UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended - May 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 0-18299 NEWS
COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expwy., Fresh Meadows, New York 11365
(Address of principal executive offices)
(718) 357-3380
(Issuer's telephone number)
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity , as of July 12, 1997: 8,042,631 shares $ .01 par value common stock
Transitional Small Business Disclosure Format (check one) Yes___ No X
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FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at May 31, 1997.....................................3-4
Unaudited Consolidated Statements of
Operations for the three and six months
ended May 31, 1997 and May 31, 1996.................5
Unaudited Consolidated Statements of Cash
Flows for the six months ended
May 31, 1997 and May 31, 1996.......................6-7
Notes to Consolidated Financial Statements..........8-9
Item 2. Management's Discussion and Analysis
or Plan of Operation................................10-11
PART II. Other Information................................12
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures................................................................13
2
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PART I-ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Assets:
Current Assets:
Cash $ 99,924
Restricted cash 6,800
Accounts receivable [less: allowance for
doubtful accounts of $1,050,066] 4,406,292
Due from related parties 18,526
Other 146,764
--------------
Total Current Assets 4,678,306
Property and equipment at cost- net of
accumulated depreciation of $956,490 512,677
Goodwill - net 3,230,975
Other - net 99,643
-----------
Total Assets $ 8,521,601
=============
</TABLE>
3
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 881,190
Accrued expenses 711,053
Accrued payroll and payroll taxes 467,203
Note payable 900,000
Unearned Revenue 122,653
Due to related parties 25,488
-----------
Total current liabilities 3,107,587
---------
Related party - long term debt 969,333
-----------
Minority interest 114,228
Stockholders' Equity:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
$2,527,000 aggregate liquidation value 200,399
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 8,168,393 Shares Issued 81,684
Paid-in-Capital Preferred Stock 2,151,740
Paid-in-Capital Common Stock 14,252,769
(Deficit) (11,947,410)
Total $4,739,182
Less: Treasury Stock [151,000 Shares]-
At Cost (408,729)
Total Stockholders' Equity 4,330,453
Total Liabilities and Stockholders' Equity $ 8,521,601
===============
</TABLE>
4
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended May 31, Six Months Ended May 31
-------------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
Unaudited
<S> <C> <C> <C> <C>
Net Revenues $5,166,632 $4,928,085 $8,796,459 $8,452,588
---------- ---------- ---------- ----------
Expenses:
Direct Mechanical Costs 1,622,965 1,760,072 2,946,386 3,264,350
Salaries, Benefits and
Outside Labor Costs 2,473,282 2,397,526 4,757,207 4,704,679
Rent, Occupancy & Utilities 239,866 222,231 467,440 463,675
Provisions for Doubtful Accounts 102,950 43,000 197,450 88,000
General and Administrative 638,556 722,153 1,212,086 1,237,601
----------- ----------- ------------- ------------
Total Expenses 5,077,619 5,144,982 9,580,569 9,758,305
---------- ---------- ---------- -----------
Operating Income (Loss) Before Interest
Expense and Interest Income 89,013 (216,897) (784,110) (1,305,717)
Interest Expense (44,705) (20,727) (97,259) (40,318)
Interest Income --- --- --- ---
-------------- -------- ---------------- ---------
Net Income (Loss) $ 44,308 $ (237,624) $ (881,369) $(1,346,035)
========= ============= ============== ============
Net Income (Loss) Per Share $ .01 $ (.03) $(.11) $( .17)
=============== ============== ================ ================
Weighted Average Shares
Outstanding 7,921,457 7,823,415 7,907,951 7,820,978
=========== ========= ========= ============
</TABLE>
5
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended May 31,
1997 1996
---- ----
Unaudited
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ (881,369) $ (1,346,035)
----------- ---------------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 243,905 232,891
Provision for Losses on Accounts
Receivable 197,450 88,000
Compensation Recognized Related to Warrants Issued ---- 128,000
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable (741,602) (423,584)
(Increase) Decrease in Other Current
Assets (16,319) (89,919)
(Increase) in Due from Related Parties ( 38,726) (4,412)
Decrease (Increase) in Other Assets 5,464 ----
(Increase) Decrease in Goodwill ----- 29,454
Increase (Decrease) in Accounts Payable
and Accrued Expenses 36,257 107,067
Increase (Decrease) in Payroll Taxes Payable 13,564 (1,238)
Increase (Decrease) in Other Current Liabilities ---- (15,615)
_________ _________
Total Adjustments (300,007) 50,644
---------- ----------
Net (Deficit) - Operating Activities - (1,181,376) (1,295,391)
Forward
</TABLE>
6
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended May 31,
1997 1996
---- ----
Unaudited
<S> <C> <C>
Net (Deficit) - Operating Activities -
Forwarded (1,181,376) (1,295,391)
=========== ===========
Investing Activities:
Sale of Marketable Securities ---- ----
Capital Expenditures (81,667) (31,516)
----------- ------------
Net Cash Provided (Used) by Investing Activities (81,667) (31,516)
---------- ------------
Financing Activities:
Principal Payments Long-Term Debt ---- (24,000)
Proceeds from Exercise of Warrants 152,420 19,498
Dividend on Preferred Stock (9,340) (20,680)
Proceeds from Exercise of Stock Options ---- 12,500
Proceeds from Notes Payable - Bank ---- 675,000
Proceeds from Notes Payable - Shareholder ---- 1,000,000
Principal Payments - Notes Payable (275,000)
---------- -----------
Net Cash Provided by Financing Activities (131,920) 1,662,318
--------------- --------------
Net Increase (Decrease) in Cash (1,394,963) 335,411
Cash - Beginning of Periods 1,494,887 54,474
--------------- ----------
Cash - End of Periods $ 99,924 $ 389,885
============ ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 51,488 $ 24,713
</TABLE>
7
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The Consolidated Balance Sheet as of May 31, 1997 and the Consolidated
Statements of Operations for the three and six-month periods ended May 31, 1997
and May 31, 1996, and the Consolidated Statements of Cash Flows have been
prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been consolidated or omitted. These consolidated financial statements
should be read in conjunction with the company's annual report Form 10-KSB for
the fiscal year ended November 30, 1996 and the related audited financial
statements included therein.
B. Loss per Share:
Loss per share is based on the weighted average number of shares outstanding
during the periods.
C. 1996 Restatement:
The results of operations for 1996 have been restated to reflect additional
expenses and loss resulting from compensation recognized relating to warrants
issued and unrecorded printing expenses.
D. Accounting Pronouncements
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share". SFAS
No. 128 specifies revised computational guidelines, presentation and disclosure
requirements for earnings per share and supersedes Accounting Principal Board
Opinion No. 15. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted, however, upon adoption SFAS No. 128 requires
restatement of all prior
8
<PAGE>
period earnings per share information. The Company has not yet determined the
impact SFAS No. 128 would have on earnings per share.
E. Subsequent Event
In June 1997 a holder of the Company's 8% Convertible Preferred Stock converted
53 shares to 25,238 shares of common stock and 25,238 warrants to purchase
common stock at $2.10 per share.
F. 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 and claims $2,000,000 in compensatory damages and unspecified
punitive damages. The Company has filed an answer denying the material
allegations of the complaint. Discovery has not yet commenced and there has been
no activity in the case for a number of years. 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.
An action entitled Tracey Robinson v. The Hill, News Communications, Inc
and Media Venture Group, Inc., was initiated 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
compensatory and punitive damages of $5.2 million. The Company belives that the
claim is without merit and has filed an answer denying the material allegations
of the complaint and asserting affirmative defenses. A trial is set for the Fall
of 1997.
Management of the Company is unable to predict or determine the final
outcome of the aforementioned proceedings or whether the resolution of the
matters could materially affect the Company's financial position, results of
operations or liquidity.
9
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PART I-ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations:
News Communications, Inc. publishes various weekly community newspapers and
related targeted audience publications.
The Company recorded a profit for the second quarter of $45,000, a
turnaround of $282,000 from a loss of ($237,000) in 1996. Operating Income
before interest expense was $89,000 as compared to loss of ($216,000) in 1996, a
tu naround of $305,000 in 1997 even after taking into account the Company
modifying its assumptions in estimating its provision for doubtful accounts
causing an increase of $59,950 (139%) from $43,000 in 1996 to $102,950 in 1997.
The increase in interest expense of $24,000 (114%) from $21,000 in 1996 to
$45,000 in 1997 was a result of increased bank loans and the loan from
shareholder being outstanding in 1997.
Total revenues for the Company were $5,167,000 for the second quarter of
1997 an increase of almost $239,000 (5%) from $4,928,000 in 1996. The increase
in revenues was primarily a result of The Hill's increased sales effort and
increased congressional activity, Dan's Papers' capitalization on an ever
growing market in the Long Island posh resort area, the Hamptons and positioning
itself as the advertising standard on Long Island's east end offset by a
decrease at the Queens Tribune including lower profit margin printing revenue.
Direct me hanical costs had increases due to expansions during 1996,
however, these were offset by budget cuts and decreased prices for newsprint.
Direct mechanical costs decreased $137,000 (8%) from $1,760,000 in 1996 to
$1,623,000 in 1997.
The Company reduced its loss for the six months by $465,000 (35%) from
($1,346,000) in 1996 to ($881,000) in 1997. Operating loss before interest
expense decreased $521,000 (40%) from ($1.305,000) in 1996 to ($784,000) in 1997
even after taking into a count the Company modifying its assumptions in
estimating its provision for doubtful accounts causing an increase of $109,450
(124%) from $88,000 in 1996 to $197,450 in 1997. The increase in interest
expense of $57,000 (143%) from $40,000 in 1996 to $97,000 in 1997 was a result
of increased bank loans and the loan from shareholder being outstanding in 1997.
10
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Total revenues for the Company were $8,796,000 for the six months of 1997
an increase of almost $344,000 (4%) from $8,453,00 in 1996. The increase in
revenues was primarily a result of The Hill's increased sales effort and
increased congressional activity, Dan's Papers' capitalization on an ever
growing market in the Long Island posh resort area, the Hamptons and positioning
itself as the advertising standard on Long Island's east end, Manhattan File's
additional special supplements, offset by a decrease at the Queens Tribune
including lower profit margin printing revenue.
Liquidity and Capital Resources:
At May 31, the Company had an excess of current assets over current
liabilities in the amount of approximately $1,599,000. During the quarter ended
February 28, 1997, the Company repaid $275,000 of bank loans from cash on hand
at the beginning f the year. During the quarter ended May 31, 1997, the Company
received $181,090 from the exercise of C Warrants.
Management believes that the Company's operations will generate positive
cash flow for the fiscal year ending November 30, 1997. Although there can be no
a surances to this effect, management is confident that it has available a
variety of funding and revenue to meet its cash needs.
.
11
<PAGE>
Part II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
The following securities were issued by the Company during the period
covered by this report 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.
(i) On or about March 21, 1997, 16,000 shares of Common Stock were issued to
Barry Manning in payment of part of the consideration due him pursuant to
the Acquisition Agreement and Employment Agreement with Mr. Manning.
(ii) On or about June 12, 1997, 25,238 shares of Common Stock and Warrants to
purchase an additional 25,238 shares of Common Stock (exercisable at $2.10
per share) were issued to Michael V. Sterlacci upon conversion by him of 53
shares of the Company's 8% Convertible Preferred Stock.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - None
B. Reports on Form 8-K - None
12
<PAGE>
SIGNATURES
In accordance with the req irements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: July 15, 1997 By: /s/ Michael Schenkler
----------------------------
Michael Schenkler, President
Date: July 15, 1997 By: /s/ Robert Berkowitz
---------------------------
Robert Berkowitz, Controller
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-START> Dec-01-1996
<PERIOD-END> May-31-1997
<CASH> 99,924
<SECURITIES> 0
<RECEIVABLES> 5,456,358
<ALLOWANCES> 1,050,066
<INVENTORY> 0
<CURRENT-ASSETS> 4,678,306
<PP&E> 1,469,167
<DEPRECIATION> 956,490
<TOTAL-ASSETS> 8,521,601
<CURRENT-LIABILITIES> 3,287,311
<BONDS> 0
<COMMON> 81,684
0
200,399
<OTHER-SE> 4,048,370
<TOTAL-LIABILITY-AND-EQUITY> 8,521,601
<SALES> 8,796,459
<TOTAL-REVENUES> 8,796,459
<CGS> 0
<TOTAL-COSTS> 9,580,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (97,259)
<INCOME-PRETAX> (881,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (881,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (881,369)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<PAGE>
</TABLE>
