NEWS COMMUNICATIONS INC.
November 10, 1995
Dear Shareholders,
It is with pride that we enclose in this mailing our current issue of The Hill -
our exciting year-old weekly that covers the United States Congress. Its
journalistic excellence and bipartisan acceptance has made it, in its first
year, a must read for members of Congress, their staffs and other governmental
officials.
The Hill's hard work and commitment to excellence has paid off -- financially.
When the nation's decision-makers read, the nation's advertisers react. The
Hill has not only turned the corner but is already realizing profits far beyond
media expert's expectations. The weekly issue you hold in your hand produced an
operating profit of almost $40,000. Our efforts for the last five issues have
yielded an average net profit of more than $24,000 per week. And we continue to
grow. We anticipate that our $1 million investment may be repaid in our second
year of publishing and future profits will result in The Hill quickly becoming
our most valuable asset. Industry experts will be talking about this start-up
as one of the triumphs of the publishing industry. We are extremely proud of
The Hill.
Our success doesn't stop there.
Manhattan File our year-old glossy magazine aimed at the upscale, young,
culture-conscious New Yorker has also turned the corner. Although its success
may not be as dramatic as our D.C. publication, we are comfortable that it will
be profitable in our second year of publishing -- a feat not often heard of in
the magazine industry.
We added Long Island Lifestyles -- a supplement, utilizing four-color -- to our
thirteen Nassau County publications, resulting in a profit in our second year of
publishing this Long Island chain.
Our new Manhattan West Side acquisitions have turned a profit in our first year
of publishing.
<PAGE>
We have added a fifth community edition to our new Brooklyn Skyline papers and
expect to show profit in fiscal 1996, our second full year of publishing.
We have also introduced a new door-to-door newspaper in Bayside, Queens County's
most affluent community. Publishing as part of the Queens Tribune, this new
paper is expected to broaden the profitability of our dominant 25 year-old
Queens County paper.
Our other established weeklies, the extremely successful 35 year-old Dan's
Papers in the Hamptons, Manhattan's Spirit and Our Town, and our three
publications in the Bronx, Riverdale and Westchester continue to produce a
substantial combined profit.
Next year we expect each of our ten subsidiaries and their 23 publications to
achieve new levels of profitability. We have negotiated new print contracts
that will enable us to maximize profits in spite of a volatile newsprint market.
This year, we grew our revenue by more than 35% to more than $19 million. We
expect to continue our growth.
Start-ups are the most difficult part of publishing. It is extremely costly and
risky to launch new publications. Even though fiscal 1995 will not show an
overall corporate profit due to our investment in the start-up of The Hill and
Manhattan File, next year we expect to reap the profit of our hard work. We
shall strive to continue the dramatic increase in the asset value of News
Communications that we achieved this year.
As we look forward to a year of excitement and profit, we'd like to thank our
shareholders for their support and confidence.
On behalf of the Board of Directors of News Communications we'd like to wish you
and your family a happy holiday season and a healthy and prosperous New Year.
Sincerely,
/s/ Jerry Finkelstein /s/ Michael Schenkler
- ----------------------- ----------------------
Jerry Finkelstein Michael Schenkler
Chairman President
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended - August 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
---------------- ---------------
Commission File Number 0-18299
-------
NEWS COMMUNICATIONS, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
-------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expwy., Fresh Meadows, New York 11365
-----------------------------------------------------------------
(Address of principal executive offices)
(718) 357-3380
--------------
(Issuer's telephone number)
----------------------------------------
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity , as of October 13, 1995: 7,793,426 shares $ .01 par value common stock
<PAGE>
FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at August 31, 1995........................................... 3
Unaudited Consolidated Statements of Operations for
the three and nine months ended August 31, 1995 and
August 31, 1994.............................................. 5
Unaudited Consolidated Statements of Cash
Flows for nine months ended
August 31, 1995 and August 31, 1994.......................... 6
Notes to Consolidated Financial Statements................... 9
Item 2. Management's Discussion and Analysis
or Plan of Operation......................................... 10
PART II. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K
Signatures................................................................ 16
2
<PAGE>
PART I-ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1995
(UNAUDITED)
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 32,586
Accounts Receivable [Less: Allowance for
Doubtful Accounts of $1,068,307] 5,010,544
Due From Related Parties 76,266
Other Current Assets 495,625
---------------
TOTAL CURRENT ASSETS 5,615,021
Property and Equipment at Cost- Net of
Accumulated Depreciation of $644,844 663,831
Goodwill - Net 3,699,030
Other Assets 169,884
-------------
TOTAL ASSETS $ 10,147,766
=============
3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1995
(UNAUDITED)
LIABILITIES AND STOCHHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable $ 457,407
Accrued Expenses 159,979
Accrued Payroll Taxes 48,501
Notes Payable - Bank 480,000
Other Current Liabilities 154,956
--------------
TOTAL CURRENT LIABILITIES 1,300,843
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
8% Convertible Preferred Stock, 500 Shares Authorized,
217 Issued and Outstanding, $80 Per Share Per Annum
Cumulative Dividends, $217,000 Liquidation Value 217
12% Convertible Preferred Stock, 200 Shares Authorized,
200 Issued and Outstanding, $120 Per Share Per Annum
Cumulative Dividends, $200,000 Liquidation Value 200
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 7,934,376 Shares Issued 79,344
Paid-in-Capital Preferred Stock 519,873
Paid-in-Capital Common Stock 13,677,385
(Deficit) (5,021,399)
--------------
Total $9,255,652
Less: Treasury Stock [151,000 Shares]-
At Cost (408,729)
--------------
TOTAL STOCKHOLDERS' EQUITY 8,846,923
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,147,766
==============
4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
THREE MONTHS ENDED AUGUST 31, NINE MONTHS ENDED AUGUST 31
----------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
UNAUDITED
<S> <C> <C> <C> <C>
NET REVENUES $5,602,219 $3,969,208 $13,543,016 $9,312,826
----------- ---------- ----------- ----------
EXPENSES:
Direct Mechanical Costs 1,617,361 1,344,106 4,094,584 3,013,444
Salaries, Benefits and
Outside Labor Costs 2,494,283 1,547,640 6,732,541 4,178,834
Rent, Occupancy & Utilities 232,017 140,408 619,679 367,210
Provisions for Doubtful Accounts 87,000 84,000 159,000 173,000
General and Administrative 794,770 310,079 2,041,067 942,005
----------- ---------- ----------- ----------
TOTAL EXPENSES 5,225,431 3,426,233 13,646,871 8,674,493
----------- ---------- ----------- ----------
Operating Income (Loss) Before Interest
Expense and Interest Income 376,788 542,975 (103,855) 638,333
Interest Expense (6,803) (13,339) (13,278) (69,829)
Interest Income 13 3,802 31,591 36,441
----------- ---------- ----------- ----------
NET INCOME (LOSS) $ 369,998 $ 533,438 $ (85,542) $ 604,945
=========== ========== =========== ==========
NET INCOME (LOSS) PER SHARE $ .05 $ .07 $(.01) $ .08
=========== ========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,783,376 7,632,549 7,776,286 7,434,227
=========== ========== =========== ==========
</TABLE>
5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
NINE MONTHS ENDED AUGUST 31,
1995 1994
---- ----
UNAUDITED
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ (85,542) $ 604,945
---------- ------------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 373,077 257,558
Provision for Losses on Accounts
Receivable 159,000 173,000
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable (1,405,859) (1,509,640)
(Increase) Decrease in Other Current
Assets (333,422) (702,988)
(Increase) Decrease in Due from Related Parties 3,856 ----
Decrease (Increase) in Other Assets 23,153 (18,063)
(Increase) Decrease in Goodwill (24,033) ----
Increase (Decrease) in Accounts Payable
and Accrued Expenses (793,481) 149,011
Increase (Decrease) in Payroll Taxes Payable (82,367) (79,409)
Increase (Decrease) in Other Current Liabilities 148,516 (67,314)
---------- ---------
Total Adjustments (1,931,560) (1,797,845)
------------ ------------
NET (DEFICIT) - OPERATING ACTIVITIES - (2,017,102) (1,192,900)
FORWARD
</TABLE>
6
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
NINE MONTHS ENDED AUGUST 31,
1995 1994
---- ----
UNAUDITED
<S> <C> <C>
NET (DEFICIT) - OPERATING ACTIVITIES -
FORWARDED (2,017,102) (1,192,900)
=========== ===========
INVESTING ACTIVITIES:
Purchase of the Nassau Newspapers ---- (313,000)
Purchase of Brooklyn Skyline ---- ( 25,000)
Purchase of Bronx Press Review ---- (17,551)
Sale of Marketable Securities 924,633 ----
Capital Expenditures (120,009) (136,583)
------------ -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 804,624 (492,134)
--------- -------------
FINANCING ACTIVITIES:
Principal Payments Long-Term Debt (75,747) (470,250)
Proceeds from Exercise of Warrants 9,216 2,055,709
Dividend on Preferred Stock (31,020) (31,020)
Proceeds from Notes Payable - Bank 480,000 ----
Proceeds from Exercise of Stock Options 19,758 1,000
Payment of Notes Payable ---- (81,254)
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 402,207 1,474,185
------------- ------------
NET INCREASE (DECREASE) IN CASH (810,271) (210,849)
CASH - BEGINNING OF PERIODS 842,857 2,832,858
------------ -----------
CASH - END OF PERIODS $ 32,586 $ 2,622,009
============= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,547 $ 10,754
Income Taxes ---- ----
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On August 18, 1994 the Company acquired certain assets of Brooklyn Skyline
Publications, Inc. ("BROOKLYN SKYLINE"). The net purchase price consisted of
cash and stock valued at approximately $110,000. On December 9, 1993 the Company
acquired certain assets of Long Island News Group and
7
<PAGE>
MB Publishing Co., publishers of eight paid weekly newspapers in Nassau
County, New York (the "NASSAU NEWSPAPERS"). The net purchase price consisted
of cash and stock valued at approximately $655,000. The cash portion
($313,000) was paid at the time of acquisition with the stock to be issued
in annual installments beginning in December 1996.
8
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
---------------------
The Consolidated Balance Sheet as of August 31, 1995 and the Consolidated
Statements of Operations for the three and nine-month periods ended August 31,
1995 and August 31, 1994, and the Consolidated Statements of Cash Flows have
been prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been consolidated or omitted. These consolidated financial statements
should be read in conjunction with the Company's annual report Form 10-KSB for
the fiscal year ended November 30, 1994 and the related audited financial
statements included therein.
B. Income/Loss per Share:
---------------------
Loss per share is based on the weighted average number of shares outstanding
during the periods.
9
<PAGE>
PART I-ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
News Communications, Inc. publishes various weekly community
newspapers and related targeted audience publications.
The Company publishes the DAN'S PAPERS, and the MONTAUK PIONEER, OUR
TOWN, thE MANHATTAN SPIRIT, the CHELSEA CLINTON NEWS, and the WESTSIDER,
the QUEENS TRIBUNE, the BRONX PRESS REVIEW, (and the RIVERDALE
REVIEW and WESTCHESTER LIFESTYLES), the NASSAU NEWSPAPERS, (including LYNBROOK
USA, MALVERNE TIMES, ROCKVILLE CENTRE NEWS & OWL, VALLEY STREAM MAILEADER,
INDEPENDENT VOICE OF LONG BEACH, OCEANSIDE & ISLAND PARK, ROCKVILLE
CENTRE-OCEANSIDE BEACON, BALDWIN CITIZEN, EAST ROCKAWAY OBSERVER, six editions
of the LONG ISLAND MARKET and LONG ISLAND LIFESTYLES) and the BROOKLYN SKYLINE
all weekly regional newspapers. The Company also publishes a monthly glossy
magazine, MANHATTAN FILE, and THE HILL, a weekly newspaper devoted to coverage
of the United States Congress. The following table 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 PRESS REVIEW -
December 1992; NASSAU NEWSPAPERS - December 1993; BROOKLYN SKYLINE - August
1994; MANHATTAN FILE - August 1994; THE HILL - September 1994; WESTSIDE
PUBLICATIONS - September 1994. The information for the three and nine months
ended August 31, 1995 and August 31, 1994 is unaudited.
10
<PAGE>
<TABLE><CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1995 1994 1995 1994
Unaudited
<S> <C> <C> <C> <C>
NET REVENUES:
Existing Publications:
Queens Tribune $ 896,695 $ 901,447 $ 2,320,369 $2,292,841
Dan's Papers 1,621,268 1,423,318 2,535,152 2,203,808
Manhattan Spirit 392,993 424,938 1,231,335 1,295,716
Our Town 358,883 392,495 1,146,363 1,185,317
The Bronx Press Review 257,748 239,245 731,827 760,630
Nassau Newspapers 733,694 575,872 1,998,153 1,562,621
---------- ---------- ----------- -----------
Total Net Revenues - Existing Publications 4,261,281 3,957,315 9,963,199 9,300,933
-------- ----------- ----------- -----------
Acquisitions and Start-ups:
The Hill 403,379 ---- 1,019,991 ----
Manhattan File 365,629 ---- 1,041,547 ----
Brooklyn Skyline 300,915 11,893 752,111 11,893
Westside Publications 271,015 ---- 766,168 ----
------------- ------------- ------------ -----------
Total Net Revenues Acquisitions and Start-ups 1,340,938 11,893 3,579,817 11,893
------------- -------------- ------------ -----------
TOTAL NET REVENUES $ 5,602,219 $ 3,969,208 $ 13,543,016 $ 9,312,826
=========== =========== ============ ===========
INCOME (LOSS) PUBLICATIONS BEFORE GOODWILL:
Existing Publications:
Queens Tribune $ 170,510 $ 192,884 553,402 582,356
Dan's Papers 608,029 575,612 773,440 655,005
Manhattan Spirit 27,399 24,827 84,394 78,271
Our Town 40,559 33,538 184,143 179,955
The Bronx Press Review (17,643) 19,727 (13,695) 73,595
Nassau Newspapers 72,834 12,610 95,538 (6,070)
------------- ------------- ----------- -----------
Income - Existing Publications 901,688 859,198 1,677,222 1,563,112
------------- ------------ ----------- -----------
Acquisitions and Start-ups:
The Hill (54,442) ---- (354,662) ----
Manhattan File (76,005) ---- (212,808) ----
Brooklyn Skyline (21,628) (670) (59,106) (670)
Westside Publications 7,252 ---- 38,021 ----
------------- ------------ ----------- -----------
Income (Loss) Acquisitions and Start-ups (144,823) (670) (588,555) (670)
------------- ------------ ----------- -----------
INCOME (LOSS) - PUBLICATIONS $ 756,865 $ 858,528 $1,088,667 $1,562,442
============= ============ =========== ===========
INCOME (LOSS) PUBLICATIONS AFTER GOODWILL (1):
Existing Publications:
Queens Tribune $143,793 $ 166,167 473,251 502,205
Dan's Papers 595,354 562,937 735,414 616,979
Manhattan Spirit 27,399 24,827 84,394 78,271
Our Town 27,098 20,077 143,760 139,573
The Bronx Press Review (21,205) 17,227 (24,380) 66,095
Nassau Newspapers 65,085 5,110 72,291 (28,570)
------------- ------------ ----------- -----------
Income - Existing Publications 837,524 796,345 1,484,730 1,374,553
------------- ------------ ----------- -----------
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Acquisitions and Start-ups:
The Hill (54,442) ---- (354,662) ----
Manhattan File (76,005) (670) (212,808) (670)
Brooklyn Skyline (23,022) ---- (63,288) ----
Westside Publications 3,991 ---- 28,238 ----
------------- ------------ ----------- ------------
Income (Loss) Acquisitions and Start-ups (149,478) (670) (602,520) (670)
------------- ------------ ----------- ------------
INCOME (LOSS)-PUBLICATIONS $ 688,046 $ 795,675 $ 882,210 $ 1,373,883
============= ============ =========== ============
PARENT COMPANY EXPENSES:
Personnel, Rent, General and Administrative 311,258 256,502 986,066 773,739
Interest (2) 6,790 5,735 (18,314) (4,801)
------------- ------------ ----------- ------------
Total Parent Company Expenses 318,048 262,237 967,752 768,938
------------- ------------ ----------- ------------
NET INCOME (LOSS) $ 369,998 $ 533,438 $ (85,542) $ 604,945
============= ============ =========== ============
</TABLE>
(1) Reflects expense for amortization of goodwill by publication as follows:
<TABLE><CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Queens Tribune $26,717 $26,717 $80,151 $ 80,151
Dan's Papers 12,675 12,675 38,026 38,026
Our Town 13,461 13,461 40,383 40,383
The Bronx Press Review 3,562 2,500 10,685 7,500
Nassau Newspapers 7,749 7,500 23,247 22,500
Brooklyn Skyline 1,394 --- 4,182 ----
Westside Publications 3,261 --- 9,783 ----
---------- ------------ --------- ----------
$ 68,819 $ 62,853 $ 206,457 $ 188,560
========== ========== ========= ==========
</TABLE>
(2) Net of interest income of $13 and $3,802 for the three months ended August
31, 1995 and 1994 respectively and $31,592 and $38,189 for the nine months ended
August 31, 1995 and 1994 respectively.
RESULTS OF OPERATIONS:
The following discussion compares results of operations for the three months
ended and nine months ended August 31, 1995 and August 31, 1994.
THREE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
NET REVENUES:
Total revenues from existing publications were up just over 7%. The
QUEENS TRIBUNE had a decrease of 1% due to the "Official Guide to Queens" being
published in the fourth quarter of this year as compared to the third quarter
last year, offset by additional revenues from its new Bayside Trib at Home
edition. The addition of Long Island Lifestyles, a four color lifestyle section
12
<PAGE>
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 by 27%. 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 by14%. There were decreases in revenues of 8%
at both the MANHATTAN SPIRIT and OUR TOWN, attributed in part to a change in
sales management and a shift away from lower margin sales. The BRONX PRESS
REVIEW revenues were up by 7% as a result of increased sales efforts. The
additional revenues generated by the acquisitions and start-ups has brought the
total revenues for the quarter to more than $5,600,000, an increase of 41%.
INCOME (LOSS) - PUBLICATIONS:
Net Income from existing publications increased by 5%, even as
newsprint prices have continued increasing. The Company has been engaging in
ongoing negotiations with paper suppliers and reviewing contracts with printers
which has enabled it to continue to maintain profits. The decrease in income for
the QUEENS TRIBUNE is attributed to the shifting of its "Official Guide to
Queens" to the fourth quarter. DAN'S PAPERS income had an increase of 6% as a
result of the increase in revenues. The BRONX PRESS REVIEW had a loss compared
to last year as a result of a change in management, repositioning it for
growth.. Income for NASSAU NEWSPAPERS showed an increase of 478% as a result of
its expansion with Long Island Lifestyles. The MANHATTAN SPIRIT and OUR TOWN
both were able to maintain last years profit levels. Acquisitions and Start-ups
continued their move towards profitability. The Company is continuing to focus
on increasing sales and controlling costs.
PARENT COMPANY EXPENSES:
The increase in parent company expenses of 21% was primarily a result of
increased rent and personnel costs required for the continuing corporate growth
and expansion.
NINE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
NET REVENUES:
Total revenues from existing publications were up over 7%. 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
by 28%. The QUEENS TRIBUNE has expanded with an edition in the affluent Bayside
section of Queens and will be realizing additional revenues in future periods.
DAN'S PAPERS has continued to expand its geographic base to the North Fork of
Long
13
<PAGE>
Island and further west in the Hamptons, increasing its revenues by 15%. The
additional revenues generated by the acquisitions and start-ups has brought
the total revenues for the six months to over $13,000,000, an increase of 45%.
INCOME (LOSS) - PUBLICATIONS:
Net Income from existing publications increased by more than 7%. DAN'S
PAPERS had an increase of 19% as a result of the increase in revenues and
tighter financial controls. The BRONX PRESS REVIEW had a slight loss compared to
a profit last year as a result of the sale of its building last year. The
increase in sales for NASSAU NEWSPAPERS resulted in a profit this year as
compared to a loss of over $6,000 last year. All other existing publications
were able to maintain last years profit levels. The Company is continuing to
focus on increasing sales and controlling costs. As newsprint prices have
increased, the Company continues to engage in ongoing negotiations with paper
suppliers and review contracts with printers in order to continue to increase
profits .
PARENT COMPANY EXPENSES:
The increase in parent company expenses of 27% was primarily a result of
increased rent and personnel costs required for the continuing corporate growth
and expansion.
LIQUIDITY AND CAPITAL RESOURCES:
At August 31, 1995, the Company had an excess of current assets over
current liabilities in the amount of approximately $4,315,000. In January 1995,
$85,000 was used to pay notes and accrued interest incurred with the acquisition
of the BRONX PRESS REVIEW. In May 1995 the Company obtained a $500,000 working
capital line of credit, from a bank, to be used to offset seasonal fluctuations
in cashflow.
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 the line of credit and cash on
hand from operations are expected to be sufficient to meet the Company's cash
needs on an ongoing basis.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - None
B. Reports on Form 8-K - None
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: October 18, 1995 By:/s/ Michael Schenkler
---------------------
Michael Schenkler, President
Date: October 18, 1995 By:/s/ Robert Berkowitz
--------------------
Robert Berkowitz, Controller
16
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 30, 1994
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
-------------- ------------
Commission file number 0-18299
-------
NEWS COMMUNICATIONS, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 13-3346991
----------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
174-15 Horace Harding Expressway, Fresh Meadows, New York 11365
---------------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (718) 357-3380
----------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
<TABLE><CAPTION>
<S> <C> <C>
Common Stock, par value $.01 per share Redeemable Class A Warrants Redeemable Class B Warrants
-------------------------------------- --------------------------- ---------------------------
(Title of class) (Title of Class) (Title of Class)
Redeemable Class C Warrants Redeemable Class D Warrants Units, each consisting of one share
--------------------------- ---------------------------
(Title of class) (Title of Class) of Common Stock, one Redeemable
Class C Warrant and one
Redeemable Class D Warrant
--------------------------
(Title of Class)
</TABLE>
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were
$13,812,817.
As of February 28 1995, 7,768,076 shares of Common Stock were
outstanding. The aggregate market value of shares of Common Stock (based on
the last sale price as reported by NASDAQ) held by non-affiliates of the
issuer was approximately $13,615,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
ITEM 1. DESCRIPTION OF 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
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
Malverne Times, the Rockville Centre 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.
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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.
Dan's Papers
Dan's Papers, published by DPI, focuses on the lifestyle, culture,
arts, entertainment, politics and
Page 3
<PAGE>
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.
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
Page 4
<PAGE>
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.
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.
Page 5
<PAGE>
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.
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
Page 6
<PAGE>
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 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
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<PAGE>
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.
Employees
As of November 30, 1994, the Company had 294 full- and part-time
employees, 52 of whom were editorial; 108 were engaged as display and classified
advertising sales personnel; 69 were engaged in production; and 65 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.
Page 8
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
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.
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.
ITEM 3. 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
Page 9
<PAGE>
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of stockholders
during the last quarter of the fiscal year ended November 30, 1994.
Page 10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock and Redeemable Class A Warrants have been
quoted on the National Association of Securities Dealers Automated Quotation
System (Nasdaq) Small Cap Market under the symbols NCOM and NCOMW, respectively,
since September 19, 1990. The Units (symbol NCOMU), each consisting of one
share of Common Stock, one Redeemable Class C Warrant (symbol NCOMM) and one
Redeemable Class D Warrant (symbol NCOML), have been quoted on Nasdaq since
October 9, 1992. The securities constituting the Units became separately
tradeable on February 12, 1993. None of the Redeemable Class B Warrants have
been issued and, consequently, there is no trading in them. The prices listed
below are the high sales and low sale prices for the periods reported.
Redeemable
Class A
Common Stock Warrants Units
-------------- ------------- ------------
Quarter Ended High Low High Low High Low
- ------------- ---- --- ---- --- ---- ---
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
The Company estimates that at February 28, 1995 there were
approximately 2,100 beneficial owners of its Common Stock, approximately 800
beneficial owners of the Redeemable Class A Warrants, approximately 650
beneficial owners of the Units, approximately 650 beneficial owners of the
Redeemable Class C Warrants and approximately 650 beneficial owners of the
Redeemable Class D Warrants. There were approximately 1,000 record owners of the
Company's Common Stock, approximately 38 record owners of the Company's
Redeemable Class A Warrants, approximately 80 record owners of the Units,
approximately 80 record holders of the Redeemable Class C Warrants and
approximately 80 record holders of the Redeemable Class D Warrants.
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 earnings to finance
the growth of the Company. Also, applicable provisions of Nevada corporate law
may affect the ability of the Company to declare and pay dividends on the Common
Stock. Under Nevada law, dividends may be paid from a corporations 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. There can be no assurance that, in the future, the
Company will have sufficient surplus available for payment of dividends.
Page 11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The table on the following page 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 1993;
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
The following discussion compares results of operations for the fiscal
year ended November 30, 1994 to the 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.
Page 12
<PAGE>
Year ended November 30,
---------------------------------
1994 1993
---- ----
NET REVENUES
Existing Publications:
Queens Tribune . . . . . . . . . . . . . . . .$3,252,008 $2,682,422
Dan's Papers . . . . . . . . . . . . . . . . . 2,921,469 2,270,956
Manhattan Spirit . . . . . . . . . . . . . . . 1,802,405 1,781,839
Our Town . . . . . . . . . . . . . . . . . . . 1,678,349 1,634,792
Bronx Press Review . . . . . . . . . . . . . . 1,009,769 557,695
---------- ----------
Total Revenues - Existing Publications 10,664,020 8,927,704
---------- ---------
Acquisitions and Start-ups:
The Hill . . . . . . . . . . . . . . . . . . . 216,962 ---
Manhattan File . . . . . . . . . . . . . . . . 392,070 ---
Nassau Newspapers . . . . . . . . . . . . . . 2,197,906 ---
Brooklyn Skyline . . . . . . . . . . . . . . . 206,323 ---
Westside Publications . . . . . . . . . . . . 135,536 ---
--------- --------
Total Revenues - Acquisitions and Start-ups: 3,148,797 ---
--------- --------
Total Revenues $13,812,817 $8,927,704
=========== ==========
INCOME (LOSS) PUBLICATIONS BEFORE GOODWILL
Existing Publications:
Queens Tribune . . . . . . . . . . . . . . . . $715,593 $468,111
Dan's Papers . . . . . . . . . . . . . . . . . 713,290 464,450
Manhattan Spirit . . . . . . . . . . . . . . . 145,278 92,493
Our Town . . . . . . . . . . . . . . . . . . . 253,244 228,197
Bronx Press Review . . . . . . . . . . . . . . 23,572 6,203
-------- --------
Net Income - Existing Publications 1,850,977 1,259,454
--------- ---------
Acquisitions and Start-ups:
The Hill(3) . . . . . . . . . . . . . . . . . (387,887) ---
Manhattan File(3) . . . . . . . . . . . . . . (462,753) ---
Nassau Newspapers . . . . . . . . . . . . . . (46,836) ---
Brooklyn Skyline . . . . . . . . . . . . . . . (59,825) ---
Westside Publications . . . . . . . . . . . . (13,309) ---
--------- ---------
Net (Loss) - Acquisitions and Start-ups: (970,610) ---
--------- ---------
Net Income $880,367 $1,259,454
========= ==========
INCOME (LOSS) PUBLICATIONS AFTER GOODWILL(1)
Existing Publications:
Queens Tribune . . . . . . . . . . . . . . . . $608,725 $361,243
Dan's Papers . . . . . . . . . . . . . . . . . 662,589 413,749
Manhattan Spirit . . . . . . . . . . . . . . . 145,278 92,493
Our Town . . . . . . . . . . . . . . . . . . . 199,399 174,352
Bronx Press Review . . . . . . . . . . . . . . 9,324 (3,797)
-------- ---------
Net Income - Existing Publications 1,625,315 1,038,040
--------- ---------
Acquisitions and Start-ups:
The Hill(3) . . . . . . . . . . . . . . . . . (387,887) ---
Manhattan File(3) . . . . . . . . . . . . . . (462,753) ---
Nassau Newspapers . . . . . . . . . . . . . . (77,813) ---
Brooklyn Skyline . . . . . . . . . . . . . . . (61,865) ---
Westside Publications . . . . . . . . . . . . (17,090) ---
--------- ---------
Net (Loss) - Acquisitions and Start-ups: (1,007,408) ---
---------- ---------
Net Income $617,907 $1,038,040
======== ==========
PARENT COMPANY EXPENSES
Personnel, Rent, General and Administrative $1,218,454 $741,244
Interest (Income) Expense(2) (37,196) 64,167
----------- ---------
Total Parent Company Expenses 1,181,258 805,411
========= =======
NET INCOME (LOSS) $(563,351) $232,629
========= =========
- -----------------------------------------
(Footnotes to table are on following page)
Page 13
<PAGE>
- -----------------------------
(Footnotes to table on preceding page)
(1) Reflects expense for amortization of goodwill by publication as follows:
Year ended
-------------
November 30,
------------------
1994 1993
---- ----
Queens Tribune . . . . $106,868 $106,868
Dan's Papers . . . . . 50,701 50,701
Our Town . . . . . . . 53,845 53,845
Bronx Press Review . . 14,248 10,000
Nassau Newspapers . . 30,977 ---
Brooklyn Skyline . . . 2,040 ---
Westside Publications 3,781 ---
-----------------
$262,460 $221,414
======== ========
(2) Net of interest income of $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 November 30, 1994, the Company had an excess of current assets over
current liabilities in the amount of approximately $4,155,000. Through November
1994 Class C and D Warrants were exercised, resulting in net proceeds, after
costs and expenses, of approximately $1,951,000. 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 November 30, 1994
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 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 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 $1,951,347 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 ($560,000), and changes in balance sheet items such as
increases in accounts receivable ($779,000); (b) reduced by $345,000 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 November 30, 1994, 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. The Company has sufficient cash on hand to fund the purchase of
stock of DPI if Mr. Rattiner exercises his option requiring the Company to do so
(see Item 12). The Company has no material commitments for capital expenditures
at November 30, 1994.
Page 14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The financial statements listed on page F-1 are included in this Report
beginning on page F-2.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINAN-
CIAL DISCLOSURE.
Not Applicable.
Page 15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
As of February 28, 1995, 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. 47 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 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
Page 16
<PAGE>
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, as well
as other periodical. 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 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 5 years prior to 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.
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.
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.
Andrew J. 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.
Christopher C. 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. He has served as a director of Access since
Page 17
<PAGE>
October 1987.
Martin J. McLaughlin has been a director of the Company since December
1990 and Secretary of the Company since April 1992. 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 and Publisher of the Queens Tribune since 1979.
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 or
until their respective successors are elected and qualified. Officers serve at
the discretion of the Board of Directors.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and information furnished by the reporting
person, during the fiscal year ended November 30, 1994, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with, except that one report covering one
transaction was filed late by each of Messrs. Catsimatidis, Maloney, McLaughlin,
Tarlow and two reports each covering one transaction were filed late by Mr.
Finkelstein.
Page 18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table shows 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.
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 1994 142,553 --- --- 67,500
Executive Officer of the Company and 1993 142,553 --- --- 45,000
officer of subsidiaries 1992 142,553 --- --- ---
Daniel Rattiner, Officer of Dan's 1994 124,016 39,367 15,000(1) ---
Papers, Inc. 1993 120,406 20,285 15,000(1) 35,000
1992 117,231 10,203 15,000(1) ---
Jerry Finkelstein, Chairman of the Board 1994 175,392 --- --- 217,500
of the Company and officer of 1993 --- --- --- 310,000
subsidiaries 1992 --- --- --- ---
</TABLE>
- ----------------------------
(1) Mr. Rattiner is entitled to receive an aggregate of $15,000 per year for
discounted trade-sale merchandise from advertisers (who provide such merchandise
to Mr. Rattiner in lieu of paying the Company for advertising).
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE><CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Granted (#) in Fiscal Year ($/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>
Page 19
<PAGE>
AGGREGATE YEAR-END OPTION VALUES
<TABLE><CAPTION>
Number of unexercised options at Value of unexercised in-the-money
fiscal year-end(#) options at fiscal year-end($)
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
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 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 $145,000. 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. At his request, the Company will also provide
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, amounts of 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, in his sole judgment,
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 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.
The Company has no established compensation arrangements with its
directors. See Directors' and Officers' Options, below.
Page 20
<PAGE>
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
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 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 in this Item 10):
No. of Shares Exercise
Optionee Date of Grant Subject to Grant Price
-------- ------------- ---------------- ---------
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
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 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 listed as a director of the Company
in Item 9 received, on August 17, 1994, a grant of an option to purchase 10,000
shares of Common Stock exercisable at $2.625 per share.
Page 21
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of
the Company's Common Stock, as of February 28, 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 tables in Item 10, 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 1,119,503 (3) (4) 13.8%
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.
Page 22
<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 2,798,890 (3) (8) 31.6%
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
(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 - 327,500; 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.
(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
Page 23
<PAGE>
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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
DPI leases from Mr. Daniel Rattiner, former owner of Dan's Papers, Ltd.
and current 20% owner and President of DPI, 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).
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).
Page 24
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document (1) Document
- ------- ----------- -------------- --------
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.
3.2 By-Laws of the Company. B 3.2
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 J 4.2.2
terms of the 8% Convertible Preferred Stock.
4.2.3 Resolution of the Board of Directors fixing the J 4.2.3
terms of the 12% Convertible Preferred Stock.
4.2.4 Certificate of Amendment of Certificate J 4.2.4
of Designation of 8% Convertible Preferred
Stock.
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
- -------------------------------
See Notes at end of Item 13.
Page 25
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- -------------- --------
4.5 Form of Class B Warrant. B 4.5
4.7.1 Revised form of Warrant Agreement related J 4.7.1
to Class C Warrants and Class D Warrants.
4.8 Form of Class C Warrant. J 4.8
4.9 Form of Class D Warrant. J 4.9
10.1 1987 Stock Option Plan of the C 10.1
Company.
10.2.1 Discretionary Directors and Officers J 10.2.1
Stock Option Plan.
10.2.2 Non-Discretionary Directors Stock J 10.2.2
Option Plan.
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.
10.7.3.1 Employment Agreement, dated as of * 10.3
October 14, 1994, between Michael
Schenkler and the Company.
10.7.3.2 Employment Agreement dated as of *
November 1, 1994, between Thomas
Allon and the Company.
10.13 Letter Agreement, dated June 15, 1990, between B 10.21
Dan's Papers Inc. and Dan's Papers, Ltd.
Page 26
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ----------- -------------- --------
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.
10.25.1 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.
10.25.3 Stock Pledge Agreement dated December J 10.25.3
18, 1992, between Myron Garfinkle and
the Company.
10.26 Acquisition Agreement and Employment J 10.26
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 Statement re computation of per share *
earnings.
22 Subsidiaries of the Company. *
Page 27
<PAGE>
(b) Reports on Form 8-K.
None
- -----------------------------------------
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. The Commission file number assigned to the Company's
Registration Statement on Form S-1, as declared effective by the Commission
on October 9, 1992, was 33-46467.
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.
E Annual Report of the Company on Form 10-K for the year ended November 30,
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 Registration Statement of the Company on Form S-1, No. 33-46467.
* Filed herewith.
The Company will furnish a copy or the Exhibits to this Annual Report
upon the written request of a person requesting copies thereof and stating that
he is a beneficial holder of the Company's Common Stock at a charge of $.35
per page, paid in advance. The Company will indicate the number of pages to
be charged for upon such person's Inquiry. Requests for copies and inquiries
should be addressed to :
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Attention: Controller
Page 28
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page to Page
Report of Independent Auditors............................... F-2......
Consolidated Balance Sheet................................... F-3......F-4
Consolidated Statements of Operations........................ F-5......
Consolidated Statements of Stockholders' Equity.............. F-6......F-7
Consolidated Statements of Cash Flows........................ F-8......F-9
Notes to Financial Statements................................ F-10.....F-18
. . . . . . . . . .
Page 29
<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 Subsidiaries as of November 30, 1994, and the
related statements of operations, stockholders' equity, and cash flows for each
of the fiscal years in the two year period ended November 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of News
Communications, Inc. and Subsidiaries as of November 30, 1994, and the results
of their operations and their cash flows for each of the fiscal years in the two
year 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 30
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1994.
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 842,857
Marketable Securities 924,633
Accounts Receivable [Less: Allowance for Doubtful
Accounts of $979,962] 3,763,136
Other Current Assets 162,204
Due from Related Parties 80,121
-------------
TOTAL CURRENT ASSETS 5,772,951
Property and Equipment At Cost - Net of Accumulated
Depreciation and Amortization of $500,156 688,505
Goodwill - Net 3,903,111
Other Assets 193,037
TOTAL ASSETS $ 10,557,604
=============
See Notes to Consolidated Financial Statements.
F-3
Page 31
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1994.
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable $ 516,287
Accrued Expenses 893,795
Accrued Payroll Taxes 130,867
Notes Payable 75,747
Other Current Liabilities 6,440
-------------
TOTAL CURRENT LIABILITIES 1,623,136
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
8% Convertible Preferred Stock, 500 Shares Authorized,
217 Issued and Outstanding, $80 Per Share Per Annum
Cumulative Dividends, $217,000 Liquidation Value 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
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 7,915,776 Shares Issued 79,157
Paid-in Capital - Preferred Stock 519,873
Paid-in-Capital - Common Stock 13,648,238
[Deficit] (4,904,520)
------------
Totals 9,343,197
Less: Treasury Stock [151,000 Common Shares] - At Cost (408,729)
------------
TOTAL STOCKHOLDERS' EQUITY 8,934,468
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,557,604
============
See Notes to Consolidated Financial Statements.
F-4
Page 32
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
YEARS ENDED
NOVEMBER 30,
1 9 9 4 1 9 9 3
------- -------
<S> <C> <C>
NET REVENUES $ 13,718,175 $ 8,927,704
--------------- ---------------
EXPENSES:
Direct Mechanical Costs 4,718,501 2,718,946
Salaries, Benefits and Outside Labor Costs 6,883,500 4,067,880
Rent, Occupancy and Utilities 587,871 337,864
Provision for Doubtful Accounts 376,000 219,000
General and Administrative 1,847,492 1,301,021
--------------- ---------------
TOTAL EXPENSES 14,413,364 8,644,711
--------------- ---------------
Operating Income [Loss] Before Interest
Expense, Interest Income, and Other Income (695,189) 282,993
Interest [Expense] (24,797) (62,461)
Interest Income 61,993 12,097
Other Income 94,642 ---
--------------- ---------------
INCOME [LOSS] BEFORE FEDERAL AND STATE INCOME
TAXES AND EXTRAORDINARY ITEM (563,351) 232,629
LESS: FEDERAL AND STATE INCOME TAXES --- 192,533
--------------- ---------------
INCOME [LOSS] BEFORE EXTRAORDINARY ITEM (563,351) 40,096
EXTRAORDINARY ITEM: REDUCTION OF INCOME TAXES RESULTING
FROM UTILIZATION OF OPERATING LOSS CARRYFORWARDS --- 192,533
--------------- ---------------
NET INCOME [LOSS] (563,351) 232,629
LESS: PREFERRED STOCK DIVIDENDS 41,360 41,360
--------------- ---------------
NET INCOME [LOSS] AVAILABLE TO COMMON STOCKHOLDERS $ (604,711) $ 191,269
================ ===============
PER COMMON SHARE:
Income [Loss] Before Extraordinary Item $ ( .07) $ .01
Income [Loss] Per Common Share (.08) .03
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,580,203 6,232,630
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
Page 33
<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
----- --------- --------- ----- ------ ------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK
------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 30, 1992 - 453 $ 453 $ 534,385 6,088,719 $ 60,888 $ 9,082,407
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
Additional Cost of Public Offering -- -- -- -- -- (5,000)
Dividend on Preferred Stock -- -- -- -- -- --
Stock Issued as Preferred Dividend -- -- -- 5,463 55 17,445
Stock Issued in Connection with
Exercise of Stock Options -- -- -- 1,667 17 3,533
Net Income -- -- -- -- -- --
-------- ---------- ------------ ------------ ----------- -------------
BALANCE - NOVEMBER 30, 1993 -
FORWARD 450 $ 450 $ 523,501 6,974,009 $ 69,740 $ 11,180,986
======== ========== ============ ============ =========== =============
<CAPTION>
TREASURY
--------
[DEFICIT] STOCK TOTAL
------- ----- -----
<S> <C> <C> <C>
BALANCE - NOVEMBER 30, 1992 - $ (4,457,578) $ (408,729) $ 4,811,826
Conversion from Preferred Stock to
Common -- -- --
Stock Issued in Connection with
Exercise of C and D Warrants -- -- 2,080,494
Additional Cost of Public Offering -- -- (5,000)
Dividend on Preferred Stock (41,360) -- (41,360)
Stock Issued as Preferred Dividend (17,500) -- --
Stock Issued in Connection with
Exercise of Stock Options -- -- 3,550
Net Income 232,629 -- 232,629
-------------- ------------ ------------
BALANCE - NOVEMBER 30, 1993 -
FORWARD $ (4,283,809) $ (408,729) $ 7,082,139
============== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
Page 34
<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
----- --------- --------- ----- ------ ------
[SHARES] STOCK STOCK [SHARES] STOCK STOCK
------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 30, 1993 -
FORWARDED 450 $ 450 $ 523,501 6,974,009 $ 69,740 $11,180,986
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
Stock Issued for Acquisitions -- -- -- 122,123 1,221 143,535
Stock Issuable for Acquisitions -- -- -- -- -- 354,687
Stock Issued in Connection with
Exercise of Options -- -- -- 3,333 33 6,217
Stock Issued as Preferred Dividend -- -- -- 6,624 66 15,934
Dividend on Preferred Stock -- -- -- -- -- --
Net [Loss] -- -- -- -- -- --
-------- ---------- ------------ ------------ ----------- -------------
BALANCE - NOVEMBER 30, 1994 449 $ 449 $ 519,873 7,915,776 $ 79,157 $13,648,238
<CAPTION>
TREASURY
--------
[DEFICIT] STOCK TOTAL
------- ----- -----
<S> <C> <C> <C>
BALANCE - NOVEMBER 30, 1993 -
FORWARDED $ (4,283,809) $ (408,229) $ 7,082,139
Conversion from Preferred Stock to
Common -- -- --
Stock Issued in Connection With
Exercise of C and D Warrants -- -- 1,951,347
Stock Issued for Acquisitions -- -- 144,756
Stock Issuable for Acquisitions -- -- 354,687
Stock Issued in Connection with
Exercise of Options -- -- 6,250
Stock Issued as Preferred Dividend (16,000) -- --
Dividend on Preferred Stock (41,360) -- (41,360)
Net [Loss] (563,351) -- (563,351)
----------- ----------- ------------
BALANCE - NOVEMBER 30, 1994 $(4,904,520) $ (408,729) $ 8,934,468
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
Page 35
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
1 9 9 4 1 9 9 3
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income [Loss] $ (563,351) $ 232,629
---------------- ---------------
Adjustments to Reconcile Net Income [Loss] to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 413,062 340,287
Provision for Losses on Accounts Receivable 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 (1,982,551) (779,022)
[Increase] in Other Current Assets (87,113) (54,477)
[Increase] Decrease in Other Assets (106,344) 20,031
Increase in Accounts Payable and Accrued Expenses 583,779 75,349
[Decrease] in Payroll Taxes Payable (7,494) (84,684)
Decrease] Increase in Other Current Liabilities (66,024) 64,862
[Decrease] in Other Payables - (6,265)
--------------- ---------------
Total Adjustments (966,077) (204,919)
---------------- ---------------
NET CASH PROVIDED [USED] BY - OPERATING ACTIVITIES - FORWARD (1,529,428) 27,710
---------------- ---------------
INVESTING ACTIVITIES:
Capital Expenditures (422,193) (255,548)
Proceeds from Sale of Building 100,000 -
Investment in Marketable Securities (924,633) -
Puchase of Nassau Newspapers (319,906) -
Purchase of Westside (194,898) -
Purchase of Brooklyn (32,750) -
Purchase of Bronx Press Review (25,676) (90,000)
---------------- ---------------
NET CASH [USED] BY - INVESTING ACTIVITIES - FORWARD (1,820,056) (345,548)
---------------- ---------------
FINANCING ACTIVITIES:
Principal Payments Long-Term Debt (470,250) (521,250)
Proceeds from Exercise of Stock Options 1,000 500
Proceeds from Exercise of Warrants and Underwriter Option 1,951,347 2,080,494
Principal Payments on Notes Payable (81,254) -
Costs of Public Offering - (5,000)
Dividend on Preferred Stock (41,360) (41,360)
---------------- ----------------
NET CASH PROVIDED BY - FINANCING ACTIVITIES - FORWARD $ 1,359,483 $ 1,513,384
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
Page 36
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
1 9 9 4 1 9 9 3
------- -------
<S> <C> <C>
NET CASH PROVIDED [USED] BY - OPERATING ACTIVITIES -
FORWARDED $ (1,529,428) $ 27,710
---------------- ---------------
NET CASH [USED] BY - INVESTING ACTIVITIES - FORWARDED (1,820,056) (345,548)
---------------- ---------------
NET CASH PROVIDED BY - FINANCING ACTIVITIES - FORWARDED 1,359,483 1,513,384
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,990,001) 1,195,546
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 2,832,858 1,637,312
--------------- ---------------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 842,857 $ 2,832,858
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 8,240 $ --
Income Taxes $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
</TABLE>
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-9
Page 37
<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-10
Page 38
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #2
[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:
Date Shares
---------------- ------
December 9, 1996 103,857
December 9, 1997 21,714
December 9, 1998 36,572
-------
Total 162,143
-------
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-11
Page 39
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #3
A summary of the purchase price details is as follows:
Nassau
Newspapers Brooklyn Westside Total
---------- -------- -------- -----
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
-------- --------- --------- ----------
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:
Year Ended Year Ended
November 30, November 30,
1994 1993
------------------ -----------
Net Revenues $ 15,999,000 $ 12,866,000
Net Income (Loss) $ (364,000) $ 127,000
Net Income (Loss) Per share $ (.05) $ .02
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-12
Page 40
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #4
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]:
Operating
Leases
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
---------------------------- =============
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-13
Page 41
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #5
[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-14
Page 42
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #6
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:
Shares under Option
November 30,
1 9 9 4 1 9 9 3
------- -------
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
============== =============
[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-15
Page 43
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #7
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-16
Page 44
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #8
[13] INCOME TAXES
The provision for federal and state income taxes consists of the following:
November 30,
1 9 94 1 9 9 3
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)
-------------- -------------
$ -- $ --
============== =============
The Company has net operating loss carryforwards for tax purposes which expire
as folllows:
Year Amount
---- ---------
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
-------------
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-17
Page 45
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, SHEET #9
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.
. . . . . . . . . .
F-18
Page 46
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NEWS COMMUNICATIONS, INC.
Date: March 13, 1995 By: s/ Michael Schenkler
----------------------------
Michael Schenkler, President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Michael Schenkler Director, President and March 13, 1995
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Michael Schenkler Principal Executive Officer
Director March , 1995
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Gary Ackerman
/s/ Eric Breindel Director March 13, 1995
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Eric Breindel
/s/ John Catsimatidis Director March 13, 1995
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John Catsimatidis
Director, Chairman of March , 1995
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Jerry Finkelstein the Board
/s/ Joseph Fisher Director March 13, 1995
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Joseph Fisher
/s/ David Jaroslawicz Director March 13, 1995
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David Jaroslawicz
s/ William J. Kelleher Director March 13, 1995
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William J. Kelleher
Director March , 1995
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Andrew Maloney
/s/ Christopher C. McGrath Director March 13, 1995
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Christopher C. McGrath
/s/ Martin J. McLaughlin Director March 13, 1995
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Martin J. McLaughlin
Director March , 1995
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Andrew J. Stein
/s/ Arthur Tarlow Director March 13, 1995
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Arthur Tarlow
/s/ Robert Berkowitz Controller, Chief Financial March 13, 1995
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Robert Berkowitz and Accounting Officer
</TABLE>
