal quarter being the most significant in terms of revenues and
income. It is also expected that revenues of THE HILL will vary, depending
upon the periods Congress is in session.
PROPERTIES
The Company and its subsidiaries operate out of eight separate
locations. As of February 28, 1995, the MANHATTAN SPIRIT, OUR TOWN,
CHELSEA-CLINTON NEWS and the WESTSIDER share 7,000 square foot premises at
both 242 West 30th Street, New York, New York, under a lease with an
unaffiliated landlord which terminates in January 2001, at an annual rental
of $52,000 for the first year, increasing over the term to $75,380 in the
last year.
DPI leases from Mr. Daniel Rattiner, current 20% owner and President of
DPI, 1,910 square feet of office space in a building on Montauk Highway,
Bridgehampton, New York, at an annual rate of $38,200 (plus cost-of-living
increases) for a term of ten years terminating in October 1998. The Company
has an option to renew its lease for an additional five-year term.
Tribco has entered into a ten year lease, which commenced on November
1, 1990, with an unaffiliated landlord to rent approximately 8,000 square
feet of office space and space for publication of the QUEENS TRIBUNE in
Fresh Meadows, New York, for annual base rents ranging from $88,000 to
$128,000. The lease is renewable for five years at a $152,000 base annual
rent. These premises also serve as the Company's executive and financial
offices.
Parkchester Publishing Co., Inc. has entered into a five year lease for
2,500 square feet of office space at 170 West 233rd Street, Bronx, New York,
commencing June 1994, at an annual rental of $34,200, increasing over the
term to $38,500 in the last year.
LICNG has entered into a five year lease for 7,600 square feet of
office space at 216 East 2nd Street, Mineola, New York, commencing November
1994, at an annual rental of $53,400, increasing over the term to $62,350 in
the last year. The Company has an option to renew its lease for an
additional five years.
Manhattan File Publishing, Inc. has entered into a five and one-half
year lease for 3,500 square feet of office space at 594 Broadway, New York,
New York, commencing March 1994, at an annual rental of $56,000.
Capitol Hill Publishing, Inc. has entered into a five year lease for
3,735 square feet of office space at 733 15th Street, N.W., Washington,
D.C., commencing August 1994, at an annual rental of $68,880.
28
<PAGE>
Brooklyn Newspaper Publishing, Inc. has entered into a three year lease
for 2,500 square fee of office space at 2123 Utica Avenue, Brooklyn, New
York, commencing November 1994, at an annual rental of $18,000, increasing
over the term to $19,800 in the last year.
The Company believes that its present space is adequate for current
purposes and offers moderate expansion possibilities.
LEGAL PROCEEDINGS
An action entitled Jean Jee v. News Communications, Inc., was
-------------------------------------
instituted in the Supreme Court, New York County, in January 1991. The
complaint alleges libel claims against the Company in connection with an
article printed in the MANHATTAN SPIRIT which accused Ms. Jee, then
principal of a Manhattan public school, of running her own computer business
out of the school, beating special education students and having been
suspended by the New York City Board of Education. Promptly after the
complaint was served, the MANHATTAN SPIRIT printed a retraction concerning
the suspension accusations. In fact, Ms. Jee had taken a leave of absence.
Ms. Jee is suing for $2,000,000 in compensatory damages and unspecified
punitive damages. The Company intends to vigorously defend the suit and has
filed an answer denying the material allegations of the complaint and has
served demands for document production. Ms. Jee's motion for a protective
order in connection with such demands was granted. Discovery has not yet
commenced. Management believes, although there can be no assurance, that,
based upon the application of the relevant law (as explained to management
by counsel representing the Company) to the facts known to it, the claims
asserted in this action are without merit. It is the policy of such counsel
not to express opinions as to the outcome of actions such as this.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors, executive officers and other significant
employees and their ages and positions are as follows:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AGE POSITION WITH COMPANY AND SUBSIDIARIES
------------------ --- --------------------------------------
<S> <C> <C>
Gary Ackerman 52 Director of the Company
Thomas Allon 32 Executive Vice President of the Company
Robert Berkowitz 46 Controller of the Company
Eric Breindel 39 Director of the Company
John Catsimatidis 46 Director of the Company
Jerry Finkelstein 79 Chairman of the Board, Director of the Company
and officer of subsidiaries
Joseph K. Fisher 48 Director of the Company
David Jaroslawicz 48 Director of the Company
William J. Kelleher, Jr. 48 Director of the Company
Andrew J. Maloney 63 Director of the Company
Christopher C. McGrath 58 Director and Treasurer of the Company; Director
of Access
Martin J. McLaughlin 56 Director and Secretary of the Company and
officer of a subsidiary
Daniel Rattiner 55 President, Publisher, Editor and Director of DPI
Michael Schenkler 49 Director and President of the Company and
director and officer of subsidiaries
Andrew J. Stein 50 Director of the Company
Arthur Tarlow 65 Director of the Company
</TABLE>
Gary Ackerman has been a director of the Company since March 1990. He
has served in the United States House of Representatives as a Representative
from New York since March 1983. From 1979 until 1983, Mr. Ackerman was a
member of the New York State Senate. From 1970 to 1979, Mr. Ackerman was
the founder, editor and publisher of the QUEENS TRIBUNE.
Thomas Allon was elected Executive Vice President of the Company in
November 1994. He has been Publisher of the MANHATTAN SPIRIT and OUR TOWN
since 1992. From 1990 to 1991 he was Managing/Associate Publisher of the
MANHATTAN SPIRIT.
Robert Berkowitz has served as Controller of the Company since December
1992. From November 1991 to November 1992, Mr. Berkowitz was a financial
and management consultant with Gobstein, Weingarten & Goldfarb, a certified
public accounting firm. From August 1989 to November 1991
30
<PAGE>
he was the Chief Accounting Officer for Meringoff Equities, an owner and
manager of commercial real estate. From August 1980 to August 1989 he was
Vice-President and Controller of the Trump Group, a private investment
company specializing in the acquisition and operation of both public and
private companies. From 1977 to 1980 he was with the public accounting firm
of Price Waterhouse.
Eric Breindel has been a director of the Company since October 1993.
Since 1986, Mr. Breindel has been Editorial Page Editor of the New York
--------
Post. He also writes for Commentary, The New Republic, The Wall Street
---------- ---------------- ---------------
Journal and other periodicals. He is the recipient of numerous professional
-------
awards and honors and appears regularly as a commentator on both television
and radio news programs. Mr. Breindel is a graduate of Harvard College and
Harvard Law School.
John Catsimatidis has been a director of the Company since December 3,
1991. Mr. Catsimatidis is also the Chairman of Red Apple Companies, Inc., a
holding company for supermarket chains in New York and Florida. Since July
1988, Mr. Catsimatidis has served as Chairman of the Board, Chief Executive
Officer, Treasurer and director of Designcraft Industries, Inc., an American
Stock Exchange listed company. Mr. Catsimatidis is also currently the
Chairman of the Board, Chief Executive Officer, President and director of
United Refining Company, a refiner and retailer of petroleum products.
Jerry Finkelstein has been a director of the Company since December
1987 and became Chairman of the Board in August 1993. He served as
publisher of The New York Law Journal from 1960 to 1984. Mr. Finkelstein
------------------------
was Chairman of the Board of Struthers Wells corporation for more than five
years prior to November 1993, when he resigned. Struthers Wells Corporation
filed for protection under Chapter XI of the United States Bankruptcy Code
in February 1994. Mr. Finkelstein is a former member of the Board of
Directors of Rockefeller Center, Inc., Chicago Milwaukee Corporation,
Chicago Milwaukee Railroad Corporation and TPI Enterprise, Inc. (formerly
Telecom Plus International Inc.), a communications company. He is also a
former Commissioner of the Port Authority of New York and New Jersey.
Joseph K. Fisher has been a director of the Company since March 1990.
He has served as President and Chief Executive Officer of Fisher & Company,
a New York-based marketing communications firm, since March 1988. From 1978
to 1988, he was Chairman and Chief Executive Officer of Fisher, Jackson,
Levy, Flaxman, an advertising company, and, from 1981 to 1987, he was
President of Steadman, Sheehan, Meara and Fisher, a public relations firm.
Mr. Fisher has been a director of International Thoroughbred Breeders, an
American Stock Exchange company, since 1986, and a director of the New York
Drama League since 1987.
David Jaroslawicz has been a director of the Company since March 1990.
He has been an attorney in private practice in New York and California for
more than the past five years. He is a member of the Bar of New York,
California and Florida.
William J. Kelleher, Jr. has been a director of the Company since July
1994. Since November 1993, he has been General Counsel to Colonia Insurance
Company. Previously, from 1983, he was in private practice, specializing in
litigation in federal and state courts. From 1981 to 1983, he was Chief,
Market Integrity Section, of the United States Commodity Futures Trading
Commission. From 1979 to 1981, he was Chief Counsel to the New York State
Senate Committee on Investigations, Taxation and Government Operations.
From 1978 to 1979, he was Chief of Investigations for the District Attorney
of Queens County, New York, and from 1973 to 1978, he was an Assistant
United States Attorney for the United States Attorney's Office for the
Southern District of New York.
Andrew Maloney has been a director of the Company since September 1993.
He is a partner at the New York law firm of Brown & Wood. From 1986 until
December 1992, Mr. Maloney was United States Attorney for the Eastern
District of New York. Mr. Maloney is a graduate of the United States
Military Academy at West Point and Fordham Law School.
31
<PAGE>
Christopher McGrath has been a director and Treasurer of the Company
since December 1987. He has been a government relations consultant since
August 1988. Prior to that time, from November 1986 through July 1988, he
was Executive Director of the New York State Petroleum Council, a subsidiary
of the American Petroleum Institute, a trade association representing major
oil companies. Previously, he was Director of Government Relations of the
New York State Petroleum Council.
Martin J. McLaughlin has been a director of the Company since December
1990 and became Secretary of the Company in March 1991. Mr. McLaughlin has
been a local government lobbyist since 1982 for corporate clients in various
industries, such as real estate and utilities. Mr. McLaughlin also performs
public relations work for various corporate clients.
Daniel Rattiner is Publisher and Editor of DAN'S PAPERS, having held
these positions since he began the publication in 1960. He has also been
President and a director of DPI since its organization in October 1988.
Michael Schenkler has been a director of the Company since March 1990,
became a Vice President in August 1990 and was elected President in December
1991. He has been President of the QUEENS TRIBUNE since 1979 and is its
publisher. Prior to taking over the QUEENS TRIBUNE full time in 1982, Mr.
Schenkler spent 15 years as an educator employed by the Board of Education
of New York City, where he served as a teacher, assistant principal and
principal.
Andrew J. Stein has been a director of the Company since July 1994. He
is President of Benake Corporation, a management consulting firm. Prior to
assuming such position in 1993, Mr. Stein was actively involved in public
affairs. From 1986 to 1993, he was President of the Council, New York City.
From 1978 to 1985, he was President of the Borough of Manhattan and from
1969 to 1977, he was a member of the New York State Assembly. He was also
Chairman of the New York City Commission on Public Information and
Communication, and has been a Trustee of the New York City Employees
Retirement System and an ex officio member of The Museum of The City of New
York, The New York Public Library, The Metropolitan Museum of Art and The
Queens Borough Public Library. Mr. Stein is a son of Mr. Finkelstein.
Arthur Tarlow has been a director of the Company since August 1993. He
is an attorney currently of counsel to Meyer, Suozzi, English & Klein, P.C.
of Mineola, New York, where he has been practicing for more than 10 years as
a specialist in taxation, estates and trusts. He is also a Certified Public
Accountant and has been a partner in the accounting firm of David Tarlow &
Company for more than 25 years. He is a member of the New York State Bar
Association, admitted to practice before the U.S. Tax Court, and a member of
the New York State Society of CPAs and the American Institute of Certified
Public Accountants.
The directors serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified. Officers serve
at the discretion of the Board of Directors.
32
<PAGE>
EXECUTIVE COMPENSATION
The following tables show compensation paid by the Company and its
subsidiaries to certain of its executive officers (including the chief
executive officer) for the fiscal years ended November 30, 1994, 1993 and
1992 and certain information with respect to stock options granted to such
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------ COMPENSATION
------------
AWARDS
------------
OTHER
ANNUAL
COMPENSA-
SALARY BONUS TION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- -------------------------- ---- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
MICHAEL SCHENKLER, President and Chief Exec- 1994 142,553 --- --- 67,500
utive Officer of the Company and officer of 1993 142,553 --- --- 45,000
subsidiaries 1992 142,553 --- --- ___
DANIEL RATTINER, Officer of Dan's Papers, Inc. 1994 124,016 39,367 15,000(1) ---
1993 120,406 20,285 15,000(1) 35,000
1992 117,231 10,203 15,000(1) ---
JERRY FINKELSTEIN, Chairman of the Board of 1994 175,392 --- --- 217,500
the Company and officer of subsidiaries 1993 --- --- --- 310,000
1992 --- --- --- ---
</TABLE>
______________________________________
(1) Mr. Rattiner is entitled to receive an aggregate of $15,000 per year for
discounted trade-sale merchandise from advertisers (who provide such
merchandise to Mr. Rattiner in lieu of paying the Company for
advertising).
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
- ---------------------------------------------------------------------------------
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Granted (#) in Fiscal Year ($/Sh) Expiration Date
------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Michael Schenkler 7,500 1.1 2.00 4/8/99
10,000 1.4 2.625 8/17/99
50,000 7.1 2.00 11/7/99
Jerry Finkelstein 7,500 1.1 2.00 4/8/99
150,000 21.4 2.625 8/12/99
10,000 1.4 2.625 8/17/99
50,000 7.1 2.00 11/7/99
</TABLE>
33
<PAGE>
AGGREGATE YEAR-END OPTION VALUES
(NOVEMBER 30, 1994)
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)
------------------------------ --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael Schenkler 122,500 --- 35,625 ---
Jerry Finkelstein 527,500 --- 67,500 ---
Daniel Rattiner 35,000 --- 4,375 ---
</TABLE>
EMPLOYMENT CONTRACTS AND OTHER EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement entered into by the Company and
Michael Schenkler as of October 15, 1994, and terminating October 14, 1999,
Mr. Schenkler is employed as President of the Company and President of
Tribco. Mr. Schenkler earns a base salary of $150,000 per year (subject to
cost-of-living increases) and such annual bonuses as the Board of Directors
of the Company may determine in its sole discretion. The agreement requires
Mr. Schenkler to protect confidential information of the Company and
restricts him from engaging in certain competitive activities during the
term of his employment and for one year thereafter.
Pursuant to an employment agreement terminating in 1998, as amended, as
compensation for his services to DPI, Daniel Rattiner earns a base salary
from DPI of $100,000 per year, adjusted for increases in the consumer price
index after 1988, plus a bonus in each fiscal year based on net profits (as
defined) of DPI. Mr. Rattiner may terminate his employment at any time.
Mr. Rattiner has pledged to keep secret DPI's confidential matters and, in
the event he leaves the employ of DPI, not to compete with DPI for specific
periods of time, depending on the reasons for his separation.
Pursuant to an employment agreement entered into by the Company and
Jerry Finkelstein as of August 20, 1993, and terminating on August 19, 1998,
Mr. Finkelstein is employed as Chairman of the Board of Directors of the
Company ("Board")at an annual salary of $195,000. Mr. Finkelstein may also
be paid annual bonuses at the discretion of the Board, based upon such
factors as the Company's results of operations and transactions involving
the Company which are introduced to the Company by Mr. Finkelstein or in
which he is otherwise involved on behalf of the Company. The Company also
provides Mr. Finkelstein with medical and other benefits and perquisites,
including reimbursement for expenses relating to maintenance of appropriate
office space for him, including rent and secretarial costs. Mr. Finkelstein
may terminate the agreement at any time on at least 10 days' notice to the
Company. In the event of his permanent disability or death, salary and
bonuses shall continue to paid to him or the legal representative of his
estate until the end of the term of the agreement. Under the agreement, Mr.
Finkelstein is required to devote such time to the affairs of the Company as
he deems necessary and appropriate.
Pursuant to an employment agreement entered into by the Company and
Thomas Allon as of November 1, 1994, and terminating November 30, 1997, Mr.
Allon is employed as Executive Vice President of the Company. Mr. Allon
earns a base salary of $80,000 per year (subject to cost-of-living
increases) and, for fiscal years beginning December 1, 1994, is entitled to
a bonus of 5% of the net profits of the Company derived from the Company's
publications MANHATTAN SPIRIT, OUR TOWN, MANHATTAN FILE, CHELSEA-CLINTON
NEWS and WESTSIDER, but in no event shall such bonus be less than $45,000
nor more than $70,000 for any fiscal year. The agreement requires Mr. Allon
to protect confidential information of
34
<PAGE>
the Company and restricts him from engaging in certain competitive
activities during the term of his employment and for one year thereafter.
The Company has no established compensation arrangements with its
directors. See "Directors' and Officers' Options," below.
DIRECTORS' AND OFFICERS' OPTIONS
On August 17, 1993, the Board adopted a "Discretionary Directors and
Officers Stock Option Plan" (the "Discretionary Option Plan") pursuant to
which, as amended, the Board may award options to purchase an aggregate of
2,000,000 shares of Common Stock to directors and officers of the Company
and its subsidiaries which shall be exercisable at the market price on the
date of grant for periods, and under conditions, specified by the Board in
such grants. Options under the Discretionary Option Plan are non-qualified
and non-incentive options for purposes of income taxation and are not
intended to qualify under Section 422A of the Internal Revenue Code of 1986.
During the fiscal year ended November 30, 1994, the following grants of
five-year options were made to executive officers and directors of the
Company under the Discretionary Option Plan (not including grants to Messrs.
Finkelstein and Schenkler which are reported in the second table above):
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE
OPTIONEE DATE OF GRANT SUBJECT TO GRANT PRICE
-------- ------------- ---------------- --------
<S> <C> <C> <C>
Thomas Allon 8/12/94 40,000 $2.625
Eric Breindel 4/8/94 7,500 $ 2.00
11/7/94 15,000 $ 2.00
John Catsimatidis 4/8/94 10,000 $ 2.00
8/12/94 5,000 $2.625
Joseph K. Fisher 4/8/94 7,500 $ 2.00
David Jaroslawicz 4/8/94 7,500 $ 2.00
Andrew J. Maloney 4/8/94 10,000 $ 2.00
8/12/94 3,000 $2.625
Christopher J. McGrath 4/8/94 7,500 $ 2.00
Martin J. McLaughlin 4/8/94 10,000 $ 2.00
8/12/94 5,000 $2.625
11/7/94 15,000 $ 2.00
Arthur Tarlow 4/8/94 7,500 $ 2.00
8/12/94 5,000 $2.625
11/7/94 15,000 $ 2.00
</TABLE>
On June 22, 1995, Mr. Finkelstein was granted a five-year option to
purchase 350,000 shares of Common Stock at $2.00 per share pursuant to the
Discretionary Option Plan.
On August 17, 1993, the Board also adopted a "Non-Discretionary
Directors Stock Option Plan" (the "Non-Discretionary Option Plan") pursuant
to which each director is granted on August 17, 1993 and
35
<PAGE>
each anniversary thereof on which he or she continues to be a director, a
five-year option to purchase 10,000 shares of Common Stock at the market
price on the date of grant. The Non-Discretionary Plan also provides that
any person becoming a director within the six month after any August 17 will
be granted an option for 10,000 shares on the date he or she becomes a
director. The Non-Discretionary Option Plan was approved by the
shareholders of the Company on July 15, 1994. Pursuant to the Non-
Discretionary Option Plan, each person who was a director of the Company
(other than Mr. Ackerman) received, on August 17, 1994, a grant of an option
to purchase 10,000 shares of Common Stock exercisable at $2.625 per share.
CERTAIN TRANSACTIONS
The Company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. Mr. Rattiner can require the Company to purchase
his 20% interest in DPI at any time on or after October 13, 1993 for a price
equal to 20% of DPI's retained earnings (if any) plus the greater of
$200,000 or 20% of DPI's gross collected revenues (after deduction of
advertising agency commissions) for the full fiscal year prior to the year
in which notice is given; provided, however, that DPI's after-tax profits
are at least equal to 7% of the gross collected revenues (after deduction of
advertising agency commissions).
DPI leases from Mr. Rattiner 1,910 square feet of office space at an
annual rate of $38,200 (plus cost-of-living adjustments) in a building on
Montauk Highway, Bridgehampton, New York, for a term of ten years
terminating in October 1998 (plus a five-year option).
Gristede's and Sloan's, supermarket chains that are owned by Red
Apple Companies, Inc., of which Mr. Catsimatidis is Chairman, advertise in
the Company's MANHATTAN SPIRIT, OUR TOWN and DAN'S PAPERS publications.
Such advertising is placed at the Company's standard rates and has not
exceeded $50,000 in any year.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership
of the Company's Common Stock, as of June 30, 1995, by each person known to
the Company to own beneficially more than 5% of the outstanding Common
Stock, by each person who is a director of the Company, by each executive
officer of the Company listed in the executive compensation tables and by
all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
- ---------------- ------------------ -----------
<S> <C> <C>
Gary Ackerman 466,001 (2) 6.0%
218-14 Northern Boulevard
Bayside, N.Y. 11432
Thomas Allon 61,666 (3) *
255 West 92nd Street
New York, N.Y. 10025
Eric Breindel 42,500 (3) *
210 South Street
New York, N.Y. 10022
John Catsimatidis 35,000 (3) *
832 11th Avenue
New York, N.Y. 10019
Jerry Finkelstein 1,469,503 (3) (4) 17.4%
150 East 58th Street
33rd Floor
New York, N.Y. 10158
Joseph K. Fisher 29,167 (3) *
301 East 57th Street
New York, N.Y. 10021
David Jaroslawicz 29,834 (3) *
150 Williams Street
New York, N.Y. 10038
William J. Kelleher, Jr. 10,000 (3) *
100 Merrick Road
Rockville Center, N.Y. 11570
Andrew J. Maloney 33,000 (3) *
1 World Trade Center
New York, N.Y. 10001
Christopher C. McGrath 29,167 (3) *
120 Washington Avenue
Albany, New York 12210
Martin J. McLaughlin 51,751 (3) *
36 West 44th Street
New York, N.Y. 10036
</TABLE>
_____________________________
Continued on next page.
37
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
- ---------------- ------------------ -----------
<S> <C> <C>
Daniel Rattiner 172,318 (3) (5) 2.2%
26 Three Mile Harbor
Hog Creek Road
East Hampton, N.Y. 11932
Michael Schenkler 477,599 (3) (6) 6.0%
174-15 Horace Harding
Expressway
Fresh Meadows, N.Y. 11365
Andrew J. Stein 160,000 (3) 2.0%
625 Madison Avenue
New York, N.Y. 10022
Arthur Tarlow 63,726 (3) (7) *
1505 Kellum Place
Mineola, N.Y. 11501
All Directors and 3,148,890 (3) (8) 34.2%
Executive Officers as
a Group
(16 persons)
J. Morton Davis(9) 951,619 11.6%
D.H. Blair Holdings, Inc.(9)
D.H. Blair Investment
Banking Corp.(9)
44 Wall Street
New York, N.Y. 10005
</TABLE>
___________________________________________
* Less than one percent.
(1) Based upon information furnished by the persons listed. Except as
otherwise indicated, the stockholders listed possess sole voting and
investment power with respect to the shares listed.
(2) Includes (i) 5,334 shares owned by Mr. Ackerman's children for whom Mr.
Ackerman is custodian and (ii) 44,560 shares, of which (a) 22,280 are
issuable together with 200,000 Class B Warrants upon the exercise of
200,000 presently exercisable Class A Warrants, and (b) 22,280 are
issuable upon the subsequent exercise of the 200,000 Class B Warrants,
which may be immediately exercised upon their acquisition.
(3) Includes the following numbers of shares purchasable upon the exercise
of presently exercisable options: Mr. Allon - 61,666; Mr. Breindel -
42,500; Mr. Catsimatidis - 35,000; Mr. Finkelstein - 677,500; Mr. Fisher
-29,167; Mr. Jaroslawicz - 27,500; Mr. Kelleher - 10,000; Mr. Maloney -
33,000; Mr. McGrath - 27,500; Mr. McLaughlin - 50,000; Mr. Rattiner -
35,000; Mr. Schenkler - 122,500; Mr. Stein 110,000; Mr. Tarlow - 47,500.
(4) Includes (i) 29,834 shares owned by The Jerry Finkelstein Foundation,
Inc., of which Mr. Finkelstein is President, and (ii) 200,000 shares
owned by Mr. Finkelstein's wife.
38
<PAGE>
__________________________________________________
(Footnotes continued from prior page)
(5) Includes (i) 500 shares owned by Mr. Rattiner's wife, (ii) 1,800 shares
issuable upon conversion of the Company's 10% Preferred Stock, and (iii)
4,010 shares, of which (a) 2,005 are issuable together with 18,000
presently exercisable Class A Warrants, and (b) 2,005 are issuable upon
the subsequent exercise of the 18,000 Class B Warrants, which may be
immediately exercised upon their acquisition.
(6) Includes 22,280 shares of which (i) 11,140 are issuable, together with
100,000 Class B Warrants, upon the exercise of 100,000 presently
exercisable Class A Warrants, and (ii) 11,140 are issuable upon the
subsequent exercise of the 100,000 Class B Warrants, which may be
immediately exercised upon their acquisition. Also includes 41,304
shares owned by Mr. Schenkler's wife as custodian for two minor children
of which Mr. Schenkler disclaims beneficial ownership. Such shares
include (i) 9,000 shares that are issuable upon conversion of the
Company's 10% Non-Voting Preferred Stock, and (ii) 10,026 shares that
are issuable, together with 90,000 Class B Warrants, upon the exercise
of 90,000 presently exercisable Class A Warrants, and (iii) 10,026
shares issuable upon the subsequent exercise of the 90,000 Class B
Warrants, which may be immediately exercised on their acquisition.
(7) Includes 4,010 shares of which (i) 2,005 are issuable, together with
18,000 Class B Warrants, upon the exercise of 18,000 presently Class A
Warrants, and (ii) 2,005 are issuable upon the subsequent exercise of
the 18,000 Class B Warrants, which may be immediately exercised upon
their acquisition.
(8) Includes shares issuable upon the exercise of the options referred to in
(3) above and 17,000 shares issuable to Mr. Robert Berkowitz, Controller
of the Company, upon exercise of presently exercisable stock options.
(9) Includes (i) 440,914 shares of Common Stock owned by D.H. Blair
Investment Banking Corp. ("Blair Investment"), a wholly-owned subsidiary
of D.H. Blair Holdings, Inc. ("Blair Holdings"), of which J. Morton
Davis is a shareholder and director, (ii) 61,915 shares owned by
Rivkalex Corporation ("Rivkalex"), a private corporation owned by
Rosalind Davidowitz, Mr. Davis's wife, (iii) 7,200 shares owned by
Rosalind Davidowitz, and (iv) 441,590 shares issuable upon exercise of
76 Units of an option owned by Blair Investment, of which each Unit
consists of one share of 10% Preferred Stock and 18,000 Class A
Warrants. Each share of 10% Preferred Stock is convertible at any time
into 1,800 shares of Common Stock. Each Class A Warrant entitles the
holder thereof to purchase .1114 shares of Common Stock and one Class B
Warrant. Each Class B Warrant, when issued, entitles the holder to
purchase .1114 shares of Common Stock. Mr. Davis, Blair Holdings and
Blair Investment expressly disclaim beneficial ownership of all
securities held by Rivkalex and Rosalind Davidowitz.
39
<PAGE>
DESCRIPTION OF SECURITIES
The Company is presently authorized to issue 100,000,000 shares of
Common Stock, par value $.01 per share, and 500,000 shares of Preferred
Stock, par value $1.00 per share.
COMMON STOCK
The holders of shares of Common Stock have equal, ratable rights to
dividends from funds legally available therefor, when, as and if declared by
the Board of Directors of the Company, and are entitled to share ratably in
all of the assets of the Company available for distribution to holders of
Common Stock upon the liquidation, dissolution or winding up of the affairs
of the Company. Holders of Common Stock do not have preemptive,
subscription or conversion rights to purchase or subscribe to securities of
the Company. There are no redemption or sinking fund provisions in the
Company's Articles of Incorporation. Holders of Common Stock are entitled
to one vote per share on all matters which stockholders are entitled to vote
upon at all meetings of stockholders. There is no cumulative voting. Thus,
the holders of more than 50% of the shares voting for election of directors
can elect all the members of the Board of Directors and can decide any
question brought before the stockholders requiring approval by a simple
majority. In such event, the holders of the remaining shares will not be
able to elect any directors or carry out any other matter brought before the
stockholders. As of June 30, 1995, 7,783,376 shares of Common Stock were
outstanding. See "Principal Stockholders."
PREFERRED STOCK
The Articles of Incorporation of the Company authorize the issuance of
up to 500,000 shares of Preferred Stock, $1.00 par value per share. The
Board of Directors is authorized to issue shares of Preferred Stock from
time to time in one or more series and, subject to the limitations contained
in the Articles of Incorporation and any limitations prescribed by law, to
establish and designate any such series and to fix the number of shares and
the relative rights, conversion rights, voting rights and terms of
redemption (including sinking fund provisions) and liquidation preferences.
If shares of Preferred Stock with voting rights are issued, such issuance
could affect the voting rights of the holders of the Company's Common Stock
by increasing the number of outstanding shares having voting rights, and by
the creation of class or series voting rights. If the Board authorizes the
issuance of shares of Preferred Stock with conversion rights, the number of
shares of Common Stock outstanding could potentially be increased up to the
authorized amount. Issuance of Preferred Stock, could, under certain
circumstances, have the effect of delaying or preventing a change in control
of the Company and may adversely affect the rights of holders of Common
Stock such as by placing restrictions upon payments of dividends to holders
of Common Stock or by diluting the voting power of such holders. Similarly,
issuance of Preferred Stock could inhibit a third-party tender offer for the
Common Stock and thus deprive stockholders of an opportunity to receive a
premium over the market price. Also, Preferred Stock could have preferences
over the Common Stock (and other series of Preferred Stock) with respect to
dividend and liquidation rights. The Company has no present plans to issue
any additional shares of Preferred Stock other than the three series of
Convertible Preferred Stock presently authorized: 10% Convertible Preferred
Stock ("10% Preferred Stock"), of which 1,250 shares are authorized, 1,150
shares were issued and 32 shares remain outstanding; 8% Convertible
Preferred Stock ("8% Preferred Stock"), of which 500 shares are authorized
and 217 shares are issued and outstanding; and 12% Convertible Preferred
Stock ("12% Preferred Stock"), of which 200 shares are authorized, issued
and outstanding (collectively, the "Convertible Preferred Stock"). For
purposes of paying interest and liquidation preference, the shares of 10%
Preferred Stock have a stated value of $5,000 per share and the shares of 8%
Preferred Stock and 12% Preferred Stock have stated values of $1,000 per
share. At the option of the Company, interest on the 10% Preferred Stock
may be paid in an equivalent value of shares of Common Stock. Presently,
the 10% Preferred Stock, 8% Preferred Stock and 12% Preferred Stock are
convertible into shares of Common Stock at the rates of 1,800 shares of
Common Stock per share of 10% Preferred Stock, 476.19 shares of Common
40
<PAGE>
Stock per share of 8% Preferred Stock and 476.19 shares of Common Stock per
share of 12% Preferred Stock. In addition, upon conversion of the 8%
Preferred Stock the holder is entitled to receive 5-year warrants to
purchase an equivalent number of shares of Common Stock at an exercise price
equal to the per share conversion price. Reference is made to the
resolutions of the Board of Directors fixing the terms of the Convertible
Preferred Stock, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
PUBLIC WARRANTS
The following discussion sets forth all of the terms and provisions of
the Public Warrants which the Company believes are material. The complete
terms are set forth in the Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company (the "Warrant Agent"), filed as
an exhibit to the Registration Statement, and also the detailed provisions
of the forms of the Public Warrants attached to the Warrant Agreement.
Each Public C Warrant entitles the holder to purchase one share of
Common Stock of the Company until October 9, 1996, at a per share price of
$2.00, subject to adjustment. Each Public D Warrant entitles the holder to
purchase one share of Common Stock of the Company until October 9, 1998, at
a per share price of $3.00, subject to adjustment. Unless extended by the
Company at its discretion, the Public C Warrants will expire at 5:00 p.m.
New York City time on October 9, 1996, and the Public D Warrants will expire
at 5:00 p.m. New York City time on October 9, 1998. If a holder of Public
Warrants fails to exercise his Public Warrants prior to their expiration,
the Public Warrants will expire and the holder thereof will have no further
rights with respect to them.
The Common Stock to be issued upon the exercise of the Public Warrants
will be fully paid and nonassessable. Holders of the Public Warrants will
have no voting, preemptive, liquidation or other rights of a stockholder and
no dividends will be declared on the Public Warrants.
The Company may call the Public Warrants for redemption, in whole or in
part, at any time commencing twelve months after the date of this Prospectus
upon a minimum of 30 days' prior written notice to holders, at a redemption
price of $0.01 per Warrant, provided that the average of the means of the
closing bid and closing asked quotations of the Common Stock on Nasdaq (or
the last sale price if principally traded on a national securities exchange
or the Nasdaq National Market System) exceeds 125% of the then respective
exercise prices of the Public Warrants being redeemed for any 20 consecutive
trading days ending within 15 days prior to the day on which notice is
given. During the 30-day notice period, a holder shall have the option to
exercise his Public Warrants. Any holders of Public Warrants who do not
exercise prior to the redemption date will forfeit their rights to purchase
the securities underlying the Public Warrants and, after the redemption
date, any outstanding Public Warrants will become void and be of no further
force and effect. If the Company does not redeem the Public Warrants, they
will expire, become void and of no further force or effect on the conclusion
of the exercise period.
A Public Warrant, when exercisable, may be exercised upon the surrender
of a duly completed certificate and exercise form on or prior to its
expiration at the office of the Warrant Agent, accompanied by cash or a
certified or official bank check payable to the order of the Company for the
exercise price. Public Warrants are generally more speculative than the
common stock which is purchasable upon the exercise thereof. A Public
Warrant may become valueless, or of reduced value, if the market price of
the Common Stock decreases, or increases only modestly, over the term of the
Public Warrant.
The Public Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events such
as stock dividends, splits, recapitalizations, mergers or consolidations.
No adjustment in the number of shares purchasable upon exercise of the
Public Warrants will be required until cumulative adjustments in any fiscal
year require an adjustment of more than
41
<PAGE>
2% thereof. Cash payments will be made in lieu of fractional shares upon any
exercise of Public Warrants. If less than all of the Public Warrants
evidenced by a warrant certificate are exercised, a new warrant certificate
representing the remaining number of Public Warrants will be issued to the
holder of the Public Warrants by the Warrant Agent.
Notwithstanding the foregoing, in the case of any liquidation,
dissolution, winding up, consolidation or merger of the Company, or sale or
conveyance of all or substantially all of the assets of the Company, the
right to exercise the Public Warrants shall terminate no later than the date
fixed for the transfer of, or the payment of any distributable amount on,
the Company's shares of Common Stock. At least 30 days' notice of such
termination date shall be given to the registered holders of the Public
Warrants determined as of the date of the notice.
The Board of Directors of the Company may amend the terms of the Public
Warrants to reduce their exercise prices or extend their exercise periods.
The Company and the Warrant Agent may make changes to the Warrant Agreement
to cure ambiguities, correct inconsistencies or manifest mistakes or as they
otherwise may deem necessary or desirable and which do not adversely affect
the interests of the holders. However, no other change may be made without
the written consent of the holders of at least 50% of the outstanding Public
Warrants and no decrease in the number or change in nature of the securities
issuable upon exercise of a Public Warrant or increase in the exercise price
or acceleration of the exercise period of a Public Warrant may be made
without the written consent of the holder of such Warrant.
The Public Warrants will not be exercisable unless a registration
statement pursuant to the Securities Act covering the shares of Common Stock
issuable upon exercise of the Public Warrants has been filed, declared
effective, and is current and such shares of Common Stock have been
registered or qualified, or there is an exemption from such registration or
qualification requirements, under the securities laws of the state of
residence of the holder of such Public Warrant. The Company has filed a
registration statement pursuant to the Securities Act with the Commission
and will use its best efforts to maintain a current prospectus relating
thereto, subject to the terms of the Warrant Agreement. While it is the
Company's intention to do so, there is no assurance that it will be able to
do so. Since the Public Warrants are only redeemable by the Company at such
time as they are exercisable, the Public Warrants will not be redeemable by
the Company unless prior to redemption a registration statement covering the
shares of Common Stock issuable upon exercise of the Public Warrants has
been filed, declared effective, and is current.
For the life of the Public Warrants, the holders thereof are given the
opportunity to profit from a rise in the market price of the Common Stock
which may result in a dilution of the interest of other stockholders. In
addition, the Company may find it more difficult to raise equity capital if
it should be needed for the business of the Company while Public Warrants
are outstanding. At any time when the holders of the Public Warrants might
be expected to exercise them, the Company would probably be able to obtain
additional equity capital on terms more favorable than those provided in the
Public Warrants.
The exercise prices of the Public Warrants were arbitrarily determined
by negotiations between the Company and Hibbard Brown, and do not bear any
relationship to the market price of the Common Stock, the Company's assets,
book value, net worth, results of operations or to any other established
criterion of value, and they should not be considered any indication of the
actual value of the Company. However, among the factors considered in
determining the public offering price of the units of which the Public
Warrants were a part, consideration was given to prevailing market
conditions, the industry in which the Company operates, an assessment of the
Company's management, its capital structure, the business potential of the
Company and the demand for similar securities of comparable companies.
42
<PAGE>
HIBBARD BROWN OPTION AND WARRANT SOLICITATION FEE
In connection with the 1992 Offering, the Company sold Hibbard Brown,
for nominal consideration, an option (the "Hibbard Brown Option"),
exercisable until October 9, 1997, which gave the holders the right to
purchase up to 150,000 units of securities, each unit consisting of one
share of Common Stock, one non-redeemable Class C Warrant of the Company
("Hibbard Brown C Warrant") and one Hibbard Brown D Warrant, at $3.30 per
unit. The Hibbard Brown Option has been fully exercised by the holders
thereof, who also exercised all of the Hibbard Brown C Warrants and 65,000
of the 150,000 Hibbard Brown D Warrants issuable upon exercise of the
Hibbard Brown Option. The Hibbard Brown C Warrants and Hibbard Brown D
Warrants purchasable upon exercise of the Hibbard Brown Option are identical
to the Public C Warrants and Public D Warrants except that they are
exercisable between October 9, 1993, and October 9, 1997, and are non-
redeemable. The Company agreed to register under the 1933 Act, at its
expense on one occasion, and at the expense of Hibbard Brown or other holder
on another occasion, the Hibbard Brown Option, and/or the underlying
securities, at the request of the holders of forty percent thereof. The
offering by the successors-in-interest to Hibbard Brown being made pursuant
to this Prospectus is being made at the Company's expense in accordance with
such obligation. The Company has also agreed to certain "piggy-back"
registration rights for the holders of the Hibbard Brown Option and the
securities issuable upon exercise thereof.
The Company had agreed to pay Hibbard Brown, upon the exercise of the
Public Warrants, a fee of 4% (of which 1% may be reallowed to the dealer who
solicited the exercise) of the aggregate exercise price if (i) the market
price of the Common Stock on the date the Public Warrant is exercised is
greater than the then exercise price of the Public Warrants; (ii) the
exercise of the Public Warrant was solicited by a member of the NASD; (iii)
the Public Warrant is not held in a discretionary account; (iv) disclosure
of compensation arrangements was made both at the time of the offering and
at the time of exercise of the Public Warrant; (v) the solicitation of the
Public Warrant was not in violation of Rule 10b-6 promulgated under the
Securities and Exchange Act of 1934; and (vi) the solicitation of the Public
Warrant is in compliance with NASD Notice to Members 81-38. As Hibbard
Brown is no longer in business, the Company may pay such fee to a successor-
in-interest to Hibbard Brown which is a member firm of the National
Association of Securities Dealers, Inc. or to another member firm with whom
the Company may enter into an agreement with respect to solicitation of the
Public Warrants. Unless granted an exemption by the Securities and Exchange
Commission from Rule 10b-6, any such member firm will be prohibited from
engaging in any market-making activities or solicited brokerage activities
with regard to the Company's securities during the periods prescribed by
Rule 10b-6 before the solicitation of the exercise of any Public Warrant
until the later of (i) the termination of such solicitation activity, or
(ii) the termination by waiver or otherwise of any right such member firm
may have to receive a fee for the exercise of the Public Warrants following
such solicitations.
A WARRANTS AND B WARRANTS
As part of an offering of securities in 1990, the Company issued
20,700,000 A Warrants and granted D.H. Blair & Co., Inc., the underwriter of
such offering, an option to purchase up to 100 units of securities, each
unit consisting of one share of 10% Convertible Preferred Stock and 1,800 A
Warrants. The A Warrants and B Warrants are exercisable at any time through
September 19, 1995. Each A Warrant presently entitles the holder to
purchase .1114 shares of Common Stock (subject to adjustment) and to receive
one B Warrant at an exercise price of $0.50 per A Warrant ($4.49 per share).
Each B Warrant presently entitles the holder, upon issuance, to purchase
.1114 shares of Common Stock (subject to adjustment) at an exercise price of
$0.75 per B Warrant ($6.73 per share).
The A Warrants and B Warrants are redeemable by the Company at any
time, upon at least 30 days' prior notice, at $0.05 per Warrant, if the
average of the closing bid prices for the Common Stock exceeds 140% of their
respective current per share exercise prices for any 30 consecutive trading
days
43
<PAGE>
ending within 15 days prior to the date on which notice of redemption is
given. The A Warrants were quoted on Nasdaq under the symbol NCOMW until
April 7, 1995, when the price fell below $.03125 (1/32) per A Warrant. The B
Warrants have been approved for quotation on Nasdaq under the symbol NCOMZ
upon issuance.
DIVIDENDS
To date, the Company has not paid any dividends on its Common Stock.
The payment of dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon the Company's earnings, its
capital requirements and financial condition, and other relevant factors.
The Company does not intend to declare any dividends in the foreseeable
future, but instead intends to retain all earnings, if any, for use in the
Company's business. See "Dividend Policy."
TRANSFER AND WARRANT AGENT
The Company's Transfer and Warrant Agent is Continental Stock Transfer
& Trust Company, 2 Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
The Company has been advised that the sales of the shares of Common
Stock offered by the successors-in-interest to Hibbard Brown (if and when
issued) may be effected from time to time in transactions (which may include
block transactions on Nasdaq) in the over-the-counter market, in negotiated
transactions, through the writing of options on Common Stock, or a
combination of such methods of sale, at fixed prices which may be changed,
at market prices prevailing at the time of sale, or at negotiated prices.
The sellers might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933 and may be obligated to comply
with certain rules promulgated by the Securities and Exchange Commission
designed to prevent manipulative and deceptive practices, including Rules
10b-2, 10b-6 and 10b-7 promulgated under the Securities Act of 1934.
All costs, expenses and fees in connection with the registration of the
securities offered by the successors-in-interest to Hibbard Brown will be
borne by the Company. The Company has agreed to indemnify Hibbard Brown and
its successors-in-interest, and Hibbard Brown has agreed to indemnify the
Company (including its officers and directors), against certain liabilities,
including liabilities under the Securities Act of 1933. Because Hibbard
Brown is no longer in business, it is unlikely that the Company would be
successful in pursuing any remedies it has pursuant to such right of
indemnification.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 7,783,376 shares of Common Stock outstanding.
Of this amount, approximately 2,254,000 Common Stock are "restricted"
securities as that term is defined under Rule 144 promulgated under the
Securities Act of 1933. Of the restricted shares, approximately 2,117,000
have been held for at least two years.
Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company
(or persons whose shares are aggregated), who has owned restricted shares of
Common Stock beneficially for at least two years, is entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class
or, if the stock is quoted on Nasdaq or a securities exchange, the average
weekly trading volume during a specified four-week period preceding the
sale. A person who has
44
<PAGE>
not been an affiliate of the Company for at least 3 months and who has
beneficially owned shares of Common Stock for at least three years is
entitled to sell such shares under Rule 144 without regard to such volume
limitations.
The Company is unable to predict the effect that sales made under Rule
144, or pursuant to other exemptions under the Securities Act of 1933, may
have on the then prevailing market price of the Common Stock.
As of the date of this Prospectus, without taking into effect the
securities offered hereby, there were outstanding shares of Preferred Stock
and immediately exercisable options and warrants which, upon conversion or
exercise, would enable their holders to purchase up to 1,428,283 restricted
shares of Common Stock at prices ranging from $0.30 to $9.00 per share and
exercisable over periods of up to ten years. The exercise of any of the
aforementioned options may have a dilutive effect on the Common Stock.
Moreover, the terms upon which the Company may be able to obtain additional
equity capital may be adversely affected because the holders of such
warrants and options can be expected to exercise their warrants and options
at a time when the Company would, in all likelihood, be able to obtain any
needed capital on terms more favorable to the Company than those provided by
the terms of such warrants or options. In addition, certain holders of
options, warrants and stock of the Company have received registration rights
with respect to the securities held by or issuable to them. These
registration rights could result in substantial future expense to the
Company and could adversely affect any future equity or debt financing.
Furthermore, the sale of such shares of Common Stock held by or issuable to
the holders of registration rights, or even the potential of such sales,
could have an adverse effect on the then current market price of the
Company's securities.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon
for the Company by Graubard Mollen Horowitz Pomeranz & Shapiro ("GMHP&S"),
600 Third Avenue, New York, New York 10016, counsel to the Company. GMHP&S
owns 1,334 shares of the Company's Common Stock.
EXPERTS
The Consolidated Financial Statements of the Company included in this
Prospectus have been audited by Mortenson and Associates, P.C., independent
auditors, to the extent and for the periods indicated in their reports
appearing elsewhere herein and are included in reliance upon the authority
of said firm as experts in accounting and auditing.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Articles of Incorporation of the Company, as amended, provide that
the Company shall indemnify, to the full extent permitted by Nevada law, its
officers, directors, employees and agents. The Articles of Incorporation,
as amended, also provide for the elimination, with certain exceptions, of
personal liability of directors and officers to the Company and its
stockholders for damage for breach of fiduciary duty as directors and
officers.
The underwriting agreements that the Company entered into with D.H.
Blair & Co., Inc. and Hibbard Brown in connection with the public offerings
of securities of the Company underwritten by those firms each provide for
reciprocal indemnification between the Company and its controlling persons,
45
<PAGE>
on the one hand, and the underwriters and their controlling persons, on the
other hand, against certain liabilities in connection with such offerings,
including liabilities under the Securities Act of 1933, as amended.
The Company has obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000 (subject to a $100,000 per
claim deductible). The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities
and would reimburse the Company for such loss for which the Company has
lawfully indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement (the "Registration
Statement") under the Securities Act of 1933 (File No. 33-46467) with
respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and
such securities, reference is hereby made to the Registration Statement and
exhibits. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement. The Registration Statement,
together with the exhibits, may be inspected at the Commission's principal
office in Washington, D.C. and copies may be obtained upon payment of the
fees prescribed by the Commission.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE TO PAGE
<S> <C> <C>
Report of Independent Auditors................... F-2
Consolidated Balance Sheet....................... F-3......... F-4
Consolidated Statements of Operations............ F-5......... F-6
Consolidated Statements of Stockholders' Equity.. F-7......... F-9
Consolidated Statements of Cash Flows............ F-10........ F-12
Notes to Financial Statements.................... F-13........ F-21
</TABLE>
. . . . . . . . . .
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
News Communications, Inc. and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and its subsidiaries as of November 30, 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two fiscal years in the period ended November 30, 1994.
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.
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
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of News
Communications, Inc. and its subsidiaries as of November 30, 1994, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period ended November 30, 1994, in conformity with
generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 8, 1995
F-2
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
------------ ------------
ASSETS: 1995 1994
------------ ------------
Unaudited
----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 844,198 $ 842,857
Marketable Securities 52,027 924,633
Accounts Receivable [Less: Allowance for Doubtful
Accounts of $964,620 and $979,962, Respectively] 3,779,524 3,763,136
Other Current Assets 92,596 162,204
Due from Related Parties 169,706 80,121
---------- -----------
TOTAL CURRENT ASSETS 4,938,051 5,772,951
Property and Equipment At Cost - Net of Accumulated
Depreciation and Amortization of $550,931 and
$500,156, Respectively 688,954 688,505
Goodwill - Net 3,838,668 3,903,111
Other Assets 173,818 193,037
---------- -----------
TOTAL ASSETS $9,639,491 $10,557,604
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY: 1995 1994
------------- ------------
(Unaudited)
-------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 857,816 $ 516,287
Accrued Expenses 244,221 893,795
Accrued Payroll Taxes 131,281 130,867
Notes Payable ---- 75,747
Other Current Liabilities 121,888 6,440
----------- -----------
TOTAL CURRENT LIABILITIES 1,355,206 1,623,136
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
Stockholders' Equity:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
10% Convertible Preferred Stock, 1,250 Shares Authorized;
32 Issued and Outstanding, $500 Per Share Per Annum
Cumulative Dividends, $160,000 Liquidation Value 32 32
8% Convertible Preferred Stock, 500 Shares Authorized,
217 Issued and Outstanding, $80 Per Share Per Annum
Cumulative Dividends, $217,000 Liquidation Value 217 217
12% Convertible Preferred Stock, 200 Shares Authorized,
200 Shares Issued and Outstanding, $120 Per Share Per
Annum Cumulative Dividends, $200,000 Liquidation Value 200 200
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 7,915,776 and 7,920,576 Shares Issued, Respectively 79,206 79,157
Paid-in Capital - Preferred Stock 519,873 519,873
Paid-in-Capital - Common Stock 13,657,406 13,648,238
[Deficit] (5,563,920) (4,904,520)
----------- -----------
Totals 8,693,014 9,343,197
Less: Treasury Stock [151,000 Common Shares] - At Cost (408,729) (408,729)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,284,285 8,934,468
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,639,491 $10,557,604
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Years ended
February 28, November 30,
----------------------- -------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
----------- ---------- ----------- ----------
(Unaudited) (Unaudited)
----------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $3,384,111 $2,197,153 $13,718,175 $8,927,704
---------- ---------- ----------- ----------
EXPENSES:
Direct Mechanical Costs 1,220,708 674,936 4,718,501 2,718,946
Salaries, Benefits and Outside Labor Costs 2,063,502 1,225,769 6,883,500 4,067,880
Rent, Occupancy and Utilities 190,708 104,235 587,871 337,864
Provision for Doubtful Accounts 36,000 31,000 376,000 219,000
General and Administrative 523,815 368,186 1,847,492 1,301,021
---------- ---------- ----------- ----------
TOTAL EXPENSES 4,034,733 2,404,126 14,413,364 8,644,711
---------- ---------- ----------- ----------
Operating Income [Loss] Before Interest
Expense, Interest Income, and Other Income (650,622) (206,973) (695,189) 282,993
Interest [Expense] (6,475) (6,875) (24,797) (62,461)
Interest Income 8,037 13,526 61,993 12,097
Other Income ---- ---- 94,642 ---
---------- ---------- ----------- ----------
INCOME [LOSS] BEFORE FEDERAL AND STATE INCOME
Taxes and Extraordinary Item - Forward (649,060) (200,322) (563,351) 232,629
</TABLE>
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Years ended
----------------------- -----------------------
February 28, November 30,
----------------------- -----------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME [LOSS] BEFORE FEDERAL AND STATE INCOME
TAXES AND EXTRAORDINARY ITEM - FORWARDED (649,060) (200,322) (563,351) 232,629
LESS: FEDERAL AND STATE INCOME TAXES --- ---- --- 192,533
---------- ---------- ---------- ----------
INCOME [LOSS] BEFORE EXTRAORDINARY ITEM (649,060) (200,322) (563,351) 40,096
EXTRAORDINARY ITEM: REDUCTION OF INCOME TAXES RESULTING
FROM UTILIZATION OF OPERATING LOSS CARRYFORWARDS ---- ---- --- 192,533
---------- ---------- ---------- ----------
NET INCOME [LOSS] (649,060) (200,322) (563,351) 232,629
LESS: PREFERRED STOCK DIVIDENDS 10,340 10,340 41,360 41,360
---------- ---------- ---------- ----------
NET INCOME [LOSS] AVAILABLE TO COMMON STOCKHOLDERS $ (659,400) $ (210,662) $ (604,711) $ 191,269
========== ========== ========== ==========
PER COMMON SHARE:
Income [Loss] Before Extraordinary Item $ ( .08) $ ( .03) $ ( .07) $ .01
Income [Loss] Per Common Share (.08) (.03) (.08) 03
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,768,776 7,353,942 7,580,203 6,232,630
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN PAID-IN
---------- -----------
PREFERRED CAPITAL COMMON CAPITAL
---------- ---------- ------- -----------
STOCK PREFERRED PREFERRED STOCK COMMON COMMON TREASURY
---------- ---------- --------- --------- ------- ----------- ----------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK [DEFICIT] STOCK TOTAL
---------- ---------- --------- --------- ------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -
NOVEMBER 30, 1992 - 453 $ 453 $534,385 6,088,719 $60,888 $ 9,082,407 $(4,457,578) $(408,729) $4,811,826
Conversion from Preferred
Stock to Common (3) (3) (10,884) 5,400 54 10,833 -- -- --
Stock Issued in Connection
with Exercise of C and
D Warrants -- -- -- 872,760 8,726 2,071,768 -- -- 2,080,494
Additional Cost of Public
Offering -- -- -- (5,000) -- -- (5,000)
Dividend on Preferred
Stock -- -- -- -- -- -- (41,360) -- (41,360)
Stock Issued as Preferred
Dividend -- -- -- 5,463 55 17,445 (17,500) -- --
Stock Issued in Connection
with Exercise of Stock
Options -- -- -- 1,667 17 3,533 -- -- 3,550
Net Income -- -- -- -- -- -- 232,629 -- 232,629
--------- --------- --------- --------- ------- ----------- ----------- --------- ----------
BALANCE -
NOVEMBER 30, 1993 -
FORWARD 450 $ 450 $523,501 6,974,009 $69,740 $11,180,986 $(4,283,809) $(408,729) $7,082,139
========= ========= ========= ========= ======= =========== =========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN PAID-IN
---------- -----------
PREFERRED CAPITAL COMMON CAPITAL
---------- ---------- ------- -----------
STOCK PREFERRED PREFERRED STOCK COMMON COMMON TREASURY
---------- ---------- --------- --------- ------- ----------- ----------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK [DEFICIT] STOCK TOTAL
---------- ---------- --------- --------- ------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
November 30, 1993 -
FORWARDED 450 $450 $523,501 6,974,009 $69,740 $11,180,986 $(4,283,809) $(408,229) $7,082,139
Conversion from Preferred
Stock to Common (1) (1) (3,628) 1,800 18 3,611 -- -- --
Stock Issued in Connection
With Exercise of C and D
Warrants -- -- -- 807,887 8,079 1,943,268 -- -- 1,951,347
Stock Issued for
Acquisitions -- -- -- 122,123 1,221 143,535 -- -- 144,756
Stock Issuable for
Acquisitions -- -- -- -- -- 354,687 -- -- 354,687
Stock Issued in Connection
with Exercise of Options -- -- -- 3,333 33 6,217 -- -- 6,250
Stock Issued as Preferred
Dividend -- -- -- 6,624 66 15,934 (16,000) -- --
Dividend on Preferred
Stock -- -- -- -- -- -- (41,360) -- (41,360)
Net [Loss] -- -- -- -- -- -- (563,351) -- (563,351)
--------- --------- --------- --------- ------- ----------- ----------- --------- ----------
BALANCE - NOVEMBER 30,
1994 - FORWARD 449 $449 $519,873 7,915,776 $79,157 $13,648,238 $(4,904,520) $(408,729) $8,934,468
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN PAID-IN
---------- -----------
PREFERRED CAPITAL COMMON CAPITAL
---------- ---------- ------- -----------
STOCK PREFERRED PREFERRED STOCK COMMON COMMON TREASURY
---------- ---------- --------- --------- ------- ----------- ----------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK [DEFICIT] STOCK TOTAL
---------- ---------- --------- --------- ------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 30,
1994 - FORWARDED 449 $449 $519,873 7,915,776 $79,157 $13,648,238 $(4,904,520) $(408,229) $8,934,468
Stock Issued in
Connection With
Exercise of C and
D Warrants -- -- -- 4,800 48 9,168 -- -- 9,216
Rounding -- -- -- -- 1 -- -- -- 1
Dividend on Preferred
Stock -- -- -- -- -- -- (10,340) -- (10,340)
Net [Loss] -- -- -- -- -- -- (649,060) -- (649,060)
--------- --------- --------- --------- ------- ----------- ----------- --------- ----------
BALANCE -
FEBRUARY 28, 1995 449 $449 $519,873 7,920,576 $79,206 $13,657,406 $(5,563,920) $(408,729) $8,284,285
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years ended
------------------------- ------------------------------
February 28, November 30,
------------------------- ------------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income [Loss] $(649,060) $(200,322) $ (563,351) $ 232,629
Adjustments to Reconcile Net Income [Loss] to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 126,372 70,765 413,062 340,287
Provision for Losses on Accounts Receivable 36,000 31,000 376,000 219,000
Expense Related to Exercise of Options -- - 5,250 -
Gain on Sale of Building -- - (94,642) -
Change in Assets and Liabilities:
[Increase] in Accounts Receivable (52,388) (124,331) (1,982,551) (779,022)
[Increase] in Other Current Assets (19,978) (123,054) (87,113) (54,477)
[Increase] Decrease in Other Assets 7,624 (25,727) (106,344) 20,031
Increase in Accounts Payable and Accrued Expenses (308,044) (42,357) 583,779 75,349
[Decrease] in Payroll Taxes Payable 414 (11,768) (7,494) (84,684)
[Decrease] Increase in Other Current Liabilities 115,448 (55,261) (66,024) 64,862
[Decrease] in Other Payables - -- - (6,265)
--------- --------- --------- -----------
Total Adjustments (94,552) (280,733) (966,077) (204,919)
--------- --------- --------- -----------
NET CASH PROVIDED [USED] BY - OPERATING ACTIVITIES - FORWARD (743,612) (481,055) (1,529,428) 27,710
--------- --------- --------- -----------
</TABLE>
F-10
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years ended
------------------------- ------------------------------
February 28, November 30,
------------------------- ------------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Capital Expenditures (50,783) (7,039) (422,193) (255,548)
Proceeds from Sale of Building -- -- 100,000 -
Investment in Marketable Securities 872,607 -- (924,633) -
Puchase of Brooklyn -- -- (32,750) -
Puchase of Nassau Newspapers -- -- (319,906) -
Prchase 0f Bronx Press Review -- -- (25,676) (90,000)
Purchase of Westside -- (313,000) (194,898) -
--------- --------- --------- -----------
NET CASH [USED] BY - INVESTING ACTIVITIES - FORWARD 821,824 (320,039) (1,820,056) (345,548)
--------- --------- --------- -----------
FINANCING ACTIVITIES:
Principal Payments Long-Term Debt (75,747) (220,250) (470,250) (521,250)
Proceeds from Exercise of Stock Options --- 1,000 1,000 500
Proceeds from Exercise of Warrants and Underwriter Option 9,216 2,026,435 1,951,347 2,080,494
Principal Payments on Notes Payable --- --- (81,254) -
Costs of Public Offering --- --- - (5,000)
Dividend on Preferred Stock (10,340) (10,340) (41,360) (41,360)
--------- --------- --------- -----------
NET CASH PROVIDED BY - FINANCING ACTIVITIES - FORWARD $ (76,871) $1,796,845 $ 1,359,483 $1,513,384
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years ended
------------------------- ------------------------------
February 28, November 30,
------------------------- ------------------------------
1 9 9 5 1 9 9 4 1 9 9 4 1 9 9 3
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
NET CASH PROVIDED [USED] BY - OPERATING ACTIVITIES -
FORWARDED $(743,612) $ (481,055) $(1,529,428) $ 27,710
--------- ---------- ----------- ----------
NET CASH [USED] BY - INVESTING ACTIVITIES - FORWARDED (821,824) (320,039) (1,820,056) (345,548)
--------- ---------- ----------- ----------
NET CASH PROVIDED BY - FINANCING ACTIVITIES - FORWARDED (76,871) 1,796,845 1,359,483 1,513,384
--------- ---------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,341 995,751 (1,990,001) 1,195,546
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 842,857 2,832,858 2,832,858 1,637,312
--------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 844,198 $3,828,609 $ 842,857 $2,832,858
========= ========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 9,574 $ 44,927 $ 8,240 $ --
Income Taxes $ -- $ -- $ -- $ --
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Note 3 to financial statements relating to acquisitions consummated in
December 1993, August 1994 and September 1994 and Note 9 relating to capital
transactions.
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] ORGANIZATION AND INDUSTRY SEGMENT
News Communications, Inc. ["the Company"] was incorporated in the State of
Nevada and is primarily engaged, through various wholly- owned and two eighty
percent owned subsidiaries, in the publication and distribution of advertiser
supported, community oriented newspapers and a magazine. The Company's
subsidiaries are Access Network Corp. ("Access"), Manhattan Publishing Corp.
("MPC"), Tribco Incorporated ("Tribco"), Dan's Papers Inc. ("DPI"), Parkchester
Publishing Co., Inc. ("Bronx Press Review"), Long Island Community Newspaper
Group, Inc. ("Nassau Newspapers"), Manhattan File Publishing, Inc, ("Manhattan
File"), Capitol Hill Publishing, Inc ("Capitol Hill"), Brooklyn Newspaper
Publishing, Inc. ("Brooklyn") and Westside Newspaper Corp. ("Westside"). The
Company functions primarily in one industry segment, that is the news
publication business.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements of the Company include the
accounts of the parent company and its wholly-owned and majority owned
subsidiaries. All material intercompany transactions have been eliminated.
PROPERTY AND EQUIPMENT - All expenditures for betterments and additions are
capitalized. Expenditures for normal repairs and maintenance are charged
against income as incurred. Depreciation and amortization are provided for
financial reporting purposes on the basis of the various estimated useful lives
of the assets, using the straight-line method as follows:
YEARS
-----
Transportation Equipment 5
Furniture, Fixtures and Office Equipment 5 - 10
Leasehold Improvements Shorter of Useful Life of Asset or
Length of Lease
Depreciation and amortization expense for the years ended November 30, 1994 and
1993 amounted to $123,503 and $118,873, respectively.
ACCOUNTS RECEIVABLE - The Company uses the allowance method based on a
percentage of accounts receivable to provide for uncollectible trade
receivables.
GOODWILL - Goodwill represents the excess of the cost of acquired assets over
their fair values at dates of acquisition and is being amortized over ten
($199,654) to twenty ($3,703,457) years on a straight-line basis. Amortization
expense and accumulated amortization amounted to $264,079 and $1,151,730,
resepctively, for the year ended November 30, 1994. Amortization expense for the
year ended November 30, 1993 amounted to $221,414. The Company's policy is to
record an impairment loss against the net unamortized cost of goodwill in the
period when it is determined that the carrying amount of the asset may not be
recoverable. At each balance sheet date, the Company evaluates the realizability
of goodwill for each subsidiary having a material goodwill balance. This
determination is based on an evaluation of such factors as the occurrence of a
significant event, a significant change in the environment in which the business
operates or if the expected future non-discounted net income of the subsidiary
would become less than the carrying amount of the goodwill asset. Based upon its
most recent analysis, the Company believes that no impairment of goodwill exists
at November 30, 1994.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows the
Company considers all highly liquid instruments purchased with original
maturities of three months or less to be cash equivalents
F-13
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
REVENUE RECOGNITION - Revenues are earned as the advertisements are run, in
accordance with customer agreements. Unearned revenues of $14,225 at November
30, 1994 are included in accrued expenses and represent future advertisements
that have been paid for by customers in advance.
COVENANT NOT TO COMPETE - Included in other assets is a covenant not to compete
with an initial cost of $127,400, which is being amortized over five years on a
straight-line basis. At November 30, 1994 accumulated amortization amounted to
$76,990. Amortization expense amounted to $25,480 for each of the years ended
November 30, 1994 and 1993.
SEASONALITY - One of the Company's publications [which generated approximately
21% of revenues in fiscal 1994 and 25% of revenues in fiscal 1993] is a resort
area newspaper, which has most of its revenue generated during the summer.
CONCENTRATION OF CUSTOMERS - The majority of the Company's customers are located
in four of the boroughs of New York City, in Nassau County and on Eastern Long
Island.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts investments of
temporary cash investments to financial institutions with high credit standing.
At November 30, 1994, the Company had cash and invested assets of approximately
$1,425,358 which were subject to credit risk in excess of insured amounts.
Credit risk on trade receivables is minimized as a result of the large number of
customers comprising the Company's customer base and their dispersion across
different businesses.
[3] ACQUISITIONS
On December 9, 1993, the Company, through its wholly-owned subsidiary, Nassau
Newspapers, acquired certain assets of Long Island News Group [LING] and MB
Publishing Co. [MB] publishers of eight paid weekly newspapers in Nassau County,
New York for $300,000 in cash and stock valued at approximately $355,000. The
stock was valued by the Company at approximately $2.20 per share. This valuation
represents a discount from the December 9, 1993, quoted market price of the
stock. Such discount was reflected due to the restricted nature of the
securities and the deferral of their issuance. The stock is scheduled to be
issued to the seller as follows:
<TABLE>
<CAPTION>
Date Shares
- ---- -------
<S> <C>
December 9, 1996 103,857
December 9, 1997 21,714
December 9, 1998 36,572
-------
Total 162,143
-------
</TABLE>
On August 18, 1994, the Company acquired through its wholly owned subsidiary,
Brooklyn, certain assets of Brooklyn Skyline Publications, Inc. ("Brooklyn
Skyline") for cash and stock valued at approximately $104,000.
On September 27, 1994, the Company acquired through its wholly owned subsidiary,
Westside, certain assets of Enlightenment Press, Inc. ("Enlightenment"), the
publisher of the Chelsea Clinton News and the Westsider, for cash and stock
valued at approximately $246,000.
F-14
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
A summary of the purchase price details is as follows:
<TABLE>
<CAPTION>
Nassau
Newspapers Brooklyn Westside Total
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Cash $300,000 $ 25,000 $180,000 $ 505,000
Common Stock at Par
(284,266 shares) --- 600 621 1,221
Additional Paid-In Capital 354,687 78,150 65,385 498,222
-------- -------- -------- ----------
$654,687 $103,750 $246,006 $1,004,443
-------- -------- -------- ----------
</TABLE>
The transactions above were accounted for by the purchase method of accounting
under which purchase prices were allocated to the acquired assets based on
estimated fair values at the date of acquisition.The assets purchased consisted
primarily of the common law rights in the trade marks, trade names and
publication names of the newspapers published by the previous owners. The value
of the assets purchased amounted to $1,036,997 of which $32,554 was for legal
and other costs directly related to the acquisitions. The cost, which has been
allocated to goodwill, will be amortized on a straight-line basis over twenty
years.
The results of operations of the above publications are included in the
consolidated statement of operations for the year ended November 30, 1994, only
for the periods from the dates of purchase to such year end.
The following proforma combined results of operations are adjusted for the
amortization of goodwill purchased in connection with the acquisitions as though
they had occurred on December 1, 1992:
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, November 30,
1994 1993
------------- ------------
<S> <C> <C>
Net Revenues $15,999,000 $12,866,000
Net Income (Loss) $ (364,000) $ 127,000
Net Income (Loss) Per share $ (.05) $ .02
</TABLE>
The proforma financial information is not necessarily indicative either of the
results of operations that would have occurred had the mergers been effected
December 1, 1992, or of the future results of operations.
Certain former owners of the publications purchased have entered into employment
contracts with the Company (see Note 10).
[4] ACCRUED PAYROLL TAXES
Accrued payroll taxes represent past-due amounts owed, plus interest and
penalties.
[5] NOTES PAYABLE
In connection with the purchase of the Parkchester Publishing Co., Inc.
[Publisher of the "Bronx Press Review"] the Company incurred indebtedness of
$235,000, of which $75,747 was remaining at November
F-15
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
30, 1994. Interest accrues on the unpaid balance at the rate of prime plus one
[approximately 7% at November 30, 1994].
Following are the maturities of notes payable:
November 30,
1995 $75,747
-------
TOTAL $75,747
----- =======
Interest expense related to the above indebtedness for the years ended November
30, 1994 and 1993 amounted to approximately $8,100 and $14,100, respectively.
[6] RELATED PARTIES
Certain Company office facilities are leased from an officer of a subsidiary of
the Company. Rental expense amounted to approximately $46,000 and $45,300 for
the years ended November 30, 1994 and 1993, respectively. The lease commitment
is adjusted annually based on the consumer price index as of November of each
year with an option for five additional years. At November 30, 1994 interest
bearing advances and loans due from related parties amounted to $80,121.
Interest income earned on such amounts as relflected in the statement of
operations for the year ended November 30, 1994, amounted to approximately
$3,500.
[7] LEASES
The Company leases all operating facilities under operating leases expiring
through October, 2000. Rent expense under operating leases was approximately
$280,000 and $163,000 for years ending November 30, 1994 and 1993, respectively.
The future minimum payments under non-cancelable operating leases consisted of
the following at November 30, 1994 [including amounts in Note 6]:
<TABLE>
<CAPTION>
Operating
----------
Leases
----------
<S> <C>
1995 $ 402,100
1996 440,400
1997 446.200
1998 451,900
1999 335,800
Thereafter 214,300
----------
TOTAL MINIMUM LEASE PAYMENTS $2,290,700
- ------------------------------ ==========
</TABLE>
The operating leases also provide for cost escalation payments and payments for
maintenance and real estate taxes.
[8] TREASURY STOCK
Treasury stock is shown at cost and consists of 151,000 shares of Common Stock.
F-16
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[9] PREFERRED STOCK
[A] The 10% Convertible Preferred Stock is redeemable at the option of the
Company, under certain circumstances.
In September 1994, the Company distributed 6,624 shares of its Common Stock in
payment of a $500 dividend per share due holders as of September 19, 1994 on
each of 32 shares of 10% Convertible Preferred Stock. As a result, Common Stock
at par was increased by $66, additional paid-in capital - Common Stock was
increased by $15,934 and retained earnings was decreased by $16,000.
[B] ISSUANCE OF PREFERRED SHARES - On May 20, 1992, the Company issued 100
shares of its 8% Convertible Preferred Stock and 200 shares of its 12%
Convertible Preferred Stock, in exchange for an aggregate of $300,000. On July
15, 1992, an additional 117 shares of 8% Convertible Preferred Stock were issued
for $117,000. During the year ended November 30, 1994 and 1993, cash dividends
totaling $41,360 each year were paid on the 8% Convertible Preferred Stock and
the 12% Convertible Preferred Stock.
[C] CONVERSION OF PREFERRED STOCK - During 1993, 3 shares of 10% Convertible
Preferred Stock were converted to 5,400 shares of Common Stock. During 1994,
one share of 10% Convertible Preferred Stock was converted to 1,800 shares of
Common Stock.
[10] COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of "Our Town", the newspaper published by
MPC, the Company granted the seller a five year option to purchase up to 100,000
shares of its common stock at an exercise price of $2.81 per share [the average
of the closing bid and asked prices on May 21, 1991].
A subsidiary of the Company has indemnified two former employees and a director
from and against legal fees and adverse judgments arising in connection with
certain legal actions, except such adverse judgments as may be based on claims
that allege or involve wrongful conduct by said former employees and director.
The Company has an employment agreement expiring in 1998 with the President of
DPI. The agreement stipulates an annual salary of $100,000 per year, adjusted
for increases in the consumer price index, plus a bonus in each fiscal year
based on net profits [as defined] of DPI, and fringe benefits totalling
approximately $25,000 annually.
The President of DPI has the option ["put"] to require the Company to buy his
shares of DPI on or after October 13, 1993 for a price equal to 20% of the
retained earnings [if any] of DPI plus the greater of $200,000 or 20% of gross
collected revenues [net of agency commissions] for the full fiscal year prior to
exercise of the option. The option may be exercised only if the after tax
profit [for the fiscal year preceding exercise] is at least equal to seven
percent of gross revenues [net of agency commissions] for such fiscal year. The
put option, by its terms, is exercisable at November 30, 1994. Should the option
be exercised, the Company would be required to pay approximately $660,000 for
the shares. The option is related to the 1988 acquisition of DPI by the Company.
As such, if the option is exercised the Company will record the cost as
additional goodwill to be amortized over the remaining useful life of that asset
(November 1999).
The Company has an employment contract, through October 14, 1999, with its
President. The contract stipulates an annual base salary of $150,000 plus
bonuses as determined by the board of directors.
F-17
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
In August 1993, the Chairman of the Board entered into a five year employment
agreement with the Company. The agreement calls for an annual salary of
$145,000 and certain other benefits. Stock options for 300,000 shares of the
Company's Common Stock at an exercise price of approximately $2.38 per share
expiring on August 31, 1998 were awarded to the chairman in connection with the
agreement [See Note 12B].
In November 1994, the Executive Vice-President of the Company entered into a
three year employment agreement with the Company at an annual salary of $80,000
(subject ot cost-of-living increases) plus a bonus based on 5% of the net profit
(for fiscal years beginning December 1, 1994) of Access, MPC, Manhattan File and
Westside. Such bonus is to be no less than $45,000, nor more than $70,000.
The President of Nassau Newspapers has an employment agreement expiring in
December 1996. The agreement stipulates an annual salary of $99,000, plus a
bonus based upon the net profits (as defined) of Nassau Newspapers.
The Publisher of Brooklyn has an employment agreement expiring in August 1999.
The agreement stipulates an annual salary of $60,000, plus increases and bonuses
based upon the net profits (as defined) of Brooklyn.
Certain holders of options, warrants and stock of the Company have received
registration rights with respect to the securities held by or issuable to them.
These registration rights could result in substantial future expense to the
Company and could adversely affect any future equity or debt financing.
[11] LITIGATION
The Company is subject to lawsuits arising out of its business. Management,
after review and consultation with counsel, believes it has meritorious defenses
and does not believe that it is reasonably possible that there is any liability
from these matters which would materially affect the consolidated financial
position of the Company or the consolidated results of its operations.
[12] STOCK OPTIONS AND WARRANTS
[A] STOCK OPTION PLAN - The Company has a Stock Option Plan pursuant to which it
has reserved authorized, but unissued, shares of Common Stock for issuance of
both Qualified Incentive Stock Options and Non-qualified Stock Options to
employees, officers and directors of the Company. The option price will be the
fair market value [110% of the fair market value for Qualified Incentive Stock
Options granted to a holder of 10% or more of the Company's Common Stock] as
defined by the plan. Generally, options may be exercised commencing two years
from the date of grant and terminating ten years from the date of grant.
Following is a summary of transactions:
<TABLE>
<CAPTION>
Shares under Option
-------------------
November 30,
----------------
1 9 9 4 1 9 9 3
------- -------
<S> <C> <C>
Outstanding - Beginning of Periods 106,666 44,166
Granted during period 62,000 85,000
Terminated during period 32,500 22,500
------- -------
Outstanding - End of Periods [1] 136,166 106,666
======= =======
</TABLE>
[1] With an exercise price per share ranging from $2.00 to $9.00, giving effect
to the one-for-ten reverse stock split, which occurred on May 12, 1992.
F-18
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
At November 30, 1994 and 1993, there were 30,501 and 60,001 shares,
respectively, reserved for future grants.
[B] DIRECTORS AND OFFICERS STOCK OPTION PLAN - On August 17, 1993, the Board of
Directors ["the Board"] adopted a "Discretionary Directors and Officers Stock
Option Plan" [the "Discretionary Option Plan"] pursuant to which the Board may
award options to purchase an aggregate of 1,000,000 shares of Common Stock to
directors and officers of the Company and its subsidiaries which shall be
exercisable at the market price on the date of grant for periods, and under
conditions, specified by the Board in such grants. Options under the
Discretionary Option Plan are non-qualified and non-incentive options for
purposes of income taxation and are not intended to qualify under Section 422A
of the Internal Revenue Code of 1986. During the year ended November 30, 1994,
the Board granted officers and directors options to purchase up to 455,500
shares of Common Stock under the Discretionary Option Plan, which are
exercisable until August 31, 1999, at prices ranging from $2.00 to $2.63 per
share [the last sale price on the date of the grant].
On August 17, 1993, the Board also adopted a "Non-discretionary Directors Stock
Option Plan" [the "Non-discretionary Option Plan"] pursuant to which each
director will be granted, on August 17, 1993 and each anniversary thereof on
which he or she continues to be a director, a five-year option to purchase
10,000 shares of Common Stock at the market price on the date of the grant. The
Non- discretionary Plan also provides that any person becoming a director within
the six months after any August 17 will be granted an option for 10,000 shares
on the date he or she becomes a director. Pursuant to the Non-discretionary
Option Plan, Company directors each received options to purchase 10,000 shares
of Common Stock at $2.63 per share on August 17, 1994.
[C] WARRANTS - At November 30, 1994, the Company had outstanding Redeemable
Class A Warrants to purchase 2,305,980 shares of the Company's Common Stock at
approximately $4.49 per share. The Warrants became exercisable September 19,
1990 and expire September 19, 1995. The Warrants are redeemable by the Company,
under certain conditions, until September 19, 1995. During the year ended
November 30, 1994, 368,295 redeemable Class C Warrants and 289,560 redeemable
Class D Warrants were exercised. In January 1994 the underwriter of the
Company's October 1992 public offering exercised its unit option. The net
proceeds to the company as a result of these tranactions was approcimately
$1,951,000. At November 30, 1994 there remained outstanding 830,450 redeemable
Class C Warrants and 938,935 redeemable Class D Warrants. Each Class C Warrant
which entitles the holder to purchase one share of the Company's Common Stock at
$2.00 per share, became exercisable October 9, 1993 and expire October 9, 1996.
Each Class D Warrant which entitles the holder to purchase one share of the
Company's Common Stock at $3.00 per share, became exercisable October 9, 1993
and expire October 9, 1998. The warrants are redeemable by the Company under
certain conditions, after October 9, 1993.
F-19
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[13] INCOME TAXES
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
November 30,
------------------------
1 9 9 4 1 9 9 3
---------- ---------
<S> <C> <C>
Federal Currently Payable $ -- $ 146,129
State Currently Payable -- 46,404
---------- ---------
Totals -- 192,533
Less: Extraordinary Item: Reduction of
Income Taxes resulting from Utilization
of Operating Loss Carryforwards -- (192,533)
---------- ---------
$ -- $ --
========== =========
</TABLE>
The Company has net operating loss carryforwards for tax purposes which expire
as folllows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
2001 $ 25,000
2002 145,000
2003 585,000
2004 950,000
2005 370,000
2006 365,000
2007 340,000
----------
Total $2,780,000
----------
</TABLE>
As a result of the change in ownership in October 1987, the use of approximately
$460,000 of the net operating loss carryforwards to offset taxable income in any
year ending after October 1, 1987 will be limited.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective December 1, 1993. SFAS No. 109 requires
the establishment of a deferred tax asset for all deductible temporary
differences and operating loss carryforwards. The deferred tax asset
attributable to operating loss carryforwards amounted to approximately
$1,200,000 at November 30, 1994. Because of the Company's cumulative losses in
recent years, however, any deferred tax asset established for utilization of the
Company's tax loss carryforwards would correspondingly require a valuation
allowance of the same amount pursuant to SFAS No. 109. Accordingly, no deferred
tax asset is reflected in these consolidated financial statements.
[14] EARNINGS [LOSS] PER SHARE
Earnings [Loss] per share amounts are computed based on the weighted average
number of shares outstanding. Options, warrants and Convertible Preferred Stock
are assumed converted if dilutive.
[15] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
As described in Note 13, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" on December 1, 1993.
Since that implementation, the Financial Accounting Standards Board has isssued
eleven new authorative accounting pronouncements (SFAS's).
F-20
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
With the exception of SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", these new pronouncements either do not apply to the
Company, or will be implemented when the Company engages in applicable
transactions. SFAS No. 115 requires management to classify its investments in
debt and equity securities as trading, held-to-maturity, and/or available-for-
sale at the time of purchase and to reevaluate such determination at each
balance sheet date. The Company does not anticipate that it will have many
investments that will qualify as trading or held-to-maturity investments. Debt
securities for which the Company does not have the intent or ability to hold to
maturity will be classified as available-for-sale, along with most investments
in equity securities. Securities available-for-sale are to be carried at fair
value, with any unrealized holding gains and losses, net of tax, reported in a
separate component of shareholders' equity until realized. The Company will
implement SFAS No. 115 on December 1, 1994. None of these potentially applicable
accounting pronouncements is anticipated to have a material impact on the
Company's consolidated financial statements
[16] SUBSEQUENT EVENTS
[A] EXERCISE OF WARRANTS - Subsequent to November 30, 1994, 4,800 redeemable
Class C Warrants were exercised resulting in net proceeds to the Company of
approximately $9,600.
[B] PAYMENT OF DEBT - In January 1995 the Company made the scheduled payment,
including interest, described in Note 5.
[17] FOURTH QUARTER ADJUSTMENTS (UNAUDITED) - There were certain adjustments
recorded in the fourth quarter of fiscal year ended November 30, 1994, and the
aggregate effect of such adjustments was material to the results of that
quarter. Approximately $400,000 of start-up costs relating to Manhattan File and
Capitol Hill which were deferred in the third quarter were expensed in the
fourth quarter upon commencement of regular operations of those publications.
[18] UNAUDITED INTERIM FINANCIAL STATEMENTS - The financial statements as of
February 28, 1995 and for the three months ended February 28, 1995, and 1994 are
unaudited; however, in the opinion of management all adjustments [consisting
solely of normal recurring adjustments] necessary to a fair presentation of the
financial statements for these interim periods have been made. The results of
the interim periods are not necessarily indicative of the results to be obtained
for a full year.
. . . . . . . . . .
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Fifteenth of the Company's Articles of Incorporation, as
amended, provides that the Company shall indemnify its officers, directors,
employees and agents to the full extent permitted by Section 78.751 of the
General Corporation Law of Nevada ("GCL"). The provisions of 78.751 of the GCL
are set forth in Exhibit 28 hereto.
Article Sixteenth of the Company's Articles of Incorporation, as
amended, provides for limitation of the personal liability of a director or
officer to the Company or its stockholders for damage for breach of his
fiduciary duty as a director or officer, other than for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or for the
payment of dividends in violation of Section 78.300 of the GCL, which generally
states that dividends may be paid to stockholders from a corporation's excess of
its assets over its liabilities. See "Dividend Policy" in the Prospectus for a
detailed discussion of Section 78.300.
The Underwriting Agreements dated September 19, 1990, and October 9,
1992, between the Company and D.H. Blair & Co., Inc. and the Company and Hibbard
Brown & Co. Inc., respectively, each provide for reciprocal indemnification
between the Company and its controlling persons on the one hand and the
underwriter and its controlling persons on the other hand against certain
liabilities in connection with their registration offerings, including
liabilities under the Securities Act of 1933.
The Company has obtained a directors and officers insurance and
company reimbursement policy in the amount of $1,000,000 (subject to a $100,000
per claim deductible). The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
would reimburse the Company for such loss for which the Company has lawfully
indemnified the directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
(a) In connection with the initial registration of the Class A
Warrants and Class B Warrants and the securities offered and sold in the Hibbard
Brown Offering pursuant to this Registration Statement, the Company incurred
expenses aggregating approximately $100,000 and $480,000, respectively
(exclusive of underwriting discounts and commissions). All of such expenses are
reflected in the financial statements of the Company for the fiscal years ended
November 30, 1993 and November 30, 1992.
(b) In connection with the preparation and filing of Post-Effective
Amendments Nos. 1, 2 and 3, the Company incurred expenses aggregating
approximately $95,000. All of such expenses are reflected in the financial
statements of the Company for the year ended November 30, 1994.
(c) The following sets forth the estimated expenses payable in
connection with the preparation and filing of this Post-Effective Amendment:
<TABLE>
<S> <C>
Accounting Fees and Expenses........ $ 7,500.00
Legal Fees and Expenses............. $10,000.00
Blue Sky Fees and Expenses.......... $ 7,500.00
Printing and Reproduction Expenses.. $ 5,000.00
Miscellaneous....................... $ 5,000.00
----------
Total..................... $35,000.00
==========
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were issued by the Company within the past
three years and were not registered under the Securities Act of 1933, as amended
(the "Act"). Each of the transactions are claimed to be exempt from
registration with the Securities Exchange Commission pursuant to Section 4(2) of
the Act as transactions by an issuer not involving a public offering. All of
such securities are deemed to be restricted securities for the purposes of the
Act. All certificates representing such issued and outstanding restricted
securities of the Company have been properly legended and the Company has issued
"stop transfer" instructions to its transfer agent with respect to such
securities.
(i) There are outstanding 10-year options granted under the Company's
1987 Employee Stock Option Plan to purchase an aggregate of 74,166 shares of
Common Stock at prices ranging from $2.00 to $9.00 per share.
(ii) On May 20, 1992, the Company sold 100 shares of its 8%
Convertible Preferred Stock to Tucker Anthony, Inc., Custodian For The Benefit
Of Robert W. Kleinschmidt, IRA-R and 200 shares of its 12% Convertible Preferred
Stock to Artform, N.V. On July 15, 1992, the Company sold an aggregate of 117
shares of its 8% Convertible Preferred Stock to Michael V. Sterlacci (53
shares), Michael V. Sterlacci, IRA (14 shares) and Lenore G. Novak (50 shares).
Such shares are convertible into shares of Common Stock at the rate of 476.19
shares of Common Stock per share of Preferred Stock, subject to adjustment. In
addition, upon conversion of the 8% Convertible Preferred Stock, the holder will
receive warrants to purchase an equivalent number of shares of Common Stock.
(iii) As of April 7, 1992, the Company issued to Ganga Mukkavilli and
Robert Berkowitz 5,000 shares and 608 shares of Common Stock, respectively, as
payment for services of $10,500 rendered by Mr. Mukkavilli and $1,900 rendered
by Mr. Berkowitz.
(iv) As of April 7, 1992, the Company issued to Robert Trentlyon 2,000
shares of Common Stock, valued at $7,000, as an advance payment for a
prospective acquisition which was not consummated.
(v) On May 8, 1992, the Company's Board of Directors ratified an
earlier grant of an option, exercisable until May 31, 1996, to Daniel Rattiner
to purchase 3,333 shares of Common Stock at a price of $0.30 per share. This
option was exercised by Mr. Rattiner on January 7, 1994.
(vi) As of August 8, 1992, the Company issued to Michael Salzman 500
shares of Common Stock as payment for services of $1,500 rendered by Mr.
Salzman.
(vii) On August 17, 1993, (a) the Company granted immediately
exercisable five-year stock options to Messrs. Jerry Finkelstein, Michael
Schenkler and Daniel Rattiner to purchase 300,000, 35,000 and 35,000 shares of
Common Stock, respectively, at $2.375 per share under the Company's
Discretionary Directors and Officers Stock Option Plan and (b) granted each of
its then directors other than Mr. Ackerman (10 persons) immediately exercisable
options to purchase 10,000 shares each at $2.375 per share under the Company's
Non-discretionary Directors Stock Option Plan.
(viii) Immediately exercisable stock options to purchase 10,000
shares of Common Stock were granted under the Company's Non-discretionary
Directors Stock Option Plan on September 13, 1993, to Andrew Maloney
(exercisable at $3.50 per share) and on October 12, 1993, to Eric Breindel
(exercisable at $4.125 per share).
(ix) On April 8, 1994, the Company granted immediately exercisable
five-year stock options to its directors (11 persons) to purchase an aggregate
of 82,500 shares of Common Stock at an exercise price of $2.00 per share under
the Company's Discretionary Directors and Officers Stock Option Plan.
II-2
<PAGE>
(x) On May 2, 1994, the Company issued to Gaines, Berland Inc. a
warrant to purchase 100,000 shares of Common Stock at $1.375 per share.
(xi) On May 25, 1994, effective July 1, 1994, the Company granted
Martin Tolchin immediately exercisable five-year stock options to purchase
50,000 shares of Common Stock at an exercise price of $1.25 per share.
(xii) On August 12, 1994, the Company granted immediately exercisable
options to purchase an aggregate of 313,000 shares of Common Stock exercisable
at $2.625 per share, of which options to purchase 208,000 shares were granted to
certain officers, directors and employees under the Company's Discretionary
Directors and Officers Stock Option Plan (6 persons) and options to purchase
105,000 shares were granted to 3 other persons.
(xiii) On August 17, 1994, the Company granted immediately
exercisable options to purchase 10,000 shares of Common Stock each to each of
its then directors other than Mr. Ackerman (12 persons) under the Company's Non-
discretionary Directors Stock Option Plan, exercisable at $2.625 per share.
(xiv) On September 15, 1994, the Company issued 60,000 shares of
Common Stock to Gregory Linder in connection with the acquisition of the
BROOKLYN SKYLINE.
(xv) On October 10, 1994, the Company issued 62,123 shares of Common
Stock to Enlightenment Press, Inc. in connection with the acquisition of the
CHELSEA-CLINTON NEWS and WESTSIDER.
(xvi) On November 7, 1994, the Company granted immediately
exercisable options to purchase an aggregate of 145,000 shares of Common Stock
to 5 directors under the Company's Discretionary Directors and Officers Stock
Option Plan, exercisable at $2.00 per share.
(xvii) On May 3, 1995, the Company issued 10,000 shares of Common
Stock to Martin Tolchin upon the exercise of an option therefor.
(xviii) On June 22, 1995, the Company granted an immediately
exercisable option to purchase 350,000 shares of Common Stock to Jerry
Finkelstein under the Company's Discretionary Directors and Officers Stock
Option Plan, exercisable at $2.00 per share.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document (1) Document
- ------- ----------- ----------------- --------
<S> <C> <C> <C>
1.1 Form of Underwriting Agreement between B 1.1
the Company and D.H. Blair & Co., Inc.
("Blair").
1.2 Form of Selected Dealer Agreement B 1.2
related to Exhibit 1.1.
</TABLE>
_______________________________
See Notes at end of Item 16(a).
II-3
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- ------------- --------
<S> <C> <C> <C>
1.3 Form of Underwriting Agreement **
between the Company and Hibbard
Brown & Company, Inc. ("Hibbard Brown").
1.3.1 Revised form of Underwriting Agreement **
between the Company and Hibbard Brown.
3.1 Articles of Incorporation of the A 3.1
Company (formerly known as Applied
Resources, Inc.), filed with the Secretary
of State of the State of Nevada on
May 20, 1986.
3.1.1 Certificate of Amendment of the A 3.1.1
Articles of Incorporation of the Company,
filed with the Secretary of State of the
State of Nevada on December 8, 1987.
3.1.2 Certificate of Amendment of the Articles of B 3.1.2
Incorporation of the Company, filed with the
Secretary of State of Nevada on August 16, 1990.
3.1.3 Certificate of Amendment of the Articles of **
Incorporation of the Company, filed with the
Secretary of State of Nevada on July 26, 1994.
3.2.1 By-Laws of the Company (as amended and
restated). **
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Preferred Stock B 4.2
Certificate.
4.2.1 Resolution of Board of Directors fixing B 4.2.1
the terms of the 10% Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the **
terms of the 8% Convertible Preferred Stock.
4.2.3 Resolution of the Board of Directors fixing the **
terms of the 12% Convertible Preferred Stock.
4.2.4 Certificate of Amendment of Certificate **
of Designation of 8% Convertible Preferred
Stock.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- ------------- --------
<S> <C> <C> <C>
4.3 Form of Warrant Agreement related to Class B 4.3
A Warrants and Class B Warrants.
4.4 Form of Class A Warrant. B 4.4
4.5 Form of Class B Warrant. B 4.5
4.6 Form of Blair Unit Purchase Option. B 4.64.7
Form of Warrant Agreement related to Class **
C Warrants and Class D Warrants.
4.7 Form of Warrant Agreement related to Class **
C Warrants and Class D Warrants.
4.7.1 Revised form of Warrant Agreement related **
to Class C Warrants and Class D Warrants.
4.8 Form of Class C Warrant. **
4.9 Form of Class D Warrant. **
4.10 Form of Underwriter's Unit Purchase **
Warrant related to Exhibit 4.11.
4.10.1 Revised form of Underwriter's Unit **
Purchase Warrant related to Exhibit 4.11.
4.11 Form of Underwriter's Warrant Agreement **
between the Company and Hibbard Brown.
4.11.1 Revised form of Underwriter's Warrant **
Agreement between the Company and
Hibbard Brown.
5 Opinion of Graubard Mollen Horowitz **
Pomeranz & Shapiro.
10.1 1987 Stock Option Plan of the C 10.1
Company.
10.2.1 Discretionary Directors and Officers
Stock Option Plan. **
10.2.2 Non-discretionary Directors Stock Option
Plan. **
10.3 Form of Consulting Agreement between the B 10.3
Company and Blair.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- ------------- --------
<S> <C> <C> <C>
10.4 Shareholders' Agreement, dated as of D 2.1
October 13, 1988, between Daniel
Rattiner and the Company.
10.4.1 Asset Purchase Agreement, dated as D 2.2
of October 13, 1988, between Dan's Papers,
Ltd. and DP Acquisition Corp.
10.4.2 Pledge and Escrow Agreement, dated D 2.3
October 31, 1988, among Dan's Papers,
Ltd., the Company, DP Acquisition Corp.
and Field & Field, P.C.
10.4.3 Agreement of Lease, dated October D 2.4
31, 1988, between Daniel Rattiner and
DP Acquisition Corp., as to building
known as Dan's Papers, Ltd., located
on Montauk Highway, Bridgehampton,
New York.
10.7 Agreement and Plan of Merger, dated F 2.1
March 16, 1989, among The Flushing
Tribune, Inc., Multi Media Advertising
Incorporated, Gary Ackerman, Michael
Schenkler, the Company and Tribco
Incorporated.
10.7.1 Amendment to Agreement and Plan of F 2.3
Merger, dated May 16, 1989, among
The Flushing Tribune, Inc., Multi
Media Advertising Incorporated,
Gary Ackerman, Michael Schenkler, the
Company and Tribco Incorporated.
10.7.3.1 Employment Agreement, dated as of K 10.7.3.1
November 1, 1994, between Michael
Schenkler and the Company.
10.7.3.2 Employment Agreement dated as of K 10.7.3.2
November 1, 1994, between Thomas
Allon and the Company.
10.7.4 Employment Agreement, dated August 20,
1993, between Jerry Finkelstein and
the Company. **
10.8 Agency Agreement, dated January 18, 1990, G 10.8
between the Company and D.H. Blair
& Co., Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- ------------- --------
<S> <C> <C> <C>
10.11 Stock Option Agreement dated September 1,
1993, between Jerry Finkelstein and the
Company. **
10.13 Letter Agreement, dated June 15, 1990, between B 10.21
Dan's Papers Inc. and Dan's Papers, Ltd.
10.17 Lease for space at 174-15 Horace Harding B 10.25
Expressway, Fresh Meadows, New York.
10.19 Asset Purchase Agreement dated May 22, 1991, H 2.1
between East Side West Side Communications
Corp. ("ESWS") and Manhattan Publishing
Corp. ("MHP") (without exhibits).
10.19.1 Form of Non-Negotiable Promissory Note H 10.1
dated May 22, 1991, in principal amount
of $750,000 from MPC to ESWS.
10.19.2 Confidentiality and Non-Competition H 10.2
Agreement dated May 22, 1991, among ESWS,
Edward Kayatt and MPC.
10.19.3 Stock Option Agreement dated May 22, 1991, H 10.3
between the Company and Edward Kayatt.
10.19.4 Form of Pledge and Escrow Agreement dated H 10.4
as of May 22, 1991, among ESWS, MPC, Media
Venture Group, Inc. and Kane, Kessler,
Proujansky, Tullman, Preiss & Nurnberg.
10.23 Agreement dated as of November 18, I 10.23
1991, between Dan's Papers, Inc.
and Daniel Rattiner.
10.24 Form of Financial Consulting **
Agreement between the Company and
Hibbard Brown.
10.25.1 Form of Agreement dated December 18, J 10.25.1
1992, between the Company and Myron
Garfinkle.
10.25.2 Form of Promissory Note dated December J 10.25.2
18, 1992, in principal amount of
$79,000 issued by Company to Myron
Garfinkle.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- ------------- --------
<S> <C> <C> <C>
10.25.3 Stock Pledge Agreement dated December J 10.25.3
18, 1992, between Myron Garfinkle and
the Company.
10.26 Agreement of Lease dated January 28, J 10.26
1993, between Furcraft Associates,
Inc. and the Company.
10.27 Acquisition Agreement and Employment
Agreement between Long Island News Group,
Inc. and Barry Manning and MB Publishing,
Inc. and Barry Manning and David Manning
and Long Island Community Newspaper Group,
Inc. and the Company. **
11.3 Statement re computation of per share *
earnings.
21 Subsidiaries of the Company. K 22
23.1 Consent of Graubard Mollen Horowitz **
Pomeranz & Shapiro (included in Exhibit 5).
23.12 Consent of Mortenson and Associates, P.C. *
27 Financial Data Schedule *
99 Section 78.751 of the General Corporation B 28
Law of Nevada.
</TABLE>
- -----------------------------------------
Notes:
(1) The Commission file number assigned to the Company's Registration Statement
on Form S-18, filed with the Commission on May 29, 1986, was 33-6126. The
Company's first registration of a class of equity securities under the
Securities Exchange Act of 1934 became effective on February 21, 1990. The
Commission file number assigned to the Company at that time was 0-18299.
The Commission File number assigned to the Company's Registration Statement
on Form S-1, as declared effective by the Commission on September 19, 1990
was 33-35484.
A Annual Report of the Company on Form 10-K for the year ended November 30,
1987.
B Registration Statement of the Company on Form S-1, No. 33-35484.
C Quarterly Report of the Company on Form 10-Q for the quarter ended October
31, 1987.
D Current Report of the Company on Form 8-K relating to events occurring on
October 31, 1988.
F Current Report of the Company on Form 8-K relating to events occurring on
May 16, 1989.
G Annual Report of the Company on Form 10-K for the year ended November 30,
1989.
H Current Report of the Company on Form 8-K relating to events occurring on
May 22, 1991.
I Annual Report of the Company on Form 10-K for the year ended November 30,
1991.
J Annual Report of the Company on Form 10-KSB for the year ended November 30,
1992.
K Annual Report of the Company on Form 10-KSB for the year ended November 30,
1994.
* Filed herewith.
** Previously filed with this Registration Statement.
*** To be filed by amendment.
II-8
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to under Item 14
of this Registration Statement, under the Underwriting Agreement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or a controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or a controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
LIST OF CONSENTS REQUIRED BY RULES 436 AND 438
The consent of Graubard Mollen Horowitz Pomeranz & Shapiro to the
reference to them in the Prospectus constituting a part of this Registration
Statement and to the use of their opinion as to this Registration Statement is
included in their opinion (filed as Exhibit 5 hereto).
The consent of Mortenson and Associates, P.C., independent auditors,
is filed herewith as Exhibit 23.12.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 29th day of June, 1995.
NEWS COMMUNICATIONS, INC.
BY: /s/ Michael Schenkler
-----------------------------------
Michael Schenkler, President
In accordance with the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
s/ Michael Schenkler Director, President and June 29, 1995
- ---------------------------- Principal Executive Officer
Michael Schenkler
s/ Gary Ackerman Director June 29, 1995
- ----------------------------
Gary Ackerman
s/ Eric Breindel Director June 29, 1995
- ----------------------------
Eric Breindel
s/ John Catsimatidis Director June 29, 1995
- ----------------------------
John Catsimatidis
s/ Jerry Finkelstein Director, Chairman of June 29, 1995
- ---------------------------- the Board
Jerry Finkelstein
s/ Joseph Fisher Director June 29, 1995
- ----------------------------
Joseph Fisher
s/ David Jaroslawicz Director June 29, 1995
- ----------------------------
David Jaroslawicz
s/ William J. Kelleher Director June 29, 1995
- ----------------------------
William J. Kelleher
s/ Andrew Maloney Director June 29, 1995
- ----------------------------
Andrew Maloney
s/ Christopher C. McGrath Director June 29, 1995
- ----------------------------
Christopher C. McGrath
s/ Martin J. McLaughlin Director June 29, 1995
- ----------------------------
Martin J. McLaughlin
s/ Andrew J. Stein Director June 29, 1995
- ----------------------------
Andrew J. Stein
s/ Arthur Tarlow Director June 29, 1995
- ----------------------------
Arthur Tarlow
s/ Robert Berkowitz Controller, Chief Financial June 29, 1995
- ---------------------------- and Accounting Officer
Robert Berkowitz
II-11
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11.3 Statement re computation of per share earnings
23.12 Consent of Mortenson and Associates, P.C.
27 Financial Data Schedule
<PAGE>
EXHIBIT 11.3
NEWS COMMUNICATIONS, INC.
EXHIBIT 11.3
<TABLE>
<CAPTION>
February 28, November 30,
------------ ------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FULLY DILUTED:
Average Shares Outstanding Disregarding Dilutive
Convertible Preferred Stock 7,768,776 7,353,942 7,580,203 6,232,630
Assuming Conversion at beginning of Year of:
10% Convertible Preferred Stock 57,600 59,400 57,600 59,400
8% Convertible Preferred Stock 103,333 103,333 103,333 103,333
12% Convertible Preferred Stock 95,238 95,238 95,238 95,238
---------- ---------- ---------- ----------
Shares Outstanding 8,025,947 7,611,913 7,836,374 6,490,601
========== ========== ========== ==========
Income [Loss] Available to Common Stockholders
for Fully Diluted Calculations $ (659,400) $ (210,662) $ (604,711) $ 191,269
Per Share Amount:
Net Income [Loss] $(.08) $(.03) $(.08) $.03
</TABLE>
This calculation is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although it is contrary to para 48 of APB No. 15 because it
produces an antidilutive result.
<PAGE>
EXHIBIT 23.12
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
News Communications, Inc.
New York, New York
We hereby consent to use in the Prospectus constituting a part of this
Post-Effective Amendment No. 5 on Form SB-2 to Registration Statement on Form S-
1 of our report dated March 8, 1995, relating to the consolidated financial
statements of New Communications, Inc. and Subsidiaries, which is contained in
the Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
June 29, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> NOV-30-1995 NOV-30-1994
<PERIOD-END> FEB-28-1995 NOV-30-1994
<CASH> 844198 842857
<SECURITIES> 52027 924633
<RECEIVABLES> 4744144 4743098
<ALLOWANCES> 964620 979962
<INVENTORY> 0 0
<CURRENT-ASSETS> 4938051 5772951
<PP&E> 1239885 1188661
<DEPRECIATION> 550931 500156
<TOTAL-ASSETS> 9639491 10557604
<CURRENT-LIABILITIES> 1355206 1623136
<BONDS> 0 0
<COMMON> 79206 79157
0 0
449 449
<OTHER-SE> 8204630 8854862
<TOTAL-LIABILITY-AND-EQUITY> 9639491 10557604
<SALES> 3384111 13718175
<TOTAL-REVENUES> 3384111 13718175
<CGS> 0 0
<TOTAL-COSTS> 4034733 14413364
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6475 24797
<INCOME-PRETAX> (649060) (563351)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (649060) (563351)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (649060) (563351)
<EPS-PRIMARY> (.08) (.08)
<EPS-DILUTED> 0 0
</TABLE>
