As filed with the Securities and Exchange Commission on December 9, 1996
Registration No. 33-46467
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
On
FORM SB-2
To
Registration Statement
On FORM S-1
Under
The Securities Act of 1933
NEWS COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Nevada 2711 13-3346991
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
(718) 357-3380
(Address and telephone number of principal executive
offices and principal place of business)
MICHAEL SCHENKLER, President
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
(718) 357-3380
(Name, address and telephone number of agent for service)
Copies to:
NOAH SCOOLER, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
(212) 818-8800
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
---------------------------------------
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
i
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 9, 1996
NEWS COMMUNICATIONS, INC.
1,037,130 Shares of Common Stock
This Prospectus relates to (i) 98,195 shares of Common Stock, par
value $.01 per share ("Common Stock"), of News Communications, Inc. (the
"Company") to be issued by the Company upon exercise of the Company's Redeemable
Class C Warrants ("Public C Warrants") and offered by the Company to the holders
thereof, and (ii) 853,935 shares of Common Stock to be issued by the Company
upon exercise of the Company's Redeemable Class D Warrants ("Public D Warrants"
and, together with the Public C Warrants, collectively, the "Public Warrants")
and offered by the Company to the holders thereof. See "Description of
Securities - Public Warrants."
This Prospectus also relates to 85,000 shares of Common Stock
issuable to successors-in-interest to Hibbard Brown & Company, Inc. ("Hibbard
Brown") upon exercise of non-redeemable Class D Warrants of the Company
("Hibbard Brown D Warrants") and the offer and sale by such person of such
shares from time to time for their own accounts. The Hibbard Brown D Warrants
are not publicly traded and differ in certain respects from the Public D
Warrants. See "Description of Securities - Hibbard Brown Option and Warrant
Solicitation Fee."
The principal market for trading of the Common Stock is the Nasdaq
SmallCap Market, under the symbol "NCOM." On December 5, 1996, the last sale
price, as reported by Nasdaq, for the Common Stock was $2.50. Although listed
for trading on the Nasdaq SmallCap Market under the symbol "NCOML," no trading
has taken place in the Public D Warrants.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Each Public C Warrant entitled the holder to purchase one share of
Common Stock until October 9, 1996, at a per share price of $2.00. The Public C
Warrants to which this Prospectus relates were exercised prior to that date,
subject to the effectiveness of this Prospectus. Each Public D Warrant entitles
the holder to purchase one share of Common Stock until October 9, 1998, at a per
share price of $3.00, subject to adjustment. Cash will be paid in lieu of
fractional shares upon exercise of any Public D Warrants. The Company may call
the Public D Warrants for redemption, in whole or in part, at any time upon a
minimum of 30 days' prior written notice to holders, at a redemption price of
$0.01 per Public Warrant, provided that the average of the means of the closing
bid and closing asked quotations of the Common Stock on Nasdaq (or the last sale
price if principally traded on a national securities exchange or the Nasdaq
National Market System) exceeds 125% of the then exercise price of the Public D
Warrants being redeemed for any 20 consecutive trading days ending within 15
days prior to the day on which notice is given. The Company has not determined
whether it will exercise such right if it should become available, although
there is a good likelihood that it would do so. If the Public D Warrants are
called for redemption, they must be exercised prior to the close of business on
the date of any such redemption or the right to purchase the applicable shares
of Common Stock is forfeited. See "Description of Securities - Public Warrants."
(Cover Page continued on page 2)
The date of this Prospectus is ___________, 1996.
1
<PAGE>
(Continuation of Cover Page)
The shares of Common Stock issuable upon exercise of the
Public Warrants will be issued if, as and when the Public Warrants are exercised
by the holders thereof. The following table sets forth certain information with
respect to the exercise of the Public Warrants:
<TABLE>
<CAPTION>
Exercise Solicitation Proceeds to
Price(1) Fee Company(3)(4)
<S> <C> <C> <C>
Per Public C Warrant .............................. $2.00 $ -- $2.00
Per Public D Warrant .............................. $3.00 $0.12(2) $2.88
Total (4).......................................... $2,758,195 $102,472 $2,655,723
- --------------------------------
(1) The exercise prices of the Public C Warrants and the Public D Warrants were
determined by negotiation between the Company and Hibbard Brown. See
"Description of Securities - Public Warrants."
(2) Assumes Company will pay a successor-in-interest to Hibbard Brown or
another firm which is a member of the National Association of Securities
Dealers, Inc., as warrant solicitation agent, a fee equal to 4% of the
exercise price. Such member firm may be deemed to be an underwriter as
defined in the Securities Act of 1933, as amended. See "Description of
Securities - Public Warrants."
(3) Before deducting expenses payable by the Company estimated at $35,000.
(4) Assumes exercise of all remaining unexercised Public D Warrants (853,935).
Prior to the date of this Prospectus 697,955 Public C Warrants and 646,065
Public D Warrants have been exercised (excluding the 98,195 Public C
Warrants to which this Prospectus relates).
</TABLE>
The Company will also receive the proceeds from the exercise of
the 85,000 unexercised Hibbard Brown D Warrants, which will amount to $255,000
if all such Hibbard Brown D Warrants are exercised. The Company will not receive
any proceeds from the sale of the Common Stock issuable upon exercise of the
Hibbard Brown D Warrants. The successors-in-interest to Hibbard Brown, formerly
a registered broker-dealer which is no longer in business, will sell such
securities for their own accounts from time to time at market prices prevailing
at the time of sale or at negotiated prices and may or may not incur any
brokerage commissions in connection therewith. See "Plan of Distribution."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the Commission's public reference facilities located at
450 Fifth Street, N.W., Washington, D.C. 20549 and Regional Offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601- 2511.
Copies of such material may also be obtained at prescribed rates by writing the
Securities and Exchange Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Company's Common Stock is quoted on the NASD
SmallCap Market and certain of the Company's reports, proxy materials and other
information may be available for inspection at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of such web site is
http://www.sec.gov.
The Company will provide without charge to each person who
receives a Prospectus, upon written or oral request of such person, a copy of
any of the information incorporated by reference in the Prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference). Such
requests should be made to the Company at 174-15 Horace Harding Expressway,
Fresh Meadows, New York 11365, telephone (718) 357-3380.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus. Any information or
representations not herein contained, if given or made, must not be relied upon
as having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any security other than the
securities offered by this Prospectus, nor does it constitute an offer to sell
or a solicitation of any offer to buy the securities by any person in any
jurisdiction where such offer or solicitation is not authorized, or in which the
person making such an offer is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.........................................................3
PROSPECTUS SUMMARY............................................................4
THE COMPANY...................................................................7
RISK FACTORS..................................................................8
PRICE RANGES OF SECURITIES...................................................13
DIVIDEND POLICY..............................................................14
USE OF PROCEEDS..............................................................14
CAPITALIZATION...............................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................16
BUSINESS.....................................................................21
MANAGEMENT...................................................................29
PRINCIPAL STOCKHOLDERS.......................................................36
DESCRIPTION OF SECURITIES....................................................39
PLAN OF DISTRIBUTION.........................................................43
SHARES ELIGIBLE FOR FUTURE SALE..............................................44
LEGAL MATTERS................................................................44
EXPERTS......................................................................45
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...............................45
ADDITIONAL INFORMATION.......................................................45
INDEX TO FINANCIAL STATEMENTS...............................................F-1
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and financial data (including the Consolidated
Financial Statements and Notes thereto) appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
The Company
News Communications, Inc. (the "Company") is primarily
engaged, through various wholly and partly-owned subsidiaries, in the
publication and distribution of advertiser supported, community oriented
newspapers and related targeted audience publications. The community newspapers
are directed at specific geographic communities and, for the most part, are
distributed free of charge to selected residences and business establishments in
those communities. Each publication focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of particular interest to the group of
communities at which it is directed. Some of the papers publish different
editions (with variations in editorial content and advertising) which are
distributed to each community in the targeted group. The principal source of the
Company's revenues (92% for the fiscal year ended November 30, 1995 and 94% for
the nine months ended August 31, 1996) is the sale of advertising space in its
publications.
The Company's business plan is to develop a regional group
of publications in the greater New York metropolitan area. Toward that end it
has to date acquired or organized the following publications: the Manhattan
Spirit, which is distributed in neighborhoods on the West Side of Manhattan in
New York City; Dan's Papers and the Montauk Pioneer, which are directed at
communities in eastern Long Island, New York; the Queens Tribune, the Western
Queens Tribune and Bayside Trib at Home, which are directed at communities in
the Borough of Queens in New York City; Our Town, which is directed to the East
Side of Manhattan; the Bronx Press Review, which is directed at communities in
the Borough of the Bronx in New York City; the Riverdale Review, which is
directed at communities in the Riverdale section of the Bronx, New York;
Lynbrook USA, the Malvern Times, the Rockville Center News & Owl, the Valley
Stream MAILeader, the Independent Voice of Long Beach, Oceanside & Island Park,
the Rockville Center- Oceanside Beacon, the Baldwin Citizen, the East Rockaway
Observer, Elmont Life, Franklin Square Life, West Hempstead Market and Long
Island Lifestyles (collectively, the "Nassau Newspapers"), which are directed at
communities in Nassau County, New York; Manhattan File, a monthly magazine
targeting the upscale young Manhattanite; The Hill, a weekly newspaper devoted
to the coverage of the United States Congress; the Brooklyn Skyline, which is
directed at communities in New York City's Borough of Brooklyn; and the
Chelsea-Clinton News and the Westsider, paid circulation newspapers directed to
communities in Manhattan's West Side. The Company's management believes that its
strategy will be attractive to advertisers seeking a broad metropolitan area
audience. It also believes the Company can take advantage of economies of scale,
combination of operations and other synergies not available to individual
publications. The Company intends to seek acquisition candidates and other
expansion opportunities in the New York region. It 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.
See "Business."
The Offering
Securities Offered by Company...........98,195 shares of Common Stock issuable
upon exercise of Public C Warrants
and 853,935 shares of Common Stock
issuable upon exercise of outstanding
Public D Warrants.
Securities Offered by successors-in-
interest to Hibbard Brown...............85,000 shares of Common Stock.
Terms of Public Warrants................Each Public C Warrant was exercisable at
any time until October 9, 1996, and
entitled the holder thereof to purchase
one share of Common Stock at a price of
$2.00 per Public C
4
<PAGE>
Warrant. Each Public D Warrant is
exercisable at any time until October
9, 1998, and presently entitles the
holder thereof to purchase one share of
Common Stock at a price of $3.00 per
Public D Warrant (subject to
adjustment). The Company may reduce the
exercise price at any time on notice to
the holders. The Company may call the
Public D Warrants for redemption, in
whole or in part, at any time upon a
minimum of 30 days' prior written
notice to holders, at a redemption
price of $0.01 per Public D Warrant,
provided that the average of the means
of the closing bid and closing asked
quotations of the Common Stock on
Nasdaq (or the last sale price if
principally traded on a national
securities exchange or the Nasdaq
National Market System) exceeds 125% of
the then exercise price of the Public D
Warrants being redeemed for any 20
consecutive trading days ending within
15 days prior to the day on which
notice is given. See "Description of
Securities -- Public Warrants."
Securities Outstanding............Before Offering(1) After Offering(2)
--------------- --------------
Common Stock...............7,887,039 shares 8,924,169 shares
Preferred Stock
10% Convertible..........32 shares 32 shares
8% Convertible..........217 shares 217 shares
12% Convertible..........200 shares 200 shares
$10 Convertible..........200,000 shares 200,000 shares
Public C Warrants..........98,195 Public C Warrants None
Public D Warrants..........853,935 Public D Warrants None
Use of Proceeds...................Working capital and other general corporate
purposes, including possible acquisitions
and investments in other businesses. See
"Use of Proceeds."
Risk Factors.......................The securities offered hereby involve a
high degree of risk. See "Risk Factors" and
"Business."
Nasdaq Symbols....................Common Stock: NCOM
Public D Warrants: NCOML
- ------------------
(1) Before giving effect to the exercise of the Public Warrants.
(2) After giving effect to the full exercise of the Public Warrants
and the 85,000 unexercised Hibbard Brown D Warrants. Does not give
effect to (a) up to 366,667 shares issuable upon the exercise of
stock options granted and that may be granted under the Company's
1987 Stock Option Plan, (b) up to 1,500,000 shares issuable upon
the exercise of options granted and that may be granted under the
Company's Discretionary Directors and Officers Stock Option Plan,
(c) up to 500,000 shares issuable upon the exercise of options
granted under the Company's Non-discretionary Directors Stock
Option Plan, (d) up to 1,359,505 shares issuable upon conversion
of outstanding shares of various series of Preferred Stock and
warrants issuable upon such conversion, (e) up to 1,600,000 shares
issuable upon the exercise of other outstanding warrants and
options, or (f) 162,143 shares reserved for issuance in connection
with the acquisition of the Nassau Newspapers.
5
<PAGE>
Summary Financial Information
The following summary financial information is derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with such Consolidated Financial Statements and
the related Notes thereto. Information with respect to Access Network Corp.,
Dan's Papers, Inc., Tribco Incorporated, Manhattan Publishing Corp. and
Business-to-Business and Pennysavers, Incorporated is included for all periods.
Information with respect to Long Island Community Newspaper Group, Inc. is
included beginning December 10, 1993. Information with respect to Manhattan File
Publishing, Inc. is included beginning August 1, 1994. Information with respect
to Brooklyn Newspaper Publishing, Inc. is included beginning August 17, 1994.
Information with respect to Capitol Hill Publishing, Inc. is included beginning
September 1, 1994. Information with respect to Westside Newspaper Corp. is
included beginning September 27, 1994. For information relating to the Company's
dividend policy, see "Dividend Policy."
Income Statement Data:
<TABLE>
<CAPTION>
Nine Months ended Year ended
August 31, November 30,
------------ ----------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues......................... $13,856,070 $13,252,732 $18,113,462 $13,554,929
Operating Expenses................... $14,833,399 $14,353,517 $19,793,808 $14,664,651
Interest Expense..................... $72,439 $13,278 $32,608 $24,797
Net Income (Loss) Available
to Common Stockholders............... $(1,048,018) $(1,082,472) $(1,732,034) $(977,884)
Net Income (Loss) per Share
of Common Stock...................... $(.13) $(.14) $(0.22) $(0.13)
Average Number of Shares 7,822,790 7,776,286 7,804,403 7,580,203
Balance Sheet Data:
August 31, 1996 August 31, 1995
------------------------------------------ ---------------------------
As
Actual Adjusted(1)
Total Assets(2)...................... $10,255,838 $15,247,571 $9,997,116
Long-Term Debt, excluding
current maturities................... $1,000,000 $1,000,000 - 0 -
Working Capital...................... $2,640,082 $7,631,815 $3,317,247
Stockholders' Equity $5,759,138 $10,750,871 $7,849,992
<FN>
(1) Gives effect to the exercise of the remaining unexercised Public
Warrants and Hibbard Brown D Warrants and the application of the
estimated net proceeds therefrom and to the matters specified in
the heading to the table in "Capitalization."
(2) At August 31, 1996 and 1995, and November 30, 1995 and 1994,
assets included goodwill of $3,452,150, $3,699,030, $3,665,990 and
$3,903,111, respectively.
</FN>
</TABLE>
6
<PAGE>
THE COMPANY
News Communications, Inc. (the "Company") was incorporated
in Nevada under the name Applied Resources, Inc. on May 20, 1986. In December
1987, the Company consummated an Agreement and Plan of Reorganization with Mr.
Jerry Finkelstein and a former director and officer whereby the Company acquired
from them all of the issued and outstanding shares of Access Network Corp.
("Access"), a New York corporation which was and is the publisher of the
Manhattan Spirit, and they together acquired 70.77% of the then issued and
outstanding shares of the Company. Access thereby became a wholly-owned
subsidiary of the Company. The business of Access is the publication and
distribution of the Manhattan Spirit, a weekly, free circulation newspaper
directed toward the West Side of Manhattan, New York City.
In October 1988, the Company acquired an 80% interest in
Dan's Papers, Inc. ("DPI"), a New York corporation organized to buy
substantially all of the assets and assume certain of the liabilities of Dan's
Papers, Ltd., the publisher and distributor of Dan's Papers and the Montauk
Pioneer, weekly free circulation newspapers distributed in eastern Long Island,
New York. In May 1989, the Company, through Tribco Incorporated ("Tribco"), a
wholly-owned subsidiary, acquired, by way of merger, all the stock of two
companies which, together, published and distributed the Queens Tribune, a
weekly newspaper serving the Borough of Queens, New York City. In May 1991, the
Company, through Manhattan Publishing Corp. ("MPC"), a wholly-owned subsidiary,
acquired substantially all of the assets of a company which published Our Town,
a weekly free circulation newspaper distributed in Manhattan's Upper East Side.
In December 1992, the Company acquired all of the outstanding stock of
Parkchester Publishing Co., Inc. ("Parkchester"), the publisher of the Bronx
Press Review, a weekly paid circulation newspaper distributed in the Borough of
the Bronx of the City of New York. In December 1993, the Company, through Nassau
Community Newspaper Group, Inc. ("NCNG"), a wholly-owned subsidiary, acquired
substantially all of the assets of a company which was the publisher of the
Nassau Newspapers. In August, 1994, the Company, through Brooklyn Newspaper
Publishing, Inc. ("BNP"), a wholly-owned subsidiary, acquired substantially all
of the assets of a company which was the publisher of the Brooklyn Skyline. In
September, 1994, the Company, through Westside Newspaper Corp. ("WNC"), a
wholly-owned subsidiary, acquired substantially all of the assets of a company
which was the publisher of the Chelsea-Clinton News and the Westsider. In
January, 1994, the Company initiated publication of Manhattan File through its
90%-owned subsidiary, Manhattan File Publishing, Inc. ("MFP"). In July, 1994,
the Company initiated publication of The Hill through its wholly-owned
subsidiary, Capitol Hill Publishing, Inc. ("Capitol Hill"). In connection with
various of its acquisitions, the Company incurred significant deferred purchase
price obligations. See "Business."
The Public Warrants were originally issued as part of units
("Public Units," each consisting of one share of Common Stock, one Public C
Warrant and one Public D Warrant) offered pursuant to a public offering under
the Registration Statement of which the Prospectus is a part, which became
effective on October 9, 1992 (the "1992 Offering").
As used in this Prospectus, unless the context requires
otherwise, the term "Company" refers to News Communications, Inc. together with
Access, DPI, Tribco, MPC, Parkchester, NCNG, BNP, WNC, MFP and Capitol Hill. The
Company's principal executive offices are located at 174-15 Horace Harding
Expressway, Fresh Meadows, New York 11365. Its telephone number is (718)
357-3380.
7
<PAGE>
RISK FACTORS
The securities being offered hereby involve a high degree of
risk, including, but not limited to, the risks described below. Each prospective
investor should carefully consider the following risk factors affecting the
business of the Company and this Offering before making an investment decision:
1. History of Losses; Accumulated Deficit. The Company's revenues have not
been sufficient to satisfy its ongoing expenses of operation. Although it
operated on a profitable basis for the 1993 fiscal year, it had net losses of
$1,732,034 and $977,884 for the fiscal years ended November 30, 1995 and 1994,
respectively, and a net loss of $1,048,018 for the nine months ended August 31,
1996. As of August 31, 1996, the Company's accumulated deficit was $(8,187,485).
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2. Dividend Restrictions. The Company has not paid any dividends on its
Common Stock since its inception and does not contemplate paying any dividends
on its Common Stock in the foreseeable future. The Company has the option to pay
dividends on its outstanding 10% Convertible Preferred Stock ("10% Preferred
Stock") in cash or in shares of Common Stock, valued at their "fair market
value." Fair market value of a share of Common Stock shall mean the average of
the closing bid and asked priced of the Common Stock for the ten business days
prior to the dividend payment date. If there is no trading market for the Common
Stock during such period, then the fair market value of the Common Stock shall
be determined by the Company's Board of Directors. To date, all dividends on the
10% Preferred Stock have been paid in shares of Common Stock. It is anticipated
that dividends on the 10% Preferred Stock will, at least in the foreseeable
future, continue to be paid in shares of Common Stock. Applicable provisions of
Nevada corporate law affect the ability of the Company to declare and pay
dividends and could materially limit, or even prohibit, the Company's ability to
pay dividends in the future. Applicable provisions of the Company's outstanding
series of Preferred Stock also restrict its ability to pay dividends on its
Common Stock in certain circumstances. See "Dividend Policy."
3. Uncertainties Regarding Company Operations. The likelihood of success of
the Company must be considered in light of the difficulties in enhancing and
sustaining the readership interest necessary to attract and hold advertisers,
which represent the primary source of revenue for the Company. There can be no
assurance that the Company's existing publications will retain or increase their
present level of acceptance to advertisers, or, if they attain greater
acceptance, that such greater acceptance will allow the Company to recoup its
development and acquisition costs or achieve profitability on an ongoing basis.
4. Highly Competitive Industry. The newspaper business is extremely
competitive. The Company's publications compete for advertising revenue directly
with other newspapers and magazines which are distributed without charge in the
areas in which the Company's publications are distributed. The Company's
publications also compete with newspapers and magazines which are sold in the
areas in which the Company's publications are distributed, as well as with other
advertising media such as radio and television. Many of the Company's
competitors have established market positions and name recognition, as well as
marketing and financial resources greater than those of the Company. See
"Business - Competition."
5. Dependence Upon Key Personnel. The success of the Company is dependent
upon the personal efforts and abilities of its officers, including Jerry
Finkelstein, Chairman of the Board, Wilbur L. Ross, Chief Executive Officer, and
Michael Schenkler, President. The Company is also dependent upon certain key
personnel who are publishers and/or editors of some of the publications the
Company has acquired. Such persons include Mr. Dan Rattiner, who is the
publisher and editor of Dan's Papers. If the affiliation of any of these persons
were to cease before a qualified successor could be found, there could be a
material adverse effect on the business and prospects of the publications of
which such person
8
<PAGE>
is a publisher, editor or operator and on the business and prospects of the
Company as a whole. The Company has employment agreements with Messrs.
Finkelstein, Schenkler and Rattiner. It does not maintain key-man life insurance
on any of its employees. See "Management."
6. Significant Seasonality of Certain Publications. Dan's Papers, which is
a resort area newspaper, has significant seasonal variations in revenues. This
seasonality has historically caused operating results to vary significantly from
quarter to quarter, with the third fiscal quarter being the most significant in
terms of revenues and income. Failure of Dan's Papers to have sales of
advertising space increase in the prime summer season after losses carried
during the off-season will have a material adverse effect on the Company's
operating results and profitability. The Hill is also subject to variations in
revenues, depending upon the periods that Congress is in session.
7. Potential Dilutive Effect of Outstanding Options and Convertible
Securities; Registration Rights. As of the date of this Prospectus, without
taking into account the exercise of the Public C Warrants, Public D Warrants or
Hibbard Brown D Warrants, there were outstanding various options, warrants and
shares of Preferred Stock which, if exercised or converted by the holders
thereof, would entitle such holders to purchase up to 3,679,667 shares of Common
Stock at prices ranging from $1.25 to $9.00 per share.
The exercise or conversion of any of such securities will
most likely have a dilutive effect on the Company's Common Stock. Moreover, the
terms upon which the Company may be able to obtain additional capital may be
adversely affected because the holders of such securities can be expected to
exercise or convert their securities at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided by the terms thereof. In addition, certain holders
of Common Stock, Preferred Stock and options of the Company have received
registration rights with respect to the securities held by or issuable to them
and the Company has granted certain registration rights with respect to the
other securities. These registration rights could result in substantial future
expense to the Company and could adversely affect any future equity or debt
financing. Furthermore, the sale of such shares of Common Stock held by or
issuable to the holders of registration rights, or even the potential of such
sales, could have an adverse effect on the then current market price of the
Company's securities. See "Description of Securities."
8. Rights of Holders of $10 Convertible Preferred Stock. So long as at
least 100,000 shares of $10 Convertible Preferred Stock are outstanding, the
holders thereof will have the right to nominate and elect half of the directors
constituting the whole Board of Directors of the Company and the vote of the
holders of a majority of such shares, voting as a class, also must approve any
sale of all or substantially all of the Company's assets, merger or other
similar transaction which the Company proposes to undertake. As a result of such
rights, such holders and the directors elected by them, to the extent they act
in a concerted manner, will be able to prevent the Company from undertaking any
action or entering into any agreement with which they do not agree even if such
action or agreement may be beneficial to the Company or the holders of other
classes of the Company's securities.
9. Non-Registration in Certain Jurisdictions of Shares Underlying Public
Warrants; Current Prospectus and State Registration Required to Exercise Public
Warrants. Holders of Public Warrants may reside in or may move to jurisdictions
in which the shares of Common Stock underlying the Public Warrants are not
registered or qualified for issuance or sale under the applicable state
securities laws at a time when they may wish to exercise the Public Warrants. In
this event, the Company would be unable to issue shares of Common Stock to the
person desiring to exercise the Public Warrants unless the shares could be
registered or otherwise qualified for sale in the jurisdiction in which such
purchaser resides, or an exemption from such registration or qualification
exists in such jurisdiction. There can be no assurance that the Company will be
able to effect any required registration or qualification.
9
<PAGE>
A holder will be able to exercise the Public Warrants only
if a current prospectus relating to the securities underlying the Public
Warrants is then in effect and only if such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the state in
which the holder resides. Although the Company will undertake to use its best
efforts to maintain the effectiveness of a current prospectus covering such
securities, there can be no assurance that the Company will be able to do so.
The value of the Public Warrants may be greatly reduced if a current prospectus
covering the securities issuable upon the exercise of the Public Warrants is not
kept effective or if such securities are not qualified or exempt from
qualification in the states in which the holders reside.
10. Qualification Requirements for Nasdaq Securities. The Common Stock is
presently quoted on the Nasdaq SmallCap Market. For the Company's securities to
continue to be eligible for inclusion in the Nasdaq SmallCap Market, the Company
must, among other things, maintain at least $2,000,000 in total assets and have
at least $1,000,000 of capital and surplus and the bid price of the Common Stock
must be at least $1.00 per share, provided, however, that, if a company's stock
falls below such minimum bid prices, it will remain eligible for continued
inclusion if the market value of the public float is at least $1,000,000 and the
company has at least $2,000,000 in capital and surplus. Nasdaq has recently
proposed more stringent requirements for maintaining eligibility for the
SmallCap Market. While the Company presently meets the required standards, there
can be no assurance that it will continue to be able to do so. If it should fail
to meet one or more of such standards, its securities would be subject to
deletion from the Nasdaq SmallCap Market. If this should occur, trading, if any,
in the Common Stock and the Public Warrants would then be conducted on the NASD
OTC Bulletin Board or in the over-the-counter market in what are commonly
referred to as "pink sheets." As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's securities. In addition, if the Company's securities cease to
be quoted on Nasdaq and the Company fails to meet certain other criteria, they
would be subject to a Securities and Exchange Commission rule that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors.
For transactions covered by this rule, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this offering to sell their securities in
the secondary market.
11. Factors Affecting Exercise Price of Public Warrants; Possible
Volatility of Stock Price. The exercise prices and other terms of the Public
Warrants were arbitrarily determined by negotiation between the Company and
Hibbard Brown and do not necessarily bear any relationship to the risk of the
investment in these securities, the value of the assets of the Company, the
earnings of the Company, or any other traditional indicia of the worth of
securities. Although the Company may reduce the exercise prices of the Public D
Warrants at any time on notice to the holders, the exercise prices might never
be less than the fair market value of the shares of Common Stock of the Company
during the exercise period of the Public D Warrants. Accordingly, the Public D
Warrants may expire before achieving any value. The market prices for shares of
Common Stock and the Public D Warrants may be significantly affected by such
factors as the Company's financial performance, the results of the Company's
efforts to increase circulation and advertising copy of its publications, the
Company's acquisition and/or development of publications and services with a
complementary focus, and various factors affecting the newspaper industry
generally. Additionally, in recent years, the stock market has experienced a
high level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies traded on the over-the-counter
market, and these wide price fluctuations are not necessarily related to the
operating performance of these companies. Accordingly, there may be significant
volatility in the market for the securities of the Company and there can be no
assurance that the shares of Common Stock issuable upon exercise of the Public
Warrants can be resold at or near the exercise prices. See "Price Ranges of
Securities."
12. Potential Depressive Effect of Shares Eligible for Future Sale Pursuant
to Rule 144; Other Potential Sales. At present, approximately 2,320,906 shares
of the Company's outstanding
10
<PAGE>
Common Stock are "restricted" securities as that term is defined in Rule 144
under the Securities Act of 1933. Of the restricted shares, approximately
2,250,906 have presently been held for over two years. Possible or actual sales
of such restricted Common Stock by current stockholders of the Company under
Rule 144 may in the future have a depressive effect upon the price of the Common
Stock in any market which exists or which may develop. In general, under Rule
144, a person who has satisfied a two year holding period may, under certain
circumstances, sell publicly, in each three month period thereafter, an amount
of restricted securities that does not exceed the greater of (i) 1% of the
number of outstanding shares of Common Stock or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks immediately preceding
such sale. Persons who have not been affiliated with the Company for at least
three months and who have held their restricted securities for at least three
years are not subject to the volume and certain other limitations with respect
to the sale of such securities. Sales of restricted securities may also be made
at any time pursuant to an effective registration statement under the Securities
Act of 1933. See "Shares Eligible for Future Sale."
13. Potential Dilutive Effect of Authorized and Unissued Shares of Common
Stock Issuable in Discretion of Management; Authorization of Preferred Stock.
The Company is authorized to issue 100,000,000 shares of Common Stock, of which
7,887,039 shares are outstanding, 1,359,505 are reserved for issuance upon
conversion of outstanding Preferred Stock and warrants issuable upon such
conversion, 952,130 are reserved for issuance upon exercise of the Public C
Warrants and Public D Warrants, 85,000 are reserved for issuance upon exercise
of the outstanding Hibbard Brown D Warrants, 2,366,667 are reserved for issuance
pursuant to the Company's stock option plans and other outstanding options and
warrants, of which options and warrants to purchase 2,079,667 shares are issued
and outstanding, 1,600,000 shares are reserved for issuance upon exercise of
other outstanding options and warrants, and 162,143 shares are reserved for
issuance in connection with the acquisition of the Nassau Newspapers. The
balance of the authorized but unissued shares of Common Stock will be issuable,
in the discretion of the Board of Directors, without seeking stockholder
approval. Management has no plans at the present time to issue any of these
authorized but unissued shares except in payment of dividends on the 10%
Preferred Stock. The Company is also authorized to issue 500,000 shares of
"blank check" Preferred Stock (of which 201,567 shares have been issued) with
such designations, rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue the balance of the Company's authorized
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock or other series of Preferred Stock. In the event of
issuance, the Preferred Stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company, which could have the effect of discouraging bids for the Company and
thereby prevent stockholders from receiving the maximum value for their shares.
See "Description of Securities."
14. Potential Loss of Rights Upon Redemption of Public D Warrants. The
Company may call the Public D Warrants for redemption, in whole or in part, at
any time upon a minimum of 30 days' prior written notice to holders, at a
redemption price of $0.01 per Public D Warrant, provided that the average of the
means of the closing bid and closing asked quotations of the Common Stock on
Nasdaq (or the last sale price if principally traded on a national securities
exchange or the Nasdaq National Market System) exceeds 125% of the then
respective exercise prices of the Public D Warrants being redeemed for any 20
consecutive trading days ending within 15 days prior to the day on which notice
is given. If the Public D Warrants are called for redemption, holders of the
Public D Warrants will lose their right to exercise the Public D Warrants except
during the 30-day period after the date of the Company's written notice of
redemption. Notice of redemption of the Public D Warrants may, under certain
circumstances, force the holder either to (i) exercise his Public D Warrants to
Common Stock at a time when it may be disadvantageous for such holder to do so,
or to (ii) accept the redemption price, which is likely to be substantially less
than the market value of the Public D Warrants at the time of redemption. The
Company has not determined whether it will exercise such right if it should
become available, although there is a good likelihood that it would do so. See
"Description of Securities - Public Warrants."
11
<PAGE>
15. Dilution. This Offering involves an immediate and substantial dilution
to investors who exercise their Public Warrants because the net tangible book
value per share of the Common Stock of the Company after exercise will be
substantially less than the per share exercise prices of the Public C Warrants
($2.00) and Public D Warrants ($3.00). If none of the Public D Warrants are
exercised, such dilution would be $1.67 (84%) to the holders of the Public C
Warrants. If all of the Public D Warrants were exercised, such dilution would be
$1.43 (72%) to the holders of the Public C Warrants and $2.43 (81%) to the
holders of the Public D Warrants.
16. Broad Discretion in Application of Proceeds by Management. Allocation
of Proceeds to Repay Indebtedness, including Loans from Principal Stockholder;
Potential Use of Portion of Net Proceeds for Unspecified Acquisitions. All of
the estimated net proceeds of this Offering have been allocated to working
capital and general corporate purposes. Accordingly, the Company's management
will have broad discretion as to the application of such proceeds. Approximately
$1,000,000 of the estimated net proceeds of this Offering may be allocated to
the repayment of a loan from D. H. Blair Investment Banking Corp., a principal
stockholder of the Company (see "Management - Certain Transactions" and
"Principal Stockholders"), and, if so used, will not be available for other
corporate purposes. A portion of the net proceeds allocated to working capital
may be used by the Company for acquisitions. Although the Company has no
agreement, arrangement or understanding with respect to any acquisition, should
an acquisition opportunity be identified by the Company, the Board of Directors
will have the ability to approve such acquisition without seeking the approval
of the stockholders of the Company. See "Use of Proceeds."
17. Potential Litigation Exposure. The Company is a defendant in litigation
proceedings in which the plaintiffs have claimed significant amounts of damages.
See "Business - Legal Proceedings." Although management believes that the claims
are without merit and that the Company has meritorious defenses, there can be no
assurance that the Company will prevail in such actions. An adverse judgment in
either such action may have a materially adverse effect upon the financial
condition of the Company, depending upon the amount of such judgment.
18. Possible Adverse Effect of Termination of Business of Hibbard Brown.
Hibbard Brown, the Company's warrant solicitation agent for the Public Warrants,
has terminated its business. As a result thereof, the liquidity and market
prices of the Company's securities, particularly the Public D Warrants, could be
adversely affected.
12
<PAGE>
PRICE RANGES OF SECURITIES
The Company's Common Stock is quoted on the Nasdaq SmallCap
Market under the symbol NCOM. The Public Units (symbol NCOMU), each consisting
of one share of Common Stock, one Public C Warrant (symbol NCOMM) and one Public
D Warrant (symbol NCOML), were quoted on the Nasdaq SmallCap Market until
October 9, 1996, when they ceased to be quoted upon the expiration of the
exercise period of the Public C Warrants. The Public D Warrants, although
eligible, have not been quoted separately.
<TABLE>
<CAPTION>
Common Stock Units
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
February 28, 1994 4.25 2.00 7.00 2.00
May 31, 1994 2.38 1.25 2.50 1.50
August 31, 1994 3.50 2.00 5.00 2.00
November 30, 1994 3.00 1.88 3.00 1.75
February 28, 1995 3.06 1.94 4.00 2.00
May 31, 1995 2.75 1.88 2.75 2.25
August 31, 1995 2.94 2.00 4.25 4.25
November 30, 1995 3.00 2.38 3.25 2.50
February 28, 1996 3.25 2.38 N/A N/A
May 31, 1996 2.81 2.13 3.00 2.75
August 31, 1996 2.50 1.63 N/A N/A
November 30, 1996 2.56 1.00 2.00 2.00
</TABLE>
On December 5, 1996, the last sale price of the Common Stock
was $2.50.
At November 30, 1996, there were approximately 1,900 record
owners of the Company's Common Stock and approximately 650 record holders of the
Public D Warrants. The Company estimates there are approximately 2,100
beneficial owners of its Common Stock and approximately 650 beneficial owners of
the Public D Warrants.
13
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on
its Common Stock and does not intend to pay cash dividends on its Common Stock
in the foreseeable future. The Company intends to retain any future earnings to
finance the growth of the Company. Applicable provisions of Nevada corporate law
may affect the ability of the Company to declare and pay cash dividends and
common stock dividends on the Common Stock as well as Preferred Stock. Under
Nevada law, dividends may be paid from a corporation's excess of assets over its
liabilities including capital (based upon certain computations) or in case there
shall be no such excess, out of its net profits for the current fiscal year and
the preceding fiscal year or out of its net profits for the preceding fiscal
year. Dividends on the 10% Preferred Stock are payable annually in an amount of
$500 per share of 10% Preferred Stock, in cash or in shares of Common Stock
having a fair market value of $500, payable on September 19th of each year.
Dividends on the 10% Preferred Stock may be paid in shares of Common Stock to
the extent the Company has sufficient authorized but unissued Common Stock even
if the Company has sufficient assets or net profits to pay such dividends in
cash. It is anticipated that any permitted dividends will, at least in the
foreseeable future, continue to be paid in shares of Common Stock. There can be
no assurance that, in the future, the Company will have sufficient surplus
available for payment of cash or Common Stock dividends. See "Description of
Securities" and Consolidated Financial Statements and Notes thereto.
USE OF PROCEEDS
The net proceeds to be received by the Company upon the full
exercise of the outstanding Public Warrants and Hibbard Brown D Warrants, if, as
and when such securities are exercised by the holders thereof, are estimated to
be approximately $2,876,000. Such amounts will be used for working capital and
other general corporate purposes as and when received. A portion of such
proceeds may be used to repay a $1,000,000 loan from D. H. Blair Investment
Banking Corp., a principal stockholder of the Company. See "Management - Certain
Transactions" and "Principal Stockholders." A portion of such proceeds may be
used in the future for additional acquisitions of or investments in other
businesses, both related or non-related to the Company's newspaper business.
Such investments could include controlling or non-controlling or minority
interests. The Company is in the process of identifying appropriate candidates
for acquisitions. There can be no assurance that the Company can make additional
acquisitions acceptable to it. Until utilized, the net proceeds of this offering
will be invested in short-term United States Government securities, certificates
of deposit, money market funds and other short-term or long-term
interest-bearing investments and investment grade common equities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the
Company at (a) August 31, 1996; and (b) as adjusted to give effect to (i) the
issuance of 200,000 shares of $10 Convertible Preferred Stock, 10,624 shares of
Common Stock in payment of dividends on the 10% Convertible Preferred Stock, and
50,000 shares issued to Rothschild Inc., and (ii) the issuance of 98,195 shares
of Common Stock upon the exercise of the Public C Warrants, 853,935 shares of
Common Stock upon exercise of the Public D Warrants, and 85,000 shares of Common
Stock upon exercise of the outstanding Hibbard Brown D Warrants, and the
application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
Actual As Adjusted
<S> <C> <C>
Stockholders' Equity:
Preferred Stock, $1.00 par value, 500,000 shares authorized.............
10% Convertible Preferred Stock, 1,250 shares authorized,
32 outstanding and as adjusted.................................... $32 $32
8% Convertible Preferred Stock, 500 shares authorized, 217
outstanding and as adjusted....................................... 217 217
12% Convertible Preferred Stock, 200 shares authorized,
outstanding and as adjusted....................................... 200 200
$10 Convertible Preferred Stock, 200,000 shares authorized,
none outstanding and 200,000 as adjusted -- 200,000
Paid-in Capital Preferred Stock...................................... 519,873 2,319,873
Common Stock, $.01 par value, 100,000,000 shares authorized,
7,977,415 issued, 8,990,169 as adjusted(1) 79,774 89,901
Paid-in Capital Common Stock......................................... 13,755,256 16,736,862
(Deficit)............................................................... ($8,187,485) ($8,187,485)
Totals.................................................................. $6,167,867 $11,159,600
Less: Treasury Stock, 151,000 shares actual and as adjusted............. (408,729) (408,729)
----------- ------------
Total stockholder's equity........................................... $5,759,138 $10,750,871
========== ===========
<FN>
- --------------------------------
(1) Does not give effect to (a) up to 366,667 shares issuable upon the
exercise of stock options granted and that may be granted under
the Company's 1987 Stock Option Plan, (b) up to 1,500,000 shares
issuable upon the exercise of options granted and that may be
granted under the Company's Discretionary Directors and Officers
Stock Option Plan, (c) up to 500,000 shares issuable upon the
exercise of options granted under the Company's Non-discretionary
Directors Stock Option Plan, (d) up to 1,359,505 shares issuable
upon conversion of outstanding shares of various series of
Preferred Stock and Warrants issuable upon such conversion, (e) up
to 1,600,000 shares issuable upon the exercise of other
outstanding warrants and options, or (f) 162,143 shares reserved
for issuance in connection with the acquisition of the Nassau
Newspapers.
15
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The table on page 18 sets forth, for the periods indicated,
certain information relating to each of the Company's publications and to
certain expenses incurred by the parent company, News Communications, Inc. 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
Nine Months Ended August 31, 1996
Compared To Nine Months Ended August 31, 1995
(Note: The period ending August 31, 1996 includes 39 weeks as compared
to August 31, 1995 which includes 40 weeks for most publications.)
Net Revenues
Even though 1995 had the benefit of an additional issue, the
total revenues were still up almost 8%. the Queens Tribune had an increase (8%)
in its average weekly revenue, due to expansion with the "Bayside Trib at Home."
Average weekly revenues for Nassau Newspapers publications has stayed even.
Dan's Papers has continued to expand its market share in the Long Island posh
resort area, the Hamptons. By effectively positioning itself as the advertising
standard on Long Island's east end, it is continuing its dominance in its market
area and increasing its revenues (12%). Average weekly revenues at the Bronx
Press Review, Westside and Our Town remained even. The Hill had an increase (4%)
in revenue as a result of increased market share. Manhattan File had an increase
(22%) in revenue as a result of an improved sales effort and additional special
supplements. Brooklyn Skyline had an increase in average weekly revenue (17%)
due to its expansion into a fifth zone and an ongoing increased sales effort.
Income (Loss) -- Publications
As the Company continues to benefit from the effect of a
series of budget cuts, instituted during the second quarter, which will save the
Company approximately $1.3 million on an annualized basis, Net Income from
publications (which included the effect of the additional issue in 1995)
increased dramatically in 1996. In addition, the Company has ongoing
negotiations with printers to take advantage of decreasing newsprint prices. The
increases in income for the Queens Tribune (9%) and Dan's Papers (11%), are
attributed to their increased revenues and budget cuts and print costs. Our Town
had an increased profit (165%), while the Bronx Press Review and the Manhattan
Spirit had profits compared to losses last year primarily as a result of the
budget costs and print costs. Nassau Newspapers had an increased loss as a
result of lower revenue and repositioning the publication by converting some
shoppers to newspapers. Westside incurred an increased loss as a result of
decreased revenues. The Hill had an increased loss as a result of lower
revenues. As a result of budget cuts and increased revenues, Manhattan File
(23%) and Brooklyn Skyline (42%) decreased their losses as compared to last
year.
Parent Company Expenses
The increase in parent company expenses was primarily as a
result of increased interest expense, professional fees and a change in the
timing of various expenses previously incurred in the fourth quarter.
16
<PAGE>
Fiscal Year Ended November 30, 1995
Compared To Fiscal Year Ended November 30, 1994
The following discussion compares results of operations for the fiscal year
ended November 30, 1995 to the fiscal year ended November 30, 1994. Brooklyn
Skyline was acquired in August 1994, West Side was acquired in September 1994
and The Hill and Manhattan File were started during 1994. Therefore, comparisons
for these publications are not discussed as they would not be meaningful.
In a year that was highlighted by a 34% increase in revenues from
$13,554,929 in 1994 to $18,113,462 in 1995, the Company started to apply its
successful publishing techniques to its new properties. We anticipate the effect
of these strategies to accrue to the Company's benefit in the near future.
Net Revenues
Total revenues from existing publications were up slightly
(3%). Dan's Papers had an increase in revenues (12%) as a result of its
continued dominance in its market area. There were decreases in revenues at the
Manhattan Spirit (5%) and Our Town (7%) primarily as a result of decline in
revenues associated with the electoral process in this off-election year. The
next fiscal year has normal election activity and should return these revenues
to their previous levels. The Queens Tribune had an increase in revenues (1%) in
spite of a significant decrease in election related revenues, due primarily to
the growth of its Bayside Trib at Home edition which was started up in the
latter part of the year. The Bronx Press Review revenues show a modest increase
(3%). The addition of Long Island Lifestyles, a four color lifestyle section
which is included in all existing Nassau publications has enabled advertisers to
make an effective regional buy and helped increase revenues for the Nassau
Newspapers (8%).
Income (Loss) -- Publications
The unusually large increase of approximately 60% in the
cost of newsprint, which accounts for 60% -- 65% of printing costs, was the
largest factor causing a decrease in the income of existing publications. Income
was down for the Queens Tribune (18%), Dan's Papers (5%), Manhattan Spirit (34%)
and Our Town (34%) primarily as a result of the increase in the price of
newsprint. As a result of newsprint prices, the cost of printing the Company's
newspapers increased between 22% and 40%, which accounts for more than the
entire decrease in operating income. Dan's Papers decrease was offset by its
increased revenues. The Queens Tribune income also includes start-up costs
relating to its new Bayside Trib at Home edition. The increase in loss at Nassau
Newspapers (59%) resulted from the increase in printing costs as well as the
increased costs associated with the start-up of Long Island Lifestyles. In
addition to the effect of newsprint prices, the Bronx Press Review showed a loss
as compared to a small profit last year as a result of the prior year including
a significant gain on the sale of its building in 1994. Since year-end the price
of newsprint has fallen approximately 13% and additional reductions are
anticipated. Additionally, since the end of the fiscal year the Company has
taken steps to reduce expenses in its operating budget by approximately
$1,200,000.
Parent Company Expenses
The increase in parent company expenses was primarily a
result of increased rent and personnel costs and professional fees required by
the recent corporate growth expansion.
17
<PAGE>
<TABLE>
<CAPTION>
Nine months ended Year ended
August 31, November 30,
--------------------------- -------------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES
Queens Tribune................................ $2,500,419 $2,320,369 $3,169,336 $3,148,418
Dan's Papers.................................. 2,851,634 2,535,152 3,261,060 2,921,469
Manhattan Spirit.............................. 1,200,445 1,226,334 1,712,280 1,802,405
Our Town...................................... 1,034,706 1,136,363 1,552,499 1,678,349
Nassau Newspapers............................. 1,632,291 1,722,871 2,327,215 2,153,750
Bronx Press Review............................ 684,040 731,827 925,314 899,647
The Hill...................................... 1,064,623 1,019,990 1,645,501 216,962
Manhattan File................................ 1,269,262 1,041,547 1,490,178 392,070
Brooklyn Skyline.............................. 921,498 752,111 1,054,169 206,323
Westside Publications......................... 697,152 766,168 975,910 135,536
------------- ------------- ------------- -----------
Total Net Revenues $13,856,070 $13,252,732 $18,113,462 $13,554,929
=========== ============ ============ ===========
INCOME (LOSS) PUBLICATIONS BEFORE GOODWILL
Queens Tribune................................ $410,864 $375,422 $496,001 $605,903
Dan's Papers.................................. 743,848 672,997 679,379 713,290
Manhattan Spirit.............................. 50,890 10,102 79,307 120,878
Our Town...................................... 79,492 91,180 157,246 239,520
Nassau Newspapers............................. (192,426) (199,570) (287,917) (181,459)
Bronx Press Review............................ 23,813 (36,271) (125,378) 1,756
The Hill...................................... (433,180) (407,556) (316,177) (387,887)
Manhattan File................................ (245,553) (320,323) (373,628) (499,495)
Brooklyn Skyline.............................. (59,925) (102,539) (149,460) (59,825)
Westside Publications......................... (39,851) 31,551 (34,631) (16,310)
------------- ------------ ------------- -------------
Income (Loss)-- Publications $337,972 $114,993 $124,742 $536,371
======== ======== ======== ========
INCOME (LOSS) PUBLICATIONS AFTER GOODWILL(1)
Queens Tribune................................ $330,713 $295,271 $389,133 $499,035
Dan's Papers.................................. 705,823 634,972 628,678 662,589
Manhattan Spirit.............................. 50,890 10,102 79,307 120,878
Our Town...................................... 39,109 50,797 103,401 185,675
Nassau Newspapers............................. (217,809) (222,817) (321,762) (212,436)
Bronx Press Review............................ 13,127 (46,957) (139,626) (12,492)
The Hill(3)................................... (433,180) (407,556) (316,177) (387,887)
Manhattan File(3)............................. (247,953) (320,323) (376,828) (499,495)
Brooklyn Skyline.............................. (64,515) (106,721) (165,753) (61,865)
Westside Publications......................... (52,073) 21,768 (40,751) (20,091)
------------- ------------ ------------- -------------
Income (Loss)-- Publications $124,132 $(91,464) $(160,378) $273,911
========= ========= ========== ========
PARENT COMPANY EXPENSES
Personnel, Rent, General and Administrative $1,101,461 $1,009,322 $1,519,968 $1,288,989
Interest (Income) Expense(2) 70,689 (18,314) 3,900 (37,196)
------------ ------------- ------------ -----------
Total Parent Company Expenses $1,172,150 $991,008 $1,523,868 $1,251,793
========== ======== ========== ==========
NET (LOSS) BEFORE MINORITY INTEREST $(1,048,018) $(1,082,472) $(1,684,246) $(977,882)
============ ============ ============ ==========
LESS: MINORITY INTEREST IN INCOME OF
SUBSIDIARY $ - 0 - $ - 0 - $47,788 $ - 0 -
------------ ------------- ------- -------------
NET (LOSS) $(1,048,018) $(1,082,472) $(1,732,034) $(977,882)
============ ============ ============ ==========
- -----------------------------------------
(Footnotes to table are on following page)
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<FN>
- -----------------------------
(Footnotes to table on preceding page)
(1) Reflects expense for amortization of goodwill by publication as follows:
Nine months ended Year ended
August 31, November 30,
1996 1995 1995 1994
---- ---- ---- ----
Queens Tribune................ $80,151 $80,151 $106,868 $106,868
Dan's Papers.................. 38,025 38,025 50,701 50,701
Our Town...................... 40,383 40,383 53,845 53,845
Bronx Press Review............ 10,686 10,686 14,248 14,248
Nassau Newspapers............. 25,383 23,247 33,845 30,977
Brooklyn Skyline.............. 4,590 4,182 16,293 2,040
Westside Publications......... 12,222 9,783 6,120 3,781
Manhattan File 2,400 --- 3,200 ----
----------- --------- --------- ----------
$213,840 $206,457 $285,120 $262,460
======== ======== ======== ========
(2) Net of interest income of $1,750 and $31,591 for the nine months ended
August 31, 1996 and 1995, and $28,708 and $61,993 for the years ended
November 30, 1995 and 1994, respectively.
</FN>
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company had an excess of current assets over
current liabilities of approximately $2,640,000. In May 1996 the Company
obtained a $1,000,000 two-year loan, from its largest shareholder, which was
primarily for working capital needs result from seasonal fluctuations in
cashflow. On October 28, 1996 a group of investors invested $2,000,000 in the
Company through the purchase of 200,000 shares of $10 Convertible Preferred
Stock. 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.
For the nine months ended August 31, 1996, the Company had a cash
increase of approximately $262,000 resulting from (a) operating activities made
up of operating loss of ($1,048,000), increased by non-cash items such as
depreciation and amortization of $351,000, provision for loss on accounts
receivable of $199,000 and changes in balance sheet items such as increases in
accounts receivable of ($956,000), other current assets of ($104,000), and
accounts payable and accrued expenses of $310,000 and decreases in accrued
payroll and payroll taxes of $(103,000)(b) decrease of ($42,000) from capital
expenditures (c) offset by increases from financing activities from proceeds of
notes payable of $1,675,000 offset by payments of ($24,000) on long-term debt.
See "Consolidated Statements of Cash Flows."
For the year ended November 30, 1995, the Company had a cash
decrease of approximately $788,000 (a) resulting from operating activities, made
up of operating loss of ($1,732,034), increased by non-cash items such as
depreciation and amortization of $495,000, provision for loss on accounts
receivable of $396,000 and changes in balance sheet items such as increases in
accounts receivable ($1,527,000) and increases in accounts payable and accrued
expenses of approximately $261,000; (b) increased by investing activities such
as sale of marketable securities of $925,000 offset by capital expenditures of
($148,000); (c) increased by $418,000 provided by financing activities including
$500,000
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from proceed of bank loans and proceeds of option & warrants exercises ($60,000)
offset by repayment of notes payable ($100,000) and dividends on Preferred Stock
($41,000).
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 $1,951,000 provided from the exercise of Class C
and Class D Warrants less payments of long-term debt ($470,000)).
Although there can be no assurance, management believes that the
Company's operations will generate positive cash flow for the fiscal years
ending November 30, 1996 and 1997. 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 August 31, 1996, the average age of the
Company's receivables was about 120 days. Management has recognized the
continued adverse economic conditions and has taken that into consideration in
identifying those accounts which require a reserve. As a result, the Company's
reserve for bad debts is believed to be sufficient to avoid the need for further
material write-offs. At August 31, 1996, the Company had sufficient cash on hand
to fund the purchase of stock of DPI if Mr. Rattiner exercised his option
requiring the Company to do so (see "Management -- Certain Transactions"). The
Company had no material commitments for capital expenditures at August 31, 1996.
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BUSINESS
News Communications, Inc., a Nevada corporation formed in 1986 (the
"Company," which, as used herein, unless the context requires otherwise, refers
to News Communications, Inc. together with its subsidiaries), 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, are
distributed free of charge to selected residences and business establishments in
those communities. Each publication focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of particular interest to the group of
communities at which it is directed. Some of the papers publish different
editions (with variations in editorial content and advertising) which are
distributed to each community in the targeted group. The principal source of the
Company's revenues (94% for the nine months ended August 31, 1996, and 92% for
the fiscal year ended November 30, 1995) is the sale of advertising space in its
publications.
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 and magazines.
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.
The Company also believes that it has developed the talent and
expertise to expand into media ventures other than community newspapers (e.g.,
electronic publishing on the Internet and radio and television). In addition, in
1995, the Company expanded by launching a new weekly supplement to its Nassau
publications, Long Island Lifestyles, and a new weekly door-to-door edition of
its Queens newspaper, Bayside Trib at Home. 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
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<PAGE>
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
four 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 26-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 the East Side's 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.
Dan's Papers
Dan's Papers, published by DPI, focuses on the lifestyle, culture,
arts, entertainment, politics and social issues of interest to the resort areas
of the South and North Forks of Eastern Long Island, New York, particularly the
wealthy resort area known as the Hamptons. Its articles and columns include
humor, news, celebrity profiles, reviews of art gallery shows, restaurants,
concerts, nightclubs and movies, social satire, editorial cartoons, local
environmental and political issues, as well as a special section on real estate.
Dan's Papers is published in tabloid format (with a glossy cover for
approximately 17 summer and 9 other issues) on a weekly basis. It is distributed
each week to locations on Eastern Long Island, including art galleries, gift
shops, supermarkets, newspaper and card shops, restaurants and boutiques. There
is also weekly distribution in Manhattan. Management of the Company believes
that Dan's Papers has the largest circulation in Eastern Long Island of any
weekly 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.
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<PAGE>
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 nine 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 five-year old weekly publication distributed in areas
in western Queens County not previously served by the Queens Tribune and the
Bayside Trib at Home, which covers the news, events and lifestyles in the
community of Bayside, Queens. It is distributed by hand, door-to-door in
Bayside, which is one of the most influential neighborhoods in Queens County.
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, including this year's New
York Press Association's coveted first place award for community leadership.
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 10% and 9% of
its revenues in the nine months ended August 31, 1996 and the fiscal year ended
November 30, 1995, respectively.
The Bronx Press Review and Riverdale Review
On December 18, 1992, the Company acquired Parkchester Publishing
Co., Inc., publisher of the Bronx Press Review. The Bronx Press Review is a
fifty-four 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. 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 started the Riverdale
Review, which serves the affluent Riverdale area of the Bronx, and Westchester
Lifestyles, a monthly supplement to reach in to the Westchester advertising
market.
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.
The Nassau Newspapers
On December 9, 1993, the Company, through NCNG, acquired the assets
of the eight Nassau Newspapers from a group of sellers for an aggregate purchase
price of approximately $320,000 in cash
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<PAGE>
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 NCNG 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 88 years.
The group averages over 50 years of continuous weekly publication per paper. The
eight original Nassau Newspapers have been designated as the official newspapers
of their respective communities. The Company has expanded into three adjacent
Nassau County communities.
The Company has developed a new publication, Long Island Lifestyles,
which serves as a second section to all of its 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 5 special issues annually),
4-color, perfect bound, glossy magazine that debuted in August 1994. It targets
20-45 year-old young, affluent young professional 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.
Monthly, Manhattan File distributes 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 75 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.
The Company owns 90% of the stock of Manhattan File Publishing, Inc.
The remaining 10% is owned by an employee.
Brooklyn Skyline
The Brooklyn Skyline, which was acquired by the Company in August
1994, is published weekly in five editions which are distributed door-to-door in
Brooklyn's southern tier. 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
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 an office in the Mill
Basin section of Brooklyn. It is
24
<PAGE>
printed on newsprint with the use of spot color and is distributed by crews
supervised and trained by 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 25year-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 on
Capitol Hill, 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 primarily distributed to
Congressional office buildings and government agencies as well as to select
retail locations, hotels and street boxes.
Printing and Production
The printing of each of the Company's publications is presently done
by independent printing shops. The Company sends to the printer completely
composed, laid-out, typeset pages for photo-offset reproduction. In each case,
the printer is able to provide all of the necessary materials (i.e., paper, ink,
etc.) for printing, and bills the Company for its services and materials used.
In some instances, the Company purchases its own paper rather than that supplied
by the printer. The Company believes that it obtains its printing services at
competitive prices, and if, for any reason, the arrangements that it has with
its printers should terminate, management believes that similarly favorable
arrangements could be had with several other printing shops in or around New
York City.
Advertisers and Readers; Marketing Activities
Most of the Company's publications are weeklies primarily
distributed free of charge to their readers. The Bronx Press Review, the 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 are 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 four years. On a year-to-year basis, the
Company estimates that, over the last four fiscal years, approximately
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<PAGE>
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.
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 the only free distributed glossy magazine
targeting young people in Manhattan. Competitors include national magazines like
Vanity Fair, Details and Rolling Stone. Also, locally there is a small
competitive overlap for advertising with the free newspapers, 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.
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<PAGE>
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, 1996, the Company had 274 full- and part-time
employees, 47 of whom were editorial; 95 were engaged as display and classified
advertising sales personnel; 59 were engaged in production; and 73 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.
Properties
The Company and its subsidiaries operate out of eight separate
locations. 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 commenced in
1995 and 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 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.
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<PAGE>
Parkchester Publishing Co., Inc. has 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.
NCNG has 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 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 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 a three year lease for 2,500
square fee of office space at 2123 Utica Avenue, Brooklyn, New York, commencing
November 1994, at an annual rental of $18,000, increasing over the term to
$19,800 in the last year.
The Company believes that its present space is adequate for current
purposes and offers moderate expansion possibilities.
Legal Proceedings
An action entitled Jean Jee v. News Communications, Inc., was
instituted in the Supreme Court, New York County, in January 1991. The complaint
alleges libel claims against the Company in connection with an article printed
in the Manhattan Spirit which accused Ms. Jee, then principal of a Manhattan
public school, of running her own computer business out of the school, beating
special education students and having been suspended by the New York City Board
of Education. Promptly after the complaint was served, the Manhattan Spirit
printed a retraction concerning the suspension accusations. In fact, Ms. Jee had
taken a leave of absence. Ms. Jee is suing for $2,000,000 in compensatory
damages and unspecified punitive damages. The Company intends to vigorously
defend the suit and has filed an answer denying the material allegations of the
complaint and has served demands for document production. Ms. Jee's motion for a
protective order in connection with such demands was granted. Discovery has not
yet commenced. Management believes, although there can be no assurance, that,
based upon the application of the relevant law (as explained to management by
counsel representing the Company) to the facts known to it, the claims asserted
in this action are without merit. It is the policy of such counsel not to
express opinions as to the outcome of actions such as this.
An action entitled Tracey Robinson v. The Hill, News Communications,
Inc. and Media Venture Group, Inc. was instituted in September 1996 in the
United States District Court for the District of Columbia in which the
plaintiff, a former national advertising executive for Capitol Hill, has alleged
race discrimination and retaliation in connection with her discharge and claims
damages of $6.6 million plus back pay, front pay and other relief. The Company
and its subsidiaries believe that the claim is without merit and have filed an
answer denying the material allegations of the complaint and asserting
affirmative defenses. The Company and the subsidiaries intend to defend the
action vigorously. The action is presently in the early stages of the discovery
process.
28
<PAGE>
MANAGEMENT
Directors and Executive Officers
The Company's directors, executive officers and other significant
employees and their ages and positions are as follows:
<TABLE>
<CAPTION>
Name of Individual Age Position with Company and Subsidiaries
------------------ --- --------------------------------------
<S> <C> <C>
Gary Ackerman 54 Director of the Company
Thomas Allon 33 Executive Vice President of the Company
Robert Berkowitz 47 Controller of the Company
Carl Bernstein 52 Director of the Company
Eric Breindel 40 Director of the Company
John Catsimatidis 47 Director of the Company
Mark Dickstein 38 Director of the Company
Jerry Finkelstein 80 Chairman of the Board, Director of the Company
and officer of subsidiaries
Sydney Gruson 69 Director of the Company
Andrew J. Maloney 64 Director of the Company
John E. McConnaughy, Jr. 67 Director of the Company
Robert E. Nederlander 66 Director of the Company
Daniel Rattiner 57 President, Publisher, Editor and Director of DPI
Wilbur L. Ross, Jr. 59 Director and Chief Executive Officer of the Company
Michael Schenkler 50 Director and President of the Company and dir
ector and officer of subsidiaries
Andrew J. Stein 51 Director of the Company
Sy Syms 70 Director of the Company
Arthur Tarlow 66 Director of the Company
Hillel Weinberger 43 Director of the Company
</TABLE>
Gary Ackerman has been a director of the Company since March 1990. He has
served in the United States House of Representatives as a Representative from
New York since March 1983. From 1979 until 1983, Mr. Ackerman was a member of
the New York State Senate. From 1970 to 1979, Mr. Ackerman was the founder,
editor and publisher of the Queens Tribune.
Thomas Allon was elected Executive Vice President of the Company in
November 1994. He has been Publisher of the Manhattan Spirit and Our Town since
1992. From 1990 to 1991 he was Managing/Associate Publisher of the Manhattan
Spirit.
29
<PAGE>
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 acquisition and
operation of both public and private companies. From 1977 to 1980 he was with
the public accounting firm of Price Waterhouse.
Carl Bernstein was elected a director of the Company in October 1996. Mr.
Bernstein is a writer and journalist.
Eric Breindel has been a director of the Company since October 1993. Since
1986, Mr. Breindel has been Editorial Page Editor of the New York Post. He also
writes for Commentary, The New Republic, The Wall Street Journal and other
periodicals. He is the recipient of numerous professional awards and honors and
appears regularly as a commentator on both television and radio news programs.
Mr. Breindel is a graduate of Harvard College and Harvard Law School.
John Catsimatidis has been a director of the Company since December 3,
1991. Mr. Catsimatidis is also the Chairman of Red Apple Companies, Inc., a
holding company for supermarket chains in New York and Florida. Since July 1988,
Mr. Catsimatidis has served as Chairman of the Board, Chief Executive Officer,
Treasurer and director of Designcraft Industries, Inc., an American Stock
Exchange listed company. Mr. Catsimatidis is also currently the Chairman of the
Board, Chief Executive Officer, President and director of United Refining
Company, a refiner and retailer of petroleum products.
Mark Dickstein was elected a director of the Company in October 1996. Since
1986, Mr. Dickstein has been President of Dickstein Partners Inc., a private
investment firm. He is also a director of Carson Pirie Scott & Co. and Hill
Stores Company, leading retailing organizations.
Jerry Finkelstein has been a director of the Company since December 1987
and became Chairman of the Board in August 1993. He served as publisher of The
New York Law Journal from 1960 to 1984. Mr. Finkelstein was Chairman of the
Board of Struthers Wells corporation for more than five years prior to November
1993, when he resigned. Struthers Wells Corporation filed for protection under
Chapter XI of the United States Bankruptcy Code in February 1994. Mr.
Finkelstein is a former member of the Board of Directors of Rockefeller Center,
Inc., Chicago Milwaukee Corporation, Chicago Milwaukee Railroad Corporation and
TPI Enterprise, Inc. (formerly Telecom Plus International Inc.), a
communications company. He is also a former Commissioner of the Port Authority
of New York and New Jersey.
Sydney Gruson was elected a director of the Company in October 1996. Since
1987, Mr. Gruson has been a Senior Advisor of Rothschild Inc. From 1944 to 1987,
he was with The New York Times, first as a correspondent and then as a senior
executive. As the time of his retirement in 1987, he was Vice-Chairman of The
New York Times Company and deputy to the paper's publisher. He is also a
director of The International Herald Tribune.
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.
John E. McConnaughy , Jr. was elected a director of the Company in October
1996. Mr. McConnaughy is Chairman and CEO of JEMC Corporation [describe business
of JEMC]. From 1969 to 1986, he served as Chairman and CEO of Peabody
International Corp. ("Peabody"). From 1981, when it was spun off from Peabody,
until his retirement in 1992, he served as Chairman and CEO of GEO International
Corporation ("GEO"). In October 1993, GEO filed a petition for reorganization
under Chapter
30
<PAGE>
11 of the United States Bankruptcy Code. Mr. McConnaughy is also a director of
DeVlieg Bullard, Inc., Mego Financial Corp., Transact International, Inc.,
Pantapec International, Inc., Riddell Sports, Inc., Enviropur Waste Refining and
Technologies, Inc. and Wave Systems, Inc.
Robert E. Nederlander was elected a director of the Company in October
1996. Since 1983, he has been President of Nederlander Organization, Inc., the
owner and operator of theaters and performing arts facilities. Mr. Nederlander
is also a director of Riddell Sports, Inc., Mego Financial Corp., Allis Chalmers
Corp., a manufacturer of industrial and farm machinery, and A & S Inc., a
department store group.
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.
Wilbur L. Ross, Jr. was elected a director of the Company in October 1996.
Since 1988, Mr. Ross has been Senior Managing Director, Investment Banking, of
Rothschild Inc. Mr. Ross is also a director of Mego Financial Corp. and Syms
Corp.
Michael Schenkler has been a director of the Company since March 1990,
became a Vice President in August 1990 and was elected President in December
1991. He has been President of the Queens Tribune since 1979 and is its
publisher. Prior to taking over the Queens Tribune full time in 1982, Mr.
Schenkler spent 15 years as an educator employed by the Board of Education of
New York City, where he served as a teacher, assistant principal and principal.
Andrew J. Stein has been a director of the Company since July 1994. He is
President of Benake Corporation, a management consulting firm. Prior to assuming
such position in 1993, Mr. Stein was actively involved in public affairs. From
1986 to 1993, he was President of the Council, New York City. From 1978 to 1985,
he was President of the Borough of Manhattan and from 1969 to 1977, he was a
member of the New York State Assembly. He was also Chairman of the New York City
Commission on Public Information and Communication, and has been a Trustee of
the New York City Employees Retirement System and an ex officio member of The
Museum of The City of New York, The New York Public Library, The Metropolitan
Museum of Art and The Queens Borough Public Library. Mr. Stein is a son of Mr.
Finkelstein.
Sy Syms was elected a director of the Company in October 1996. He is
Chairman and Chief Executive Officer of Syms Corp., clothing retailers, a
position he has held since 1983. Mr. Syms is also a director of Israel Discount
Bank of New York.
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.
Hillel Weinberger was elected a director of the Company in October 1996.
Since 1988, he has been Senior Vice President and Senior Portfolio Manager of
Loews/CNA Holdings. He is also a director of Applause, Inc., a leading producer
of licensed gift items.
The directors serve until the next annual meeting of stockholders and until
their respective successors are elected and qualified. Officers serve at the
discretion of the Board of Directors.
31
<PAGE>
Pursuant to the agreement regarding the sale of the $10 Convertible
Preferred Stock, the Company's Board of Directors was increased to 16 members,
of whom the holders of the $10 Convertible Preferred Stock are entitled to
nominate and elect 8 members. Messrs. Bernstein, Dickstein, Gruson,
McConnauaghy, Nederlander, Ross, Syms and Weinberger are the designees of the
holders of the $10 Convertible Preferred Stock to serve as directors of the
Company and became directors on October 28, 1996, the date of the closing of the
sale of the $10 Convertible Preferred Stock. At that time, five of the then
serving directors, Messrs. Joseph K. Fisher, David Jaroslawicz, William J.
Kelleher, Jr., Christopher McGrath and Martin J. McLaughlin, resigned. See
"Description of Securities - Preferred Stock - $10 Convertible Preferred Stock."
Executive Compensation
The following tables show compensation paid by the Company and its
subsidiaries to certain of its executive officers (including the chief executive
officer) for the fiscal years ended November 30, 1995, 1994 and 1993 and certain
information with respect to stock options granted to such executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation
Awards
<S> <C> <C> <C> <C> <C>
Other
Annual
Compensa-
Salary Bonus tion Options
Name and Principal Position Year ($) ($) ($) (#)
Michael Schenkler, President and Chief Exec 1995 150,000 --- --- ---
utive Officer of the Company and officer of sub 1994 142,553 --- --- 67,500
sidiaries 1993 142,553 --- --- 45,000
Daniel Rattiner, Officer of Dan's Papers, Inc. 1995 127,813 61,169 15,000(1) ---
1994 124,016 39,367 15,000(1) ---
1993 120,406 20,285 15,000(1) 35,000
Jerry Finkelstein, Chairman of the Board of the 1995 195,000 --- --- ---
Company and officer of subsidiaries 1994 175,392 --- --- 217,500
1993 --- --- --- 310,000
</TABLE>
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Granted (#) in Fiscal Year ($/Sh) Expiration Date
<S> <C> <C> <C> <C>
Michael Schenkler 10,000 1.9 2.69 8/17/00
Jerry Finkelstein 350,000 47.3 2.00 6/22/00
10,000 1.9 2.69 8/17/00
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE YEAR-END OPTION VALUES
(November 30, 1995)
Number of unexercised options Value of unexercised in-the-money
at fiscal year-end(#) options at fiscal year-end($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Michael Schenkler 132,500 --- 73,885 ---
Jerry Finkelstein 687,500 --- 410,445 ---
Daniel Rattiner 35,000 --- 15,313 ---
</TABLE>
Employment Agreements
Pursuant to an employment agreement entered into by the Company and
Michael Schenkler as of October 15, 1994, and terminating October 14, 1999, Mr.
Schenkler is employed as President of the Company and President of Tribco. Mr.
Schenkler earns a base salary of $150,000 per year (subject to cost-of-living
increases) and such annual bonuses as the Board of Directors of the Company may
determine in its sole discretion. The agreement requires Mr. Schenkler to
protect confidential information of the Company and restricts him from engaging
in certain competitive activities during the term of his employment and for one
year thereafter.
Pursuant to an employment agreement terminating in 1998, as amended,
as compensation for his services to DPI, Daniel Rattiner earns a base salary
from DPI of $100,000 per year, adjusted for increases in the consumer price
index after 1988, plus a bonus in each fiscal year based on net profits (as
defined) of DPI. Mr. Rattiner may terminate his employment at any time. Mr.
Rattiner has pledged to keep secret DPI's confidential matters and, in the event
he leaves the employ of DPI, not to compete with DPI for specific periods of
time, depending on the reasons for his separation.
Pursuant to an employment agreement entered into by the Company and
Jerry Finkelstein as of August 20, 1993, and terminating on August 19, 2003, as
amended, Mr. Finkelstein is employed as Chairman of the Board of Directors of
the Company ("Board")at an annual salary of $195,000. Mr. Finkelstein may also
be paid annual bonuses at the discretion of the Board, based upon such factors
as the Company's results of operations and transactions involving the Company
which are introduced to the Company by Mr. Finkelstein or in which he is
otherwise involved on behalf of the Company. The Company also provides Mr.
Finkelstein with medical and other benefits and perquisites, including
reimbursement for expenses relating to maintenance of appropriate office space
for him, including rent and secretarial costs. Mr. Finkelstein may terminate the
agreement at any time on at least 10 days' notice to the Company. In the event
of his permanent disability or death, salary and bonuses shall continue to paid
to him or the legal representative of his estate until the end of the term of
the agreement. Under the agreement, Mr. Finkelstein is required to devote such
time to the affairs of the Company as he deems necessary and appropriate.
Pursuant to an employment agreement entered into by the Company and
Thomas Allon as of November 1, 1994, and terminating November 30, 1997, Mr.
Allon is employed as Executive Vice President of the Company. Mr. Allon earns a
base salary of $80,000 per year (subject to cost-of-living increases) and, for
fiscal years beginning December 1, 1994, is entitled to a bonus of 5% of the net
profits of the Company derived from the Company's publications Manhattan Spirit,
Our Town, Manhattan File, Chelsea-Clinton News and Westsider, but in no event
shall such bonus be less than $45,000 nor more than $70,000 for any fiscal year.
The agreement requires Mr. Allon to protect confidential information of
33
<PAGE>
the Company and restricts him from engaging in certain competitive activities
during the term of his employment and for one year thereafter.
Pursuant to the agreement regarding the sale of the $10 Convertible
Preferred Stock, Wilbur L. Ross, Jr. will serve as Chief Executive Officer of
the Company until such time as a full-time paid Chief Executive Officer is
hired. Upon his election to the Board, Mr. Ross was also elected as Chairman of
the Executive Committee of the Board. In consideration for the services rendered
by him in such capacities, Mr. Ross is to be paid $1 per year and was granted
five-year options to purchase 200,000 shares of Common Stock at $2.00 per share
under the Company's Discretionary Option Plan.
The Company has no established compensation arrangements with its
directors. See "Directors' and Officers' Options," below.
Directors' and Officers' Options
On August 17, 1993, the Board adopted a "Discretionary Directors and
Officers Stock Option Plan" (the "Discretionary Option Plan") pursuant to which,
as amended, the Board may award options to purchase an aggregate of 1,500,000
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, 1995, the only grant made under the Discretionary Option Plan was a
grant to Mr. Finkelstein on June 22, 1995 of five-year options to purchase
350,000 shares of Common Stock exercisable at $2.00 per share (which are
reported in the tables above). On October 28, 1996, Wilbur L. Ross, Jr. was
granted five-year options to purchase 200,000 shares of Common Stock exercisable
at $2.25 per share as consideration for becoming Chief Executive Officer of the
Company.
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 who was a director of the Company
(other than Mr. Ackerman) on August 17, 1996 received a grant of an option to
purchase 10,000 shares of Common Stock exercisable at $1.625 per share and each
person who became a director on October 28, 1996 received a grant of an option
to purchase 5,000 shares of Common Stock exercisable at $2.25 per share. The
latter grants completed the grants that may be made under the Non-Discretionary
Option Plan.
Certain Transactions
The Company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. Mr. Rattiner can require the Company to purchase his
20% interest in DPI at any time on or after October 13, 1993 for a price equal
to 20% of DPI's retained earnings (if any) plus the greater of $200,000 or 20%
of DPI's gross collected revenues (after deduction of advertising agency
commissions) for the full fiscal year prior to the year in which notice is
given. After November 26, 1997, it shall be a condition to Mr. Rattiner's right
to exercise this option that DPI's after-tax profits are at least equal to 7% of
the gross collected revenues (after deduction of advertising agency
commissions).
34
<PAGE>
DPI leases from Mr. Rattiner 1,910 square feet of office space at an
annual rate of $38,200 (plus cost-of-living adjustments) in a building on
Montauk Highway, Bridgehampton, New York, for a term of ten years terminating in
October 1998 (plus a five-year option).
Rothschild Inc., of which Wilbur L. Ross, Jr. is Senior Managing
Director, Investment Banking, and Sydney Gruson is Senior Advisor, furnished
investment banking services to the Company in connection with the issuance and
sale of the Company's $10 Convertible Preferred Stock and associated warrants.
In consideration for such services, the Company issued Rothschild Inc. 50,000
shares of its Common Stock, valued at $2.00 per share.
In May 1996, the Company, Tribco and Access obtained a $1,000,000
loan from D. H. Blair Investment Banking Corp. ("Blair Investment"), a principal
stockholder of the Company. The loan is repayable on May 21, 1998 and bears
interest at the rate of 8 1/2% per annum payable quarterly. The loan is secured
by a security interest granted by the borrowers to Blair Investment on all of
their personal property and fixtures and by a pledge made by the Company to
Blair Investment of all of the outstanding common stock of Tribco and Access. As
additional consideration for the loan, the Company issued Blair Investment a
five-year warrant to purchase 200,000 shares of Common Stock at an initial
exercise price of $2.50 per share, subject to adjustment.
Effective May 17, 1996, the Company entered into an agreement with
Blair Investment pursuant to which Blair Investment is to act as a non-exclusive
financial advisor and investment banker to the Company. As an inducement to
Blair Investment's providing such services, the Company issued Blair Investment
a five-year warrant to purchase 400,000 shares of Common Stock at an initial
exercise price of $2.50 per share, subject to adjustment.
Gristede's, Sloan's and Red Apple Markets, supermarket chains that
are owned by Red Apple Companies, Inc., of which Mr. Catsimatidis is Chairman,
advertise in various of the Company's publications and also utilize various of
the Company's printing services. Such advertising and printing services are
charged at the Company's standard rates and totaled approximately $267,000
during the fiscal year ended November 30, 1996.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
ownership of the Company's Common Stock, as of October 31, 1996, by each person
known to the Company to own beneficially more than 5% of the outstanding Common
Stock, by each person who is a director of the Company, by each executive
officer of the Company listed in the executive compensation tables and by all
directors and officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership (1) Class
- ---------------- --------------- --------
<S> <C> <C>
Gary Ackerman 353,318 (2) 4.5%
218-14 Northern Boulevard
Bayside, N.Y. 11432
Carl Bernstein 5,000 (3) *
35 East 84th Street
New York, New York 10028
Eric Breindel 62,500 (3) *
210 South Street
New York, N.Y. 10022
John Catsimatidis 55,000 (3) *
832 11th Avenue
New York, N.Y. 10019
Mark Dickstein 185,000 (3)(4) 2.3%
120 East End Avenue
New York, NY 10028
Jerry Finkelstein 1,489,503 (3)(5) 17.4%
150 East 58th Street
33rd Floor
New York, N.Y. 10158
Sydney Gruson 5,900 (3)(4) *
1251 Avenue of the Americas
New York, N.Y. 10020
Andrew J. Maloney 53,000 (3) *
1 World Trade Center
New York, N.Y. 10001
John E. McConnaughy, Jr. 5,000 (3) *
637 Valley Road
New Canaan, CT 06840
Robert E. Nederlander 118,000 (3)(4) 1.5%
570 Park Avenue
New York, N.Y. 10022
- -----------------------------
Continued on next page.
36
<PAGE>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership (1) Class
- ---------------- ----------------- ----------
Daniel Rattiner 168,308 (3)(6) 2.1%
26 Three Mile Harbor
Hog Creek Road
East Hampton, N.Y. 11932
Wilbur L. Ross, Jr. 570,000 (3)(4)(7) 6.7%
1251 Avenue of the Americas
New York, NY 10020
Michael Schenkler 455,267 (3)(8) 5.7%
174-15 Horace Harding
Expressway
Fresh Meadows, N.Y. 11365
Andrew J. Stein 180,000 (3) 2.3%
625 Madison Avenue
New York, N.Y. 10022
Sy Syms 185,000 (3)(4) 2.3%
Syms Way
Secaucus, NJ 07094
Arthur Tarlow 79,716 (3) 1.0%
1505 Kellum Place
Mineola, N.Y. 11501
Hillel Weinberger 221,000 (3)(4) 2.7%
667 Madison Avenue
New York, NY 10021
All Directors and 4,275,679 (3)(9) 39.3%
Executive Officers as
a Group
(19 persons)
J. Morton Davis 2,577,430 (10) 30.4%
D.H. Blair Holdings, Inc.
D.H. Blair Investment
Banking Corp.
44 Wall Street
New York, N.Y. 10005
- -------------------------------------------
* Less than one percent.
(1) Based upon information furnished by the persons listed. Except as
otherwise indicated, the stockholders listed possess sole voting and
investment power with respect to the shares listed.
(2) Includes 5,334 shares owned by Mr. Ackerman's children for whom Mr. Ackerman is custodian.
(3) Includes the following numbers of shares purchasable upon the exercise of presently exercisable
options and warrants: Mr. Bernstein--5,000; Mr. Breindel--46,500; Mr. Catsimatidis--55,000; Mr.
Dickstein--85,000; Mr. Finkelstein--697,500; Mr. Gruson--5,400; Mr. Maloney--53,000; Mr.
McConnaughy--5,000; Mr. Nederlander--45,000; Mr. Rattiner--35,000; Mr. Ross--365,000; Mr.
Schenkler--142,500; Mr. Stein--130,000; Mr. Syms--85,000; Mr. Tarlow--67,500; Mr.
Weinberger--101,000.
37
<PAGE>
- --------------------------------------------------
(Footnotes continued from prior page)
(4) Includes the following numbers of shares issuable upon conversion of shares of $10 Convertible
Preferred Stock: Mr. Dickstein--100,000; Mr. Gruson--500; Mr. Nederlander--50,000; Mr.
Ross--200,000; Mr. Syms--100,000; Mr. Weinberger--120,000.
(5) 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.
(6) Includes (i) 500 shares owned by Mr. Rattiner's wife and (ii) 1,800 shares issuable upon conversion
of the Company's 10% Preferred Stock.
(7) Does not include (a) 50,000 shares owned by Rothschild Inc. and (b) 50,000 shares issuable upon
conversion of shares of $10 Convertible Preferred Stock owned by Rothschild North America Inc.
("RNA") and 40,000 shares issuable upon exercise of warrants owned by RNA. Mr. Ross disclaims
beneficial ownership of all of such shares.
(8) Includes 9,000 shares that are issuable upon conversion of the Company's
10% Preferred Stock owned by Mr. Schenkler's wife as custodian for two
minor children of which Mr. Schenkler disclaims beneficial ownership.
(9) Includes shares issuable upon the exercise of the options referred to in
(3) above, and 61,666 shares issuable to Mr. Thomas Allen, Executive Vice
President of the Company, upon exercises of presently exercisable stock
options and 22,501 shares issuable to Mr. Robert Berkowitz, Controller of
the Company, upon exercise of presently exercisable stock options.
(10) Includes (i) 1,843,915 shares of Common Stock and Warrants to purchase 600,000 shares 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) 71,600 shares owned by Rosalind Davidowitz. Mr. Davis, Blair
Holdings and Blair Investment expressly disclaim beneficial ownership of all securities held by
Rivkalex and Rosalind Davidowitz.
</TABLE>
38
<PAGE>
DESCRIPTION OF SECURITIES
The Company is presently authorized to issue 100,000,000 shares of
Common Stock, par value $.01 per share, and 500,000 shares of Preferred Stock,
par value $1.00 per share.
Common Stock
The holders of shares of Common Stock have equal, ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of the Company, and are entitled to share ratably in all of
the assets of the Company available for distribution to holders of Common Stock
upon the liquidation, dissolution or winding up of the affairs of the Company.
Holders of Common Stock do not have preemptive, subscription or conversion
rights to purchase or subscribe to securities of the Company. There are no
redemption or sinking fund provisions in the Company's Articles of
Incorporation. Holders of Common Stock are entitled to one vote per share on all
matters which stockholders are entitled to vote upon at all meetings of
stockholders. There is no cumulative voting. Thus, the holders of more than 50%
of the shares voting for election of directors can elect all the members of the
Board of Directors who are elected by the holders of Common Stock and can decide
any question brought before the stockholders requiring approval by a simple
majority of the holders of Common Stock. In such event, the holders of the
remaining shares of Common Stock will not be able to elect any directors or
carry out any other matter brought before the stockholders. As of November 30,
1996, 7,887,039 shares of Common Stock were outstanding. See "Principal
Stockholders."
Preferred Stock
The Articles of Incorporation of the Company authorize the issuance
of up to 500,000 shares of Preferred Stock, $1.00 par value per share. The Board
of Directors is authorized to issue shares of Preferred Stock from time to time
in one or more series and, subject to the limitations contained in the Articles
of Incorporation and any limitations prescribed by law, to establish and
designate any such series and to fix the number of shares and the relative
rights, conversion rights, voting rights and terms of redemption (including
sinking fund provisions) and liquidation preferences. If shares of Preferred
Stock with voting rights are issued, such issuance could affect the voting
rights of the holders of the Company's Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of class or series
voting rights. If the Board authorizes the issuance of shares of Preferred Stock
with conversion rights, the number of shares of Common Stock outstanding could
potentially be increased up to the authorized amount. Issuance of Preferred
Stock, could, under certain circumstances, have the effect of delaying or
preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock such as by placing restrictions upon payments
of dividends to holders of Common Stock or by diluting the voting power of such
holders. Similarly, issuance of Preferred Stock could inhibit a third-party
tender offer for the Common Stock and thus deprive stockholders of an
opportunity to receive a premium over the market price. Also, Preferred Stock
could have preferences over the Common Stock (and other series of Preferred
Stock) with respect to dividend and liquidation rights. The Company has no
present plans to issue any additional shares of Preferred Stock other than the
four series of Convertible Preferred Stock presently authorized. Reference is
made to the resolutions of the Board of Directors fixing the terms of the
Convertible Preferred Stock, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
8%, 10% and 12% Convertible Preferred Stock. Among the four series
of Preferred Stock presently authorized are 10% Convertible Preferred Stock
("10% Preferred Stock"), of which 1,250 shares are authorized, 1,150 shares were
issued and 32 shares remain outstanding; 8% Convertible Preferred Stock ("8%
Preferred Stock"), of which 500 shares are authorized and 217 shares are issued
and outstanding; and 12% Convertible Preferred Stock ("12% Preferred Stock"), of
which 200 shares are authorized, issued and outstanding. For purposes of paying
interest and liquidation preference, the shares of 10% Preferred Stock have a
stated value of $5,000 per share and the shares of 8% Preferred Stock
39
<PAGE>
and 12% Preferred Stock have stated values of $1,000 per share. At the option of
the Company, interest on the 10% Preferred Stock may be paid in an equivalent
value of shares of Common Stock. Presently, the 10% Preferred Stock, 8%
Preferred Stock and 12% Preferred Stock are convertible into shares of Common
Stock at the rates of 1,800 shares of Common Stock per share of 10% Preferred
Stock, 476.19 shares of Common Stock per share of 8% Preferred Stock and 476.19
shares of Common Stock per share of 12% Preferred Stock. In addition, upon
conversion of the 8% Preferred Stock the holder is entitled to receive 5-year
warrants to purchase an equivalent number of shares of Common Stock at an
exercise price equal to the per share conversion price.
$10 Convertible Preferred Stock. The Company has authorized 200,000
shares of $10.00 Convertible Preferred Stock ($10 Convertible Preferred Stock),
all of which are issued and outstanding. Dividends on the $10 Convertible
Preferred Stock are payable at a rate equal to five times the amount of
dividends, if any, per share declared and paid by the Company on the Common
Stock. The holders of the $10 Convertible Preferred Stock are entitled to a
liquidation preference of $10 per share.
Except as hereinafter described, each share of $10 Convertible
Preferred Stock is entitled to such number of votes such share would have had if
it had been converted into shares of Common Stock (presently five) on all
matters presented for a vote to holders of Common Stock. So long as at least
100,000 shares of $10 Convertible Preferred Stock are outstanding, the holders
of the $10 Convertible Preferred Stock, voting as a single class, are entitled
to nominate and elect that number of directors of the Company equal to one-half
of the total number of directors. Any director elected by the holders of the $10
Convertible Preferred Stock may be removed by, and shall not be removed without
cause except by, the holders of a majority of the outstanding shares of $10
Convertible Preferred Stock. During the period that the preceding provisions
regarding election of directors are in effect, the holders of the $10
Convertible Preferred Stock shall not be entitled to vote for the election of
any other directors.
The vote of all of the holders of the $10 Convertible Preferred
Stock is necessary for authorizing, effecting or validating the amendment,
alteration or repeal of any of the provisions of the Company's Certificate of
Incorporation so as to affect adversely the powers, preferences or rights of the
$10 Convertible Preferred Stock. So long as at least 100,000 shares of $10
Convertible Preferred Stock are outstanding, the vote of a majority of the
holders thereof (or such greater amount as may be required by law), acting as a
single class, shall be necessary for authorizing, effecting or validating (i)
the merger or consolidation of the Company into or with any other corporation,
(ii) the sale of all or substantially all of the assets of the Company or (iii)
the issuance of any other class of stock having parity with the $10 Convertible
Preferred Stock.
The shares of $10 Convertible Preferred Stock are convertible at any
time into shares of Common Stock, initially at the rate of five shares of Common
Stock per share of $10 Convertible Preferred Stock, subject to adjustment in the
event of subdivisions or splits of the Common Stock or recapitalization or
reclassification thereof or upon the sale of Common Stock at a price less than
the then current conversion price. The holders of the $10 Convertible Preferred
Stock have no preemptive rights. Upon the request of holders of at least 40% of
the outstanding shares of $10 Convertible Preferred Stock made on or prior to
October 27, 2001, the Company, at its expense, will cause the shares of Common
Stock issuable upon conversion of their shares of $10 Convertible Preferred
Stock to be registered under the Securities Act of 1933. During such period, the
holders of the $10 Convertible Preferred Stock also have the right to have such
shares of Common Stock included in any registration statement filed by the
Company under that Act, subject to certain restrictions.
Public Warrants
The following discussion sets forth all of the terms and provisions
of the Public Warrants which the Company believes are material. The complete
terms are set forth in the Warrant Agreement between the Company and Continental
Stock Transfer & Trust Company (the "Warrant Agent"), filed as an exhibit
40
<PAGE>
to the Registration Statement, and also the detailed provisions of the forms of
the Public Warrants attached to the Warrant Agreement.
Each Public C Warrant entitled the holder to purchase one share of
Common Stock of the Company until October 9, 1996, at a per share price of
$2.00. Any Public C Warrant not exercised by that date has expired and may no
longer be exercised. Each Public D Warrant entitles the holder to purchase one
share of Common Stock of the Company until October 9, 1998, at a per share price
of $3.00, subject to adjustment. Unless extended by the Company at its
discretion, the Public D Warrants will expire at 5:00 p.m. New York City time on
October 9, 1998. If a holder of Public Warrants fails to exercise his Public D
Warrants prior to their expiration, the Public Warrants will expire and the
holder thereof will have no further rights with respect to them.
The Common Stock to be issued upon the exercise of the Public
Warrants will be fully paid and nonassessable. Holders of the Public Warrants
will have no voting, preemptive, liquidation or other rights of a stockholder
and no dividends will be declared on the Public Warrants.
The Company may call the Public D Warrants for redemption, in whole
or in part, at any time commencing twelve months after the date of this
Prospectus upon a minimum of 30 days' prior written notice to holders, at a
redemption price of $0.01 per Warrant, provided that the average of the means of
the closing bid and closing asked quotations of the Common Stock on Nasdaq (or
the last sale price if principally traded on a national securities exchange or
the Nasdaq National Market System) exceeds 125% of the then respective exercise
prices of the Public D Warrants being redeemed for any 20 consecutive trading
days ending within 15 days prior to the day on which notice is given. During the
30-day notice period, a holder shall have the option to exercise his Public D
Warrants. Any holders of Public D Warrants who do not exercise prior to the
redemption date will forfeit their rights to purchase the securities underlying
the Public D Warrants and, after the redemption date, any outstanding Public D
Warrants will become void and be of no further force and effect. If the Company
does not redeem the Public D Warrants, they will expire, become void and of no
further force or effect on the conclusion of the exercise period.
A Public D Warrant, when exercisable, may be exercised upon the
surrender of a duly completed certificate and exercise form on or prior to its
expiration at the office of the Warrant Agent, accompanied by cash or a
certified or official bank check payable to the order of the Company for the
exercise price. Warrants are generally more speculative than the common stock
which is purchasable upon the exercise thereof. A Public D Warrant may become
valueless, or of reduced value, if the market price of the Common Stock
decreases, or increases only modestly, over the term of the Public Warrant.
The Public D Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price in certain events
such as stock dividends, splits, recapitalizations, mergers or consolidations.
No adjustment in the number of shares purchasable upon exercise of the Public D
Warrants will be required until cumulative adjustments in any fiscal year
require an adjustment of more than 2% thereof. Cash payments will be made in
lieu of fractional shares upon any exercise of Public D Warrants. If less than
all of the Public D Warrants evidenced by a warrant certificate are exercised, a
new warrant certificate representing the remaining number of Public D Warrants
will be issued to the holder of the Public D Warrants by the Warrant Agent.
Notwithstanding the foregoing, in the case of any liquidation,
dissolution, winding up, consolidation or merger of the Company, or sale or
conveyance of all or substantially all of the assets of the Company, the right
to exercise the Public D Warrants shall terminate no later than the date fixed
for the transfer of, or the payment of any distributable amount on, the
Company's shares of Common Stock. At least 30 days' notice of such termination
date shall be given to the registered holders of the Public D Warrants
determined as of the date of the notice.
41
<PAGE>
The Board of Directors of the Company may amend the terms of the
Public D Warrants to reduce their exercise prices or extend their exercise
periods. The Company and the Warrant Agent may make changes to the Warrant
Agreement to cure ambiguities, correct inconsistencies or manifest mistakes or
as they otherwise may deem necessary or desirable and which do not adversely
affect the interests of the holders. However, no other change may be made
without the written consent of the holders of at least 50% of the outstanding
Public D Warrants and no decrease in the number or change in nature of the
securities issuable upon exercise of a Public D Warrant or increase in the
exercise price or acceleration of the exercise period of a Public D Warrant may
be made without the written consent of the holder of such Warrant.
The Public Warrants will not be exercisable unless a registration
statement pursuant to the Securities Act covering the shares of Common Stock
issuable upon exercise of the Public Warrants has been filed, declared
effective, and is current and such shares of Common Stock have been registered
or qualified, or there is an exemption from such registration or qualification
requirements, under the securities laws of the state of residence of the holder
of such Public Warrant. The Company has filed a registration statement pursuant
to the Securities Act with the Commission and will use its best efforts to
maintain a current prospectus relating thereto, subject to the terms of the
Warrant Agreement. While it is the Company's intention to do so, there is no
assurance that it will be able to do so. Since the Public D Warrants are only
redeemable by the Company at such time as they are exercisable, the Public D
Warrants will not be redeemable by the Company unless prior to redemption a
registration statement covering the shares of Common Stock issuable upon
exercise of the Public D Warrants has been filed, declared effective, and is
current.
For the life of the Public D Warrants, the holders thereof are given
the opportunity to profit from a rise in the market price of the Common Stock
which may result in a dilution of the interest of other stockholders. In
addition, the Company may find it more difficult to raise equity capital if it
should be needed for the business of the Company while Public D Warrants are
outstanding. At any time when the holders of the Public D Warrants might be
expected to exercise them, the Company would probably be able to obtain
additional equity capital on terms more favorable than those provided in the
Public D Warrants.
The exercise prices of the Public Warrants were arbitrarily
determined by negotiations between the Company and Hibbard Brown, and do not
bear any relationship to the market price of the Common Stock, the Company's
assets, book value, net worth, results of operations or to any other established
criterion of value, and they should not be considered any indication of the
actual value of the Company. However, among the factors considered in
determining the public offering price of the units of which the Public Warrants
were a part, consideration was given to prevailing market conditions, the
industry in which the Company operates, an assessment of the Company's
management, its capital structure, the business potential of the Company and the
demand for similar securities of comparable companies.
Hibbard Brown Option and Warrant Solicitation Fee
In connection with the 1992 Offering, the Company sold Hibbard
Brown, for nominal consideration, an option (the "Hibbard Brown Option"),
exercisable until October 9, 1997, which gave the holders the right to purchase
up to 150,000 units of securities, each unit consisting of one share of Common
Stock, one non-redeemable Class C Warrant of the Company ("Hibbard Brown C
Warrant") and one Hibbard Brown D Warrant, at $3.30 per unit. The Hibbard Brown
Option has been fully exercised by the holders thereof, who also exercised all
of the Hibbard Brown C Warrants and 65,000 of the 150,000 Hibbard Brown D
Warrants issuable upon exercise of the Hibbard Brown Option. The Hibbard Brown C
Warrants and Hibbard Brown D Warrants purchasable upon exercise of the Hibbard
Brown Option are identical to the Public C Warrants and Public D Warrants except
that they are exercisable between October 9, 1993, and October 9, 1997, and are
non-redeemable. The Company agreed to register under the 1933 Act, at its
expense on one occasion, and at the expense of Hibbard Brown or other holder on
42
<PAGE>
another occasion, the Hibbard Brown Option, and/or the underlying securities, at
the request of the holders of forty percent thereof. The offering by the
successors-in-interest to Hibbard Brown being made pursuant to this Prospectus
is being made at the Company's expense in accordance with such obligation. The
Company has also agreed to certain "piggy-back" registration rights for the
holders of the Hibbard Brown Option and the securities issuable upon exercise
thereof.
The Company had agreed to pay Hibbard Brown, upon the exercise of
the Public Warrants, a fee of 4% (of which 1% may be reallowed to the dealer who
solicited the exercise) of the aggregate exercise price if (i) the market price
of the Common Stock on the date the Public Warrant is exercised is greater than
the then exercise price of the Public Warrants; (ii) the exercise of the Public
Warrant was solicited by a member of the NASD; (iii) the Public Warrant is not
held in a discretionary account; (iv) disclosure of compensation arrangements
was made both at the time of the offering and at the time of exercise of the
Public Warrant; (v) the solicitation of the Public Warrant was not in violation
of Rule 10b-6 promulgated under the Securities and Exchange Act of 1934; and
(vi) the solicitation of the Public Warrant is in compliance with NASD Notice to
Members 81-38. As Hibbard Brown is no longer in business, the Company may pay
such fee to a successor-in-interest to Hibbard Brown which is a member firm of
the National Association of Securities Dealers, Inc. or to another member firm
with whom the Company may enter into an agreement with respect to solicitation
of the Public Warrants. Unless granted an exemption by the Securities and
Exchange Commission from Rule 10b-6, any such member firm will be prohibited
from engaging in any market-making activities or solicited brokerage activities
with regard to the Company's securities during the periods prescribed by Rule
10b-6 before the solicitation of the exercise of any Public Warrant until the
later of (i) the termination of such solicitation activity, or (ii) the
termination by waiver or otherwise of any right such member firm may have to
receive a fee for the exercise of the Public Warrants following such
solicitations.
Dividends
To date, the Company has not paid any dividends on its Common Stock.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Company's business. See
"Dividend Policy."
Transfer and Warrant Agent
The Company's Transfer and Warrant Agent is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
The Company has been advised that the sales of the shares of Common
Stock offered by the successors-in-interest to Hibbard Brown (if and when
issued) may be effected from time to time in transactions (which may include
block transactions on Nasdaq) in the over-the-counter market, in negotiated
transactions, through the writing of options on Common Stock, or a combination
of such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The sellers might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933 and may be obligated to comply with certain rules
promulgated by the Securities and Exchange Commission designed to prevent
manipulative and deceptive practices, including Rules 10b-2, 10b-6 and 10b-7
promulgated under the Securities Act of 1934.
All costs, expenses and fees in connection with the registration of
the securities offered by the successors-in-interest to Hibbard Brown will be
borne by the Company. The Company has agreed to
43
<PAGE>
indemnify Hibbard Brown and its successors-in-interest, and Hibbard Brown has
agreed to indemnify the Company (including its officers and directors), against
certain liabilities, including liabilities under the Securities Act of 1933.
Because Hibbard Brown is no longer in business, it is unlikely that the Company
would be successful in pursuing any remedies it has pursuant to such right of
indemnification.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 7,887,039 Common Stock outstanding. Of
this amount, approximately 2,320,906 shares are "restricted" securities as that
term is defined under Rule 144 promulgated under the Securities Act of 1933. Of
the restricted shares, approximately 2,250,906 have been held for at least two
years.
Under Rule 144, as currently in effect, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company (or
persons whose shares are aggregated), who has owned restricted shares of Common
Stock beneficially for at least two years, is entitled to sell, within any three
month period, a number of shares that does not exceed the greater of 1% of the
total number of outstanding shares of the same class or, if the stock is quoted
on Nasdaq or a securities exchange, the average weekly trading volume during a
specified four-week period preceding the sale. A person who has not been an
affiliate of the Company for at least 3 months and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such shares
under Rule 144 without regard to such volume limitations.
The Company is unable to predict the effect that sales made under
Rule 144, or pursuant to other exemptions under the Securities Act of 1933, may
have on the then prevailing market price of the Common Stock.
As of the date of this Prospectus, without taking into effect the
securities offered hereby, there were outstanding shares of Preferred Stock and
immediately exercisable options and warrants which, upon conversion or exercise,
would enable their holders to purchase up to 5,039,172 restricted shares of
Common Stock at prices ranging from $1.25 to $9.00 per share and exercisable
over periods of up to ten years. The conversion of any of the aforementioned
shares of Preferred Stock or the exercise of any of the aforementioned options
or warrants may have a dilutive effect on the Common Stock. Moreover, the terms
upon which the Company may be able to obtain additional equity capital may be
adversely affected because the holders of such shares, warrants and options can
be expected to convert their shares and exercise their warrants and options at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided by the terms
of such warrants or options. In addition, certain holders of options, warrants
and Preferred Stock of the Company have received registration rights with
respect to the securities held by or issuable to them. These registration rights
could result in substantial future expense to the Company and could adversely
affect any future equity or debt financing. Furthermore, the sale of such shares
of Common Stock held by or issuable to the holders of registration rights, or
even the potential of such sales, could have an adverse effect on the then
current market price of the Company's securities.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed
upon for the Company by Graubard Mollen & Miller ("GM&M"), 600 Third Avenue, New
York, New York 10016, counsel to the Company. GM&M owns 1,334 shares of the
Company's Common Stock.
44
<PAGE>
EXPERTS
The Consolidated Financial Statements of the Company included in
this Prospectus have been audited by Mortenson and Associates, P.C., independent
auditors, to the extent and for the periods indicated in their reports appearing
elsewhere herein and are included in reliance upon the authority of said firm as
experts in accounting and auditing.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Articles of Incorporation of the Company, as amended, provide
that the Company shall indemnify, to the full extent permitted by Nevada law,
its officers, directors, employees and agents. The Articles of Incorporation, as
amended, also provide for the elimination, with certain exceptions, of personal
liability of directors and officers to the Company and its stockholders for
damage for breach of fiduciary duty as directors and officers.
The underwriting agreements that the Company entered into with D.H.
Blair & Co., Inc. and Hibbard Brown in connection with the public offerings of
securities of the Company underwritten by those firms each provide for
reciprocal indemnification between the Company and its controlling persons, on
the one hand, and the underwriters and their controlling persons, on the other
hand, against certain liabilities in connection with such offerings, including
liabilities under the Securities Act of 1933, as amended.
The Company has obtained a directors and officers insurance and
company reimbursement policy in the amount of $1,000,000 (subject to a $100,000
per claim deductible). The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
would reimburse the Company for such loss for which the Company has lawfully
indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission"), Washington, D.C., a Registration Statement (the
"Registration Statement") under the Securities Act of 1933 (File No. 33-46467)
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and such
securities, reference is hereby made to the Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement. The Registration Statement, together with the exhibits,
may be inspected at the Commission's principal office in Washington, D.C. and
copies may be obtained upon payment of the fees prescribed by the Commission.
45
<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-20
. . . . . . . . . .
<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, 1995, 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, 1995. 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, 1995, and the results
of their operations and their cash flows for each of the fiscal years in the two
year period ended November 30, 1995, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 19 to the consolidated financial statements, the Company has
suffered recurring losses from operations, and has recurring negative cash flows
from operating activities that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 19. The consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
As discussed in Note 18 to the consolidated financial
statements, the Company restated its financial statements as of and for the year
ended November 30, 1994.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 27, 1996
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, November 30,
1996 1995
[Unaudited]
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 316,419 $ 54,474
Accounts Receivable [Less: Allowance for Doubtful
Accounts of $1,562,197 and $1,424,877, Respectively] 5,488,203 4,730,681
Other Current Assets 101,908 119,233
Due from Related Parties 182,384 78,070
------------- ----------
Total Current Assets 6,088,994 4,982,458
------------- ----------
Property and Equipment At Cost - Net of Accumulated
Depreciation and Amortization of $817,196 and
$679,633, Respectively 562,067 657,436
-------------- ----------
Other Assets:
Goodwill - Net 3,452,150 3,665,990
Other Assets 152,627 154,179
-------------- -----------
Total Other Assets 3,604,777 3,820,169
------------- -----------
Total Assets $10,255,838 $9,460,063
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, November 30,
1996 1995
[Unaudited]
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $2,041,330 $ 1,730,763
Accrued Payroll and Payroll Taxes 219,015 322,152
Notes Payable - Bank 1,175,000 524,000
Other Current Liabilities 13,567 29,182
------------ -------------
Total Current Liabilities 3,448,912 2,606,097
------------ -------------
Notes Payable - Shareholder 1,000,000 ---
------------ -------------
Commitments and Contingencies --- ---
------------- -------------
Minority Interest 47,788 47,788
------------- -------------
Stockholders' Equity:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
10% Convertible Preferred Stock, 1,250 Shares Authorized;
32 Issued and Outstanding, $500 Per Share Per Annum
Cumulative Dividends, $160,000 Liquidation Value 32 32
8% Convertible Preferred Stock, 500 Shares Authorized,
217 Issued and Outstanding, $80 Per Share Per Annum
Cumulative Dividends, $217,000 Liquidation Value 217 217
12% Convertible Preferred Stock, 200 Shares Authorized,
200 Shares Issued and Outstanding, $120 Per Share Per
Annum Cumulative Dividends, $200,000 Liquidation Value 200 200
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 7,977,415 and 7,957,665 Shares Issued, Respectively 79,774 79,576
Paid-in Capital - Preferred Stock 519,873 519,873
Paid-in-Capital - Common Stock 13,755,256 13,723,456
[Deficit] (8,187,485) (7,108,447)
----------- -------------
Totals 6,167,867 7,214,907
Less: Treasury Stock [151,000 Common Shares] - At Cost (408,729) (408,729)
----------- ------------
Total Stockholders' Equity 5,759,138 6,806,178
---------- ------------
Total Liabilities and Stockholders' Equity $10,255,838 $9,460,063
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Years ended
August 31, November 30,
1996 1995 1995 1994
---- ---- ----- -------
[Unaudited] [Restated]
<S> <C> <C> <C> <C>
Net Revenues $13,856,070 $13,252,732 $18,113,462 $13,554,929
----------- ----------- ----------- -----------
Operating Expenses:
Direct Mechanical Costs 5,159,521 4,824,076 6,606,636 4,841,549
Salaries, Benefits and Outside Labor Costs 7,176,835 7,091,924 9,511,879 7,011,739
Rent, Occupancy and Utilities 697,883 619,679 870,949 587,871
Provision for Doubtful Accounts 199,000 159,000 396,000 376,000
General and Administrative 1,600,160 1,659,468 2,408,344 1,847,492
------------ ------------ --------- ---------
Total Operating Expenses 14,833,399 14,353,517 19,793,808 14,664,651
----------- ----------- ---------- ----------
Loss from Operations (977,329) (1,100,785) (1,680,346) (1,109,722)
------------- ------------ ----------- ----------
Other Income [Expense]:
Interest [Expense] (72,439) (13,278) (32,608) (24,797)
Interest Income 1,750 31,591 28,708 61,993
Other Income --- --- --- 94,642
------------ ----------- ---------- ---------
Total Other Income [Expense] (70,689) 18,313 (3,900) 131,838
------------ ------------ ----------- ---------
Loss Before Income Taxes
and Minority Interest (1,048,018) (1,082,472) (1,684,246) (977,884)
Provision for Income Taxes --- --- --- ---
------------ ------------ ---------- --------
Net Loss Before Minority
Interest (1,048,018) (1,082,472) (1,684,246) (977,884)
Less: Minority Interest in Income of
Subsidiary --- --- 47,788 ---
----------- ------------ ------- ---------
Net Loss $(1,048,018) $(1,082,472) $ (1,732,034) $(977,884)
============ ============ ============ ==========
Loss Per Common Share $ (.13) $ (.14) $ (.22) $ (.13)
============ ============ ============ ==========
Average Number of Common
Shares Outstanding 7,822,790 7,776,286 7,804,043 7,580,203
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Paid-in Paid-in
Preferred Capital Common Capital
Stock Preferred Preferred Stock Common Common Treasury
[Shares] Stock Stock [Shares] Stock Stock [Deficit] Stock Total
------ ----- ----- ------ ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - November 30, 1993 - 450 $450 $523,501 6,974,009 $69,740 $11,180,986 $(4,283,809) $(408,229) $7,082,139
Conversion from Preferred
Stock to Common (1) (1) (3,628) 1,800 18 3,611 -- -- --
Stock Issued in Connection With
Exercise of C and D Warrants -- -- -- 807,887 8,079 1,943,268 -- -- 1,951,347
Stock Issued for Acquisitions -- -- -- 122,123 1,221 143,535 -- -- 144,756
Stock Issuable for Acquisitions -- -- -- -- -- 354,687 -- -- 354,687
Stock Issued in Connection with
Exercise of Options -- -- -- 3,333 33 6,217 -- -- 6,250
Stock Issued as Preferred Dividend -- -- -- 6,624 66 15,934 (16,000) -- --
Dividend on Preferred Stock -- -- -- -- -- -- (41,360) -- (41,360)
Net Loss, As Restated -- -- -- -- -- -- (977,884) -- (977,884)
---- ---- ---- ---- ---- ----- -------- -----
Balance - November 30, 1994 449 $449 $519,873 7,915,776 $79,157 $13,648,238 $(5,319,053) $(408,729) $8,519,935
Stock Issued in Connection with
Exercise of C and D Warrants -- -- -- 24,561 246 46,891 -- -- 47,137
Stock Issued in Connection with
Exercise of Stock Options -- -- -- 10,000 100 12,400 -- -- 12,500
Stock Issued as Preferred Dividend -- -- -- 7,328 73 15,927 (16,000) -- --
Dividend on Preferred Stock -- -- -- -- -- -- (41,360) -- (41,360)
Net Income -- -- -- -- -- -- (1,732,034) -- (1,732,034)
---- ---- ---- ---- ---- ---- ----------- ---- -----------
Balance Forward - November 30, 1995 449 $449 $519,873 7,957,665 $79,576 $13,723,456 $(7,108,447) $(408,729) $6,806,178
Stock Issued in Connection with
Exercise of C and D Warrants -- -- -- 9,750 98 19,400 -- -- 19,498
Stock Issued in Connection with
Exercise of Stock Options -- -- -- 10,000 100 12,400 -- -- 12,500
Dividend on Preferred Stock -- -- -- -- -- -- (31,020) -- (31,020)
Net Income -- -- -- -- -- -- (1,048,018) -- (1,048,018)
---- ---- ---- ---- ---- ---- ----------- ---- -----------
Balance - August 31, 1996 [unaudited] 449 $449 $519,823 7,977,665 $79,774 $13,755,256 $(8,187,485) $(408,729) $5,759,138
=== ==== ======== ========= ======= =========== ========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Years ended
August 31, November 30,
1996 1995 1995 1994
---- ---- ---- ----
[Unaudited]
<S> <C> <C> <C> <C>
Operating Activities:
Net Income [Loss] $(1,048,018) $(1,082,472) (1,732,034) $(977,884)
----------- ----------- ----------- ----------
Adjustments to Reconcile Net Income [Loss] to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 351,403 373,077 494,606 413,062
Provision for Losses on Accounts Receivable 199,000 159,000 396,000 376,000
Expense Related to Exercise of Options --- --- --- 5,250
Gain on Sale of Building --- --- --- (94,642)
Minority Interest --- --- 47,788 ---
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (956,522) (1,375,859) (1,526,791) (1,982,551)
Other Current Assets (104,314) (212,772) 84,138 (87,113)
Other Assets 1,552 23,153 8,850 (106,344)
Related Party Receivable 17,325 3,856 (39,112) ---
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 310,567 (255,951) 69,395 998,312
Accrued Payroll and Payroll Taxes (103,137) 226,383 191,284 (7,494)
Other Current Liabilities --- 148,516 (6,440) (66,024)
Related Payable (15,615) --- 29,182 ---
----------- ----------- ---------- -------
Total Adjustments (299,741) (934,630) (251,100) (551,544)
---------- ----------- --------- ---------
Net Cash Provided [Used] by - Operating Activities
- Forward (1,347,759) (2,017,102) (1,983,134) (1,529,428)
----------- ----------- ----------- -----------
Investing Activities:
Capital Expenditures (42,194) (120,009) (148,409) (422,193)
Proceeds from Sale of Building --- --- --- 100,000
Investment in Marketable Securities --- --- --- (924,633)
Sale of Marketable Securities --- 924,633 924,633 ---
Purchase of Nassau Newspapers --- --- --- (319,906)
Purchase of Westside --- --- --- (194,898)
Purchase of Brooklyn --- --- --- (32,750)
Purchase of Bronx Press Review --- --- --- (25,676)
---------- ------------- ---------- -----------
Net Cash [Used] by - Investing Activities - Forward (42,194) (804,624) 776,224 (1,820,056)
---------- ------------- ---------- -----------
Financing Activities:
Principal Payments Long-Term Debt (24,000) (75,747) --- (470,250)
Proceeds from Exercise of Stock Options 12,500 19,758 12,500 1,000
Proceeds from Exercise of Warrants and Underwriter Option 19,498 9,216 47,137 1,951,347
Principal Payments on Notes Payable --- --- (99,750) (81,254)
Proceeds from Notes Payable 1,675,000 480,000 500,000 ---
Dividend on Preferred Stock (31,020) (31,020) (41,360) (41,360)
---------- --------- -------- -----------
Net Cash Provided by - Financing Activities - Forward $1,651,978 $ 402,207 $ 418,527 $1,359,483
---------- ---------- ------------ ----------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Years ended
August 31, November 30,
1996 1995 1995 1994
---- ---- ---- ----
[Unaudited] [Restated]
<S> <C> <C> <C> <C>
Net Cash Provided [Used] by - Operating Activities -
Forwarded $(1,347,759) $(2,017,102) $ (1,983,134) $ (1,529,428)
Net Cash [Used] by - Investing Activities -
Forwarded (42,194) 804,624 776,224 (1,820,056)
Net Cash Provided by - Financing Activities -
Forwarded 1,651,978 402,207 418,527 1,359,483
---------- ------------ ------- ----------
Net Increase in Cash and Cash 262,025 (810,271) (788,383) (1,990,001)
Cash and Cash Equivalents - Beginning of Periods 54,474 842,857 842,857 2,832,858
----------- ------------ ------- ----------
Cash and Cash Equivalents - End of Periods $ 316,499 $ 32,856 54,474 $ 842,857
=========== ============ ======= ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 72,439 $ 9,547 $ 19,704 $ 8,240
Income Taxes --- --- $ --- $ ---
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
See Note 5 to financial statements relating to acquisitions consummated in
December 1993, August 1994 and September 1994 and Notes 11 and 14 relating to
capital transactions.
See Notes to Consolidated Financial Statements.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[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"), Nassau 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. ("West Side"). 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
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 to
twenty years on a straight-line basis. 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, 1995.
Revenue Recognition - Revenues are earned as the advertisements are run, in
accordance with customer agreements.
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, 1995 accumulated amortization amounted to
$102,470. Amortization expense amounted to $25,480 for each of the years ended
November 30, 1995 and 1994 [See Note 4].
Seasonality - One of the Company's publications [which generated approximately
18% of revenues in fiscal 1995 and 21% of revenues in fiscal 1994] is a resort
area newspaper, which has most of its revenue generated during the summer.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[2] Summary of Significant Accounting Policies [Continued]
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
Concentrations of Credit Risk - Financial instruments that potentially
subject the Company to concentrations of credit risk are cash and accounts
receivable arising from its normal business activities. The Company rountinely
assesses the financial strength of its customers and based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
places its cash with high credit quality financial institutions. The Company has
not experienced any losses with financial institutions. The amount on deposit in
any one institution that exceeds federally insured limits is subject to credit
risk. As of November 30, 1995, the Company had approximately $68,285 with
financial institutions subject to a credit risk beyond the insured amount.
Cash and Cash Equivalents - The Company considers highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. There
were no cash equivalents at November 30, 1995
[3] Property and Equipment and depreciation and Amortization
Major Classes of property and equipment as of November 30, 1995 are as follows:
Leasehold Improvements $ 323,581
Computer Equipment 415,049
Machinery and Equipment 226,072
Furniture and Fixtures and Office Equipment 230,594
Distribution Boxes 109,787
Automobiles 31,986
------------
Total - At Cost 1,337,069
Less: Accumulated Depreciation 679,633
Property and Equipment - Net $ 657,436
==========
Depreciation and amortization expense for the years ended November 30, 1995 and
1994 amounted to $179,477 and $123,503, respectively.
[4] Intangible Assets
A breakdown of intangible assets is as follows:
<TABLE>
<CAPTION>
Amortization Period Accumulated
Years Cost Amortization Net
<S> <C> <C> <C> <C>
November 30, 1995:
Goodwill 10-20 $ 5,101,219 $ 1,435,229 $3,665,990
------------ ------------ ==========
Covenant Not-To-Compete 5 $ 127,400 $ 102,470 $ 24,930
------------ ------------- ===========
Organization Costs 15 $ 67,933 $ 6,148 $ 61,785
------------ ------------ ===========
</TABLE>
Covenant not-to-compete and organization costs are included in the caption
"Other Assets" on the balance sheet [See Note 2].
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1996 and 1994 is unaudited]
[4] Intangible Assets [Continued]
Amortization expense of $315,129 and $289,559 was recognized for the years ended
November 30, 1995 and 1994, respectively
[5] 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 valued by the Company at
approximately $355,000. 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,
West Side, 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.
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, 1993:
Year Ended November 30, 1994 Net Revenues $ 15,999,000 Net Loss $ (364,000)
Net Loss Per share $ (.05)
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, 1993, or of the future results of operations.
Certain former owners of the publications purchased have entered into employment
contracts with the Company (see Note 12).
[6] Compensated Absences
The Company has incurred a liability for employees' compensation for future
absences. The Company has not accrued a liability because the amount cannot be
reasonably estimated.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[7] Notes Payable
Short-term notes payable at November 30,1995 consisted of the following:
Promissory note due on July 2, 1996 at the Bank's prime rate
plus 1 1/2 %. Prime rate at November 30, 1995 was 8.75%. $ 500,000
Unsecured promissory note dated March 9, 1995. The Company
defaulted on this note during fiscal 1995. Interest is at
12% per annum for the unpaid principal balance in default 24,000
-------------
Total $ 524,000
----- ===========
On March 9, 1995, the Company entered into a settlement agreement with a former
minority owner of the Manhattan File. The agreement required the Company to pay
$48,000 and sign a promissory note. The Company is in default and the former
owner has filed a summons against the Company for the outstanding balance due.
Interest expense related to the above indebtedness for the year ended November
30, 1995 amounted to approximately $24,000.
[8] Related Parties
Certain Company office facilities are leased from an officer of a subsidiary of
the Company. Rental expense amounted to approximately $48,000 and $46,000 for
the years ended November 30, 1995 and 1994, respectively. The lease commitment
is adjusted annually based on the consumer price index as of November. The lease
term is for ten years with a renewal option for five years.
At November 30, 1995 interest bearing advances and loans due from related
parties amounted to $119,233. Interest income earned on such amounts as
reflected in the statement of operations for the year ended November 30, 1995
amounted to approximately $11,143.
At November 30,1995, amounts owed to an officer of the Company for a bonus and
expenses amounted to $29,182.
[9] Leases
The Company leases all operating facilities under operating leases expiring
through October, 2000. Rent expense under operating leases was approximately
$464,000 and $280,000 for years ending November 30, 1995 and 1994, respectively.
The future minimum payments under non-cancelable operating leases consisted of
the following at November 30, 1995 [including amounts in Note 8]:
Operating
Leases
1995 $ 440,385
1996 446,236
1997 451,929
1998 335,763
1999 201,742
Thereafter 12,564
--------------
Total Minimum Lease Payments $ 1,888,619
=========
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[9] Leases [Continued]
The operating leases also provide for cost escalation payments and payments for
maintenance and real estate taxes. The Company has options to renew certain
leases for additional five-year terms.
[10]Treasury Stock
Treasury stock is shown at cost and consists of 151,000 shares of Common Stock.
[11] 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.
In September 1995, the Company distributed 7,300 shares of its Common Stock in
payment of a $500 dividend per share due holders as of September 19, 1995 on
each of 32 shares of 10% Convertible Preferred Stock. As a result, Common Stock
at par was increased by $73, additional paid-in capital Common Stock was
increased by $15,927 and retained earnings was decreased by $16,000. At November
30, 1995, the cumulative dividends amounted to $2,667 or $83 per each
outstanding 10% Convertible Preferred Stock.
[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 to the holders of the 8% Convertible
Preferred Stock and the 12% Convertible Preferred Stock. At November 30, 1995,
the 8% Cumulative Preferred Stock dividend amounted to $4,328 or $20 per share
and the 12% Cumulative Preferred Stock dividend amounted to $5,984 or $30 per
share. The 8% and 12% Preferred Stock may be redeemed, in whole or in part, at
the option of the Company for a redemption price equal to the liquidation
preference of $1,000 per share plus accrued and unpaid dividends. The holders of
the 8% and 12% Convertible Preferred Stock may convert each share, at any time,
into shares of common stock. The number of shares of common stock into which
each share of preferred stock may be converted shall be obtained by dividing
$1,000 by a conversion price, subject to adjustments. The conversion price shall
be 70% of the closing bid price of the common stock. The 8% and 12% Convertible
Preferred Stock have no voting rights except if the Company is in default of
four consecutive dividend payments, then holders are entitled to vote.
[C] Conversion of Preferred Stock - During 1994, one share of 10% Convertible
Preferred Stock was converted to 1,800 shares of Common Stock.
[12] 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.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[12] Commitments and Contingencies [Continued]
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 $726,000 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.
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 $195,000
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 14B]. At his request, the Company will also provide the Chairman of
the Board 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. The Chairman of the Board 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 be paid to him or the legal representative of his estate until
the end of the term of the agreement. Under the agreement, the Chairman of the
Board is required to devote such time to the affairs of the Company as he, in
his sole judgement, deems necessary and appropriate.
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 to 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
West Side. 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.
[13] 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
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[13] Legal Proceedings [Continued]
an article printed in the Manhattan Spirit which accused Ms. Jee, then principal
of a Manhattan public school of running her own computer business out of the
school, beating special education students and having been suspended by the New
York City Board of Education. Promptly after the complaint was served, the
Manhattan Spirit printed a retraction concerning the suspension accusations. In
fact, Ms Jee had taken a leave of absence. Ms. Jee is suing for $2,000,000 in
compensatory damages and unspecified punitive damages. The Company intends to
vigorously defend the suit and has filed an answer denying the material
allegations of the complaint and has served demands for document production. Ms.
Jee's motion for a protective order in connection with such demands was granted.
Discovery has not yet commenced. Management believes, although there can be no
assurance, that, based upon the application of the relevant law [as explained to
management by counsel representing the Company] to the facts known to it, the
claims asserted in this action are without merit.
The Company is also subject to various other claims and lawsuits arising in the
normal course of business. The amount of liability, if any, beyond amounts
accrued for such claims cannot be estimated.
[14] 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 5 1 9 9 3
------- -------
Outstanding - Beginning of Periods 136,166 106,666
Granted during period 40,501 62,000
Exercised --- ---
Terminated during period (15,000) 32,500
-------- ------
Outstanding - End of Periods [1] 161,667 136,166
======= =======
[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.
At November 30, 1995 and 1994, there were 4,999 and 30,500 shares, respectively,
reserved for future grants.
On December 15, 1995, the stockholders approved an amendment to the Stock Option
Plan to increase the number of shares of Common Stock available for issuance
pursuant to the Plan from 166,666 shares to 366.666 shares. The Company granted
17,500 shares on July 5, 1995 subject to the December 15, 1995 approval.
[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 1,500,000 shares of Common Stock to
directors and officers of the Company and its subsidiaries which shall be
exercisable at
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[14] Stock Options and Warrants [Continued]
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, 1995, the Board granted the Chairman
of the Board options to purchase up to 350,000 shares of common stock under the
Discretionary Option Plan, which are exercisable until June 22, 2000, at $2.00
per share. During the year ended November 30, 1995, 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 $2.69 per share on August 17, 1995. 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, 1995, the Company had outstanding Redeemable
Class A Warrants to purchase 2,250,000 shares of the Company's Common Stock at
approximately $3.75 per share. The Warrants became exercisable September 19,
1990 and expired on March 29, 1996. The Company's Redeemable Class B Warrants,
which also expired on March 29, 1996, were never issued. During the year ended
November 30, 1995, 24,561 redeemable Class C Warrants were exercised. The net
proceeds of these transactions was $47,437. 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 transactions was approximately
$1,951,000. At November 30, 1994 there remained outstanding 805,880 redeemable
Class C Warrants and 853,935 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 The Class D Warrants are redeemable by the
Company under certain conditions. Additionally, 85,000 non-redeemable warrants
which expire October 9, 1997 were outstanding at November 30, 1995.
[15] Income Taxes
The Company has net operating loss carryforwards of approximately 44,380,000
which expire through the year 2011. As a result of these carryforwards, the
Company has a deferred tax asset of approximately $1,752,000, which has been
offset by a valuation account of $1,752,000, resulting a a net deferred asset of
$-0-. Future tax benefits related to this loss have not been recognized because
its realization is not assured. No amount of current or deferred federal or
state income tax is presented.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
As of November 30, 1995, the approximate amount of net operating loss income tax
carryforwards and their expiration dates are as follows:
Expiring in Years Ending Net Operating Loss
November 30, Carryforwards
2001 $ 25,000
2002 145,000
2003 585,000
2004 950,000
2005 370,000
2006 365,000
2007 340,000
2007 1,600,000
---------
Total $4,380,000
[16] Loss Per Share
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.
[17] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of
Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and of Long-Lived Assets to Be Disposed of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. The
Company does not expect that SFAS No. 121 will have a material impact on its
consolidated financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation", in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic value based method of accounting prescribed by Accounting Principals
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has not yet decided if it will adopt SFAS No. 123 or continue to apply
APB No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
On December 30, 1994, the American Institute of Certified Public Accountants
issued Statement of Position ["SOP"] 94-6, "Disclosure of Certain Significant
Risks and Uncertainties," the provisions of which are effective for financial
statements issued for fiscal years ending after December 15, 1995. In general,
SOP 94-6 requires disclosures about the nature of a company's operations and the
use of estimates in the preparation of the financial statements. The Company
does not anticipate a significant expansion of its consolidated financial
statement note disclosure as a result of SOP 94-6.
[18] Restatement of Consolidated Financial Statements
The accompanying consolidated financial statements have been restated to correct
errors of unrecorded printing and other expenses, and the non-elimination of
intercompany revenue and accounts receivable. The effect of the restatement was
to increase the net loss for November 30, 1994 by $414,533 [$.05 per share].
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[19] Going Concern
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principals, and assumes that the
Company will continue as a going concern, which contemplates the recoverability
of recorded asset amounts and the proper classification of liabilities. However,
the Company has suffered recurring losses from operations and recurring negative
cash flows from operating activities.
As more fully discussed in Notes 20 and 21, the Company has secured additional
bank financing since November 30, 1995. Additionally, since the end of the
fiscal year, the Company has begun the implementation of its plan to
substantially reduce its operating expenses. Management believes that this
actions provide the opportunity for the Company to continue as a going concern.
The ability of the Company to continue is dependent on the success of these
plans. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
[20] Subsequent Events
On March 5, 1996, the Company entered into a settlement agreement with a
supplier for the balance due of $198,386. On March 5, 1996, the Company paid
$50,000 and signed a noninterest bearing nonnegotiable promissory note with the
supplier for the balance of $148,385. The note is due in 30 day monthly payments
from the date of the note. The first two payments are for $25,000, the third
payment is for $50,000, the fourth payment is for $25,000 and the fifth payment
is for $23,385. The first payment was made on April 4, 1996. If the Company
defaults in payments, then the entire unpaid balance along with interest at the
rate of 9% from the date of default is immediately due.
During January, February and March 1996, the Company borrowed an aggregate of
$600,000 from a bank in increments of $100,000.
[21] Subsequent Events [Unaudited] Subsequent to the Date of the Report of the
Independent Auditors
On April 2, 1996, a promissory note was signed for the then outstanding
indebtedness to bank of $1,175,000 [See Note 7] and is due on July 2, 1996 at
the bank's prime rate plus 2%. The promissory note is secured by all of the
Company's accounts receivable and $175,000 is guaranteed by the Chairman of the
Board of the Company.
Effective May 17, 1996, the Company entered into an agreement with D.H. Blair
Investment Banking Corp. ["Blair"] pursuant to which Blair is to act as
non-exclusive financial advisor and investment banker to the Company. As an
inducement to Blair's providing such services, the Company issued Blair a
five-year warrant to purchase 400,000 shares of its Common Stock at an initial
exercise price of $2.00 per share.
On May 21, 1996, Blair, the Company and the Company's subsidiaries Tribco and
Access, entered into a loan agreement pursuant to which Blair loaned the
Company, Tribco and Access the sum of $1,000,000. The principal amount is
repayable on May 21, 1988, with interest at 8 1/2%, payable quarterly. As
additional consideration for the loan, the Company issued Blair a five-year
warrant to purchase 200,000 shares of Common Stock at an initial exercise price
of $2.00 per share.
As of October 4, 1996, the Company entered into an agreement with a group of
purchasers pursuant to which the Company agreed to issue and sell, for an
aggregate consideration of $2,000,000, 200,000 shares of a newly designated
$10.00 Convertible Preferred Stock and warrants to purchase 800,000 shares of
Common Stock at $2.00 per share.
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information relating to August 31, 1995 and 1994 is unaudited]
[22] Minority Interests
The Company's consolidated financial statements include 100% of the assets and
liabilities of companies that are less than 100% owned Since the Company is the
majority stockholder of these companies, the ownership interests of the other
stockholders represents minority interest. The Company has allocated one
subsidiary's portion of net income to the minority interest resulting in an
increase in the Company's net loss by $47,788 [See Note 1].
[23] Unaudited Interim Statements
The financial statements as of August 31, 1996 and for the nine months ended
August 31, 1996 and 1995 are unaudited; however, in the opinion of management
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial statements for the interim periods have
been made. The results of the interim periods are not necessarily indicative of
the results to be obtained for a full fiscal year.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article Fifteenth of the Company's Articles of Incorporation,
as amended, provides that the Company shall indemnify its officers, directors,
employees and agents to the full extent permitted by Section 78.751 of the
General Corporation Law of Nevada ("GCL"). The provisions of 78.751 of the GCL
are set forth in Exhibit 28 hereto.
Article Sixteenth of the Company's Articles of Incorporation,
as amended, provides for limitation of the personal liability of a director or
officer to the Company or its stockholders for damage for breach of his
fiduciary duty as a director or officer, other than for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or for the
payment of dividends in violation of Section 78.300 of the GCL, which generally
states that dividends may be paid to stockholders from a corporation's excess of
its assets over its liabilities. See "Dividend Policy" in the Prospectus for a
detailed discussion of Section 78.300.
The Underwriting Agreements dated September 19, 1990, and
October 9, 1992, between the Company and D.H. Blair & Co., Inc. and the Company
and Hibbard Brown & Co. Inc., respectively, each provide for reciprocal
indemnification between the Company and its controlling persons on the one hand
and the underwriter and its controlling persons on the other hand against
certain liabilities in connection with their registration offerings, including
liabilities under the Securities Act of 1933.
The Company has obtained a directors and officers insurance
and company reimbursement policy in the amount of $1,000,000 (subject to a
$100,000 per claim deductible). The policy insures directors and officers
against unindemnified loss arising from certain wrongful acts in their
capacities and would reimburse the Company for such loss for which the Company
has lawfully indemnified the directors and officers.
Item 25. Other Expenses of Issuance and Distribution.
(a) In connection with the initial registration of the Class A
Warrants and Class B Warrants and the securities offered and sold in the Hibbard
Brown Offering pursuant to this Registration Statement, the Company incurred
expenses aggregating approximately $100,000 and $480,000, respectively
(exclusive of underwriting discounts and commissions). All of such expenses are
reflected in the financial statements of the Company for the fiscal years ended
November 30, 1993 and November 30, 1992.
(b) In connection with the preparation and filing of prior
Post-Effective Amendments, the Company incurred expenses aggregating
approximately $187,000, which are reflected in the financial statements of the
Company for the years ended November 30, 1994 and November 30, 1995.
(c) The following sets forth the estimated expenses payable in
connection with the preparation and filing of this Post-Effective Amendment:
Accounting Fees and Expenses................................$ 7,500.00
Legal Fees and Expenses.....................................$10,000.00
Blue Sky Fees and Expenses..................................$ 7,500.00
Printing and Reproduction Expenses..........................$ 5,000.00
Miscellaneous...............................................$ 5,000.00
Total.....................................$35,000.00
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The following securities were issued by the Company within the
past three years and were not registered under the Securities Act of 1933, as
amended (the "Act"). Each of the transactions is claimed to be exempt from
registration with the Securities Exchange Commission pursuant to Section 4(2) of
the Act as transactions by an issuer not involving a public offering. All of
such securities are deemed to be restricted securities for the purposes of the
Act. All certificates representing such issued and outstanding restricted
securities of the Company have been properly legended and the Company has issued
"stop transfer" instructions to its transfer agent with respect to such
securities.
(i) On April 8, 1994, the Company granted immediately exercisable five-year
stock options to its directors (11 persons) to purchase an aggregate of 82,500
shares of Common Stock at an exercise price of $2.00 per share under the
Company's Discretionary Directors and Officers Stock Option Plan.
(ii) On May 2, 1994, the Company issued to Gaines, Berland Inc. a warrant
to purchase 100,000 shares of Common Stock at $1.375 per share.
(iii) On May 25, 1994, effective July 1, 1994, the Company granted Martin
Tolchin immediately exercisable five-year stock options to purchase 50,000
shares of Common Stock at an exercise price of $1.25 per share, of which options
to purchase 20,000 shares have since been exercised.
(iv) On August 12, 1994, the Company granted immediately exercisable
options to purchase an aggregate of 313,000 shares of Common Stock exercisable
at $2.625 per share, of which options to purchase 243,000 shares were granted to
certain officers, directors and employees under the Company's Discretionary
Directors and Officers Stock Option Plan (6 persons) and options to purchase
70,000 shares were granted to 3 other persons.
(v) On August 17, 1994, the Company granted immediately exercisable options
to purchase 10,000 shares of Common Stock each to each of its then directors
other than Mr. Ackerman (12 persons) under the Company's Non-discretionary
Directors Stock Option Plan, exercisable at $2.625 per share.
(vi) On September 15, 1994, the Company issued 60,000 shares of Common
Stock to Gregg Linder in connection with the acquisition of the Brooklyn
Skyline.
(vii) On October 10, 1994, the Company issued 62,123 shares of Common Stock
to Enlightenment Press, Inc. in connection with the acquisition of the
Chelsea-Clinton News and Westsider.
(viii) On November 7, 1994, the Company granted immediately exercisable
options to purchase an aggregate of 145,000 shares of Common Stock to 5
directors under the Company's Discretionary Directors and Officers Stock Option
Plan, exercisable at $2.00 per share.
(ix) On June 22, 1995, the Company granted an immediately exercisable
option to purchase 350,000 shares of Common Stock to Jerry Finkelstein under the
Company's Discretionary Directors and Officers Stock Option Plan, exercisable at
$2.00 per share.
(x) On August 17, 1995, the Company granted immediately exercisable options
to purchase 10,000 shares of Common Stock to each of its then directors other
than Mr. Ackerman (12 persons) under the Company's Non-Discretionary Directors
Stock Option Plan, exercisable at $2.69 per share.
(xi) On May 17, 1996, the Company issued to D.H. Blair Investment Banking
Corp. ("Blair") an immediately exercisable warrant to purchase 400,000 shares of
Common Stock exercisable at $2.50 per share.
II-2
<PAGE>
(xii) On May 21, 1996, the Company issued to Blair an immediately
exercisable warrant to purchase 200,000 shares of Common Stock exercisable at
$2.50 per share.
(xiii) On August 17, 1996, the Company granted immediately exercisable
options to purchase 10,000 shares of Common Stock to each of its then directors
other than Mr. Ackerman (12 persons) under the Company's Non-Discretionary
Directors Stock Option Plan, exercisable at $1.625 per share.
(xiv) On October 28, 1996, the Company sold to a group of 15 private
investors an aggregate of 200,000 shares of its $10 Convertible Preferred Stock,
each of which is convertible into 5 shares of Common Stock at $2.00 per share,
and immediately exercisable warrants to purchase an aggregate of 800,000 shares
of Common Stock exercisable at $2.00 per share. On that date the Company also
granted Wilbur L. Ross, Jr. an immediately exercisable option to purchase
200,000 shares of Common Stock under the Company's Discretionary Directors and
Officers Stock Option Plan, exercisable at $2.00 per share and granted 8 persons
who became directions options to each purchase 5,000 shares of Common Stock
under the Company's Non-Discretionary Directors Stock Option Plan, exercisable
at $2.00 per share.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document (1) Document
- ------- ----------- -------------- --------
<S> <C> <C> <C>
1.3 Form of Underwriting Agreement **
between the Company and Hibbard
Brown & Company, Inc. ("Hibbard Brown").
1.3.1 Revised form of Underwriting Agreement **
between the Company and Hibbard Brown.
3.1 Articles of Incorporation of the A 3.1
Company (formerly known as Applied Resources, Inc.),
filed with the Secretary of State of the State of
Nevada on May 20, 1986.
3.1.1 Certificate of Amendment of the A 3.1.1
Articles of Incorporation of the Company,
filed with the Secretary of State of the
State of Nevada on December 8, 1987.
3.1.2 Certificate of Amendment of the Articles of B 3.1.2
Incorporation of the Company, filed with the
Secretary of State of Nevada on August 16, 1990.
3.1.3 Certificate of Amendment of the Articles of **
Incorporation of the Company, filed with the
Secretary of State of Nevada on July 26, 1994.
- -------------------------------
See Notes at end of Item 16(a).
II-3
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
3.2.1 By-Laws of the Company (as amended and
restated). **
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Preferred Stock B 4.2
Certificate.
4.2.1 Resolution of Board of Directors fixing B 4.2.1
the terms of the 10% Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the **
terms of the 8% Convertible Preferred Stock.
4.2.3 Resolution of the Board of Directors fixing the **
terms of the 12% Convertible Preferred Stock.
4.2.4 Certificate of Amendment of Certificate **
of Designation of 8% Convertible Preferred
Stock.
4.2.5 Resolution of Board of Directors fixing the M 10.33
terms of the $10 Convertible Preferred Stock
(included as part of Exhibit 10.33).
4.7.1 Revised form of Warrant Agreement related **
to Class C Warrants and Class D Warrants.
4.8 Form of Class C Warrant. **
4.9 Form of Class D Warrant. **
4.10 Form of Underwriter's Unit Purchase **
Warrant related to Exhibit 4.11.
4.10.1 Revised form of Underwriter's Unit **
Purchase Warrant related to Exhibit 4.11.
4.11 Form of Underwriter's Warrant Agreement **
between the Company and Hibbard Brown.
4.11.1 Revised form of Underwriter's Warrant **
Agreement between the Company and
Hibbard Brown.
5 Opinion of Graubard Mollen Horowitz **
Pomeranz & Shapiro.
II-4
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
10.1.1 1987 Stock Option Plan of the L 10.1.1
Company, as amended.
10.2.1 Discretionary Directors and Officers
Stock Option Plan. **
10.2.2 Non-discretionary Directors Stock 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.
10.4.3 Agreement of Lease, dated October D 2.4
31, 1988, between Daniel Rattiner and DP Acquisition Corp.,
as to building known as Dan's Papers, Ltd., located on
Montauk Highway, Bridgehampton, New York.
10.7 Agreement and Plan of Merger, dated F 2.1
March 16, 1989, among The Flushing
Tribune, Inc., Multi Media Advertising
Incorporated, Gary Ackerman, Michael
Schenkler, the Company and Tribco
Incorporated.
10.7.1 Amendment to Agreement and Plan of F 2.3
Merger, dated May 16, 1989, among
The Flushing Tribune, Inc., Multi
Media Advertising Incorporated,
Gary Ackerman, Michael Schenkler, the
Company and Tribco Incorporated.
10.7.3.1 Employment Agreement, dated as of K 10.7.3.1
November 1, 1994, between Michael Schenkler
and the Company.
10.7.3.2 Employment Agreement dated as of K 10.7.3.2
November 1, 1994, between Thomas Allon and the Company.
10.7.4 Employment Agreement, dated August 20,
1993, between Jerry Finkelstein and
the Company. **
II-5
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
10.11 Stock Option Agreement dated September 1,
1993, between Jerry Finkelstein and the
Company. **
10.13 Letter Agreement, dated June 15, 1990, between B 10.21
Dan's Papers Inc. and Dan's Papers, Ltd.
10.17 Lease for space at 174-15 Horace Harding B 10.25
Expressway, Fresh Meadows, New York.
10.19 Asset Purchase Agreement dated May 22, 1991, H 2.1
between East Side West Side Communications
Corp. ("ESWS") and Manhattan Publishing
Corp. ("MHP") (without exhibits).
10.19.1 Form of Non-Negotiable Promissory Note H 10.1
dated May 22, 1991, in principal amount
of $750,000 from MPC to ESWS.
10.19.2 Confidentiality and Non-Competition H 10.2
Agreement dated May 22, 1991, among ESWS,
Edward Kayatt and MPC.
10.23 Agreement dated as of November 18, I 10.23
1991, between Dan's Papers, Inc.
and Daniel Rattiner.
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 Agreement of Lease dated January 28, J 10.26
1993, between Furcraft Associates,
Inc. and the Company.
10.27 Acquisition Agreement and Employment
Agreement between Long Island News Group,
Inc. and Barry Manning and MB Publishing,
Inc. and Barry Manning and David Manning
and Long Island Community Newspaper Group,
Inc. and the Company. **
II-6
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
10.28 Agreement dated May 17, 1996 between D.H. M 10.28
Blair Investment Banking Corp. ("Blair") and
the Company.
10.29 Loan Agreement dated May 21, 1995 among M 10.29
Blair, the Company, Tribco Incorporated
("Tribco") and Access Network Corp.
("Access").
10.30 $1,000,000 Promissory Note dated May 21, M 10.30
1996 issued by the Company, Tribco and
Access to the order of Blair.
10.31 Warrant dated May 17, 1996, to purchase M 10.31
400,000 shares of the Company's Common
Stock issued by the Company to Blair.
10.32 Warrant, dated May 21, 1996, to purchase M 10.32
200,000 shares of the Company's Common
Stock issued by the Company to Blair.
10.33 Form of Subscription Agreement made as of M 10.33
October 4, 1996 among the Company and persons
designated therein as "Purchasers," including Exhibit 1
thereto, form of Certificate of Designation of $10.00
Convertible Preferred Stock, and Exhibit 2 thereto, form
of Warrant.
11.3 Statement re computation of per share *
earnings.
21 Subsidiaries of the Company. K 22
23.1 Consent of Graubard Mollen Horowitz **
Pomeranz & Shapiro (included in Exhibit 5).
23.13 Consent of Mortenson and Associates, P.C. *
27 Financial Data Schedule *
II-7
<PAGE>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
99 Section 78.751 of the General Corporation B 28
Law of Nevada.
Notes:
(1) The Commission file number assigned to the Company's Registration
Statement on Form S-18, filed with the Commission on May 29, 1986, was
33-6126. The Company's first registration of a class of equity
securities under the Securities Exchange Act of 1934 became effective
on February 21, 1990. The Commission file number assigned to the
Company at that time was 0-18299. The Commission File number assigned
to the Company's Registration Statement on Form S-1, as declared
effective by the Commission on September 19, 1990 was 33-35484.
A Annual Report of the Company on Form 10-K for the year ended November 30, 1987.
B Registration Statement of the Company on Form S-1, No. 33-35484.
D Current Report of the Company on Form 8-K relating to events occurring on October 31, 1988.
F Current Report of the Company on Form 8-K relating to events occurring on May 16, 1989.
H Current Report of the Company on Form 8-K relating to events occurring on May 22, 1991.
I Annual Report of the Company on Form 10-K for the year ended November 30, 1991.
J Annual Report of the Company on Form 10-KSB for the year ended November 30, 1992.
K Annual Report of the Company on Form 10-KSB for the year ended November 30, 1994.
L Annual Report of the Company on Form 10-KSB for the year ended November 30, 1995.
M Quarterly Report of the Company on Form 10-QSB for the quarter ended August 31, 1996.
* Filed herewith.
** Previously filed with this Registration Statement.
</TABLE>
II-8
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to under Item 14 of this
Registration Statement, under the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or a controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or a controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of competent jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c)(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post- effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
LIST OF CONSENTS REQUIRED BY RULES 436 AND 438
The consent of Graubard Mollen Horowitz Pomeranz & Shapiro to the reference
to them in the Prospectus constituting a part of this Registration Statement and
to the use of their opinion as to this Registration Statement is included in
their opinion (filed as Exhibit 5 hereto).
The consent of Mortenson and Associates, P.C., independent auditors, is
filed herewith as Exhibit 23.13.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 27th day of November, 1996.
NEWS COMMUNICATIONS, INC.
BY:/s/ Wilbur L. Ross, Jr.
Wilbur L. Ross, Jr., Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below under the heading "Signatures" constitutes and appoints
Wilbur L. Ross, Jr. and Michael Schenkler, or either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all Post-Effective Amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection with the above premises, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of
1933, this Post-Effective Amendment to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Wilbur L. Ross, Jr. Director and Chief Executive Officer November 27, 1996
- ------------------------------------- (Principal Executive Officer)
(Wilbur L. Ross, Jr.)
/s/ Jerry Finkelstein Director November 27, 1996
- -------------------------------------
(Jerry Finkelstein)
/s/ Michael Schenkler Director November 27, 1996
- -------------------------------------
(Michael Schenkler)
/s/ Robert Berkowitz Controller (Principal Financial and November 27, 1996
- ------------------------------------- Accounting Officer)
(Robert Berkowitz)
/s/ Gary Ackerman Director November 27, 1996
- -------------------------------------
(Gary Ackerman)
Director , 1996
- -------------------------------------
(Carl Bernstein)
/s/ Eric Briendel Director November 27, 1996
- -------------------------------------
(Eric Briendel)
II-11
<PAGE>
Signature Title Date
/s/ John Catsimatidis
- --------------------------------- Director November 27, 1996
(John Catsimatidis)
/s/ Mark Dickstein Director November 27, 1996
- ---------------------------------
(Mark Dickstein)
/s/ Sydney Gruson Director November 27, 1996
- ---------------------------------
(Sydney Gruson)
/s/ Andrew J. Maloney Director November 27, 1996
- -----------------------------------
(Andrew J. Maloney)
/s/ John E. McConnaughy, Jr. Director November 27, 1996
- --------------------------------------
(John E. McConnaughy, Jr.)
/s/ Robert E. Nederlander Director November 27, 1996
- -------------------------------------
(Robert E. Nederlander)
- ------------------------------------- Director , 1996
(Andrew J. Stein)
/s/ Sy Syms Director November 27, 1996
- -------------------------------------
(Sy Syms)
/s/ Arthur Tarlow Director November 27, 1996
- -------------------------------------
(Arthur Tarlow)
- ------------------------------------- Director , 1996
(Hillel Weinberger)
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
11.3 Statement re computation of per share earnings
23.13 Consent of Mortenson and Associates, P.C.
27 Financial Data Schedule
<PAGE>
<TABLE>
<CAPTION>
August 31, November 30,
---------- ------------
1996 1995 1995 1994
---- ---- ---- ----
[Restated]
<S> <C> <C> <C> <C>
Fully Diluted:
Average Shares Outstanding Disregarding Dilutive
Convertible Preferred Stock 7,822,790 7,776,286 7,804,043 7,580,203
Assuming Conversion at beginning of Year of:
10% Convertible Preferred Stock 57,600 57,600 57,600 57,400
8% Convertible Preferred Stock 103,333 103,333 103,333 103,333
12% Convertible Preferred Stock 95,238 95,238 95,238 95,238
---------- ---------- ------ ------
Shares Outstanding 8,078,961 8,032,457 8,060,214 6,490,601
========== ========= ========= =========
Income [Loss] Available to Common Stockholders
for Fully Diluted Calculations ($1,048,018) ($1,082,472) ($1,754,013) $ (977,884)
============ ============ ============ ==========
Per Share Amount:
Net Income [Loss] $ (.13) $ (.13) $ (.22) $ (.12)
============ ============ ============ ========
</TABLE>
This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 although it is contrary to para 48 of APB No. 15 because
it produces an antidilutive result.
<PAGE>
EXHIBIT 23.13
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this post-effective amendment
No. 6 on Form SB-2 to Registration Statement on Form S-1 of our report, which
includes an explanatory paragraph relating to the ability of the Company to
continue as a going concern, dated March 27, 1996, on our audits of the
financial statements of News Communications, Inc. We also consent to the
reference to our firm under the caption "Experts."
On July 1, 1996, the firm of Mortenson and Associates, P.C. changed its
name to Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
December 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> NOV-30-1996 NOV-30-1995
<PERIOD-START> DEC-01-1995 DEC-01-1994
<PERIOD-END> AUG-31-1996 NOV-30-1995
<CASH> 316,499 54,474
<SECURITIES> 0 0
<RECEIVABLES> 7,050,400 6,155,558
<ALLOWANCES> 1,562,197 1,424,877
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,088,994 4,982,458
<PP&E> 1,379,263 1,337,069
<DEPRECIATION> 817,196 679,333
<TOTAL-ASSETS> 10,255,838 9,460,063
<CURRENT-LIABILITIES> 3,448,912 2,606,097
<BONDS> 0 0
<COMMON> 79,774 79,576
0 0
449 449
<OTHER-SE> 5,678,915 6,726,153
<TOTAL-LIABILITY-AND-EQUITY> 10,255,838 9,460,063
<SALES> 13,856,070 18,113,462
<TOTAL-REVENUES> 13,856,070 18,113,462
<CGS> 0 0
<TOTAL-COSTS> 14,833,399 19,793,808
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 199,000 396,000
<INTEREST-EXPENSE> 72,439 32,608
<INCOME-PRETAX> (1,048,018) (1,684,246)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,048,018) (1,684,246)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,048,018) (1,732,034)
<EPS-PRIMARY> (.13) (.22)
<EPS-DILUTED> (.13) (.22)
</TABLE>
