PROSPECTUS
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 April 1, 1997, the last sale price,
as reported by Nasdaq, for the Common Stock was $1.9375. 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" BEGINNING ON PAGE 8.
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 April 14, 1997.
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
- --------------------------------
<FN>
(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).
</FN>
</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................................................................18
MANAGEMENT..............................................................26
PRINCIPAL STOCKHOLDERS..................................................33
DESCRIPTION OF SECURITIES...............................................36
PLAN OF DISTRIBUTION....................................................40
SHARES ELIGIBLE FOR FUTURE SALE.........................................41
LEGAL MATTERS...........................................................41
EXPERTS.................................................................42
CHANGE IN ACCOUNTANTS...................................................42
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..........................42
ADDITIONAL INFORMATION..................................................43
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 (89% for the fiscal year ended November 30, 1996 and 92% for
the fiscal year ended November 30, 1995) is the sale of advertising space in its
publications.
The Company's business plan is to develop a regional group
of publications in the greater New York metropolitan area. Toward that end it
has to date acquired or organized the following publications: the Manhattan
Spirit, which is distributed in neighborhoods 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.
Termsof 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..........7,910,848 shares 8,947,978 shares
Preferred Stock
10% Convertible........32 shares 32 shares
8% Convertible.......167 shares 167 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 1,311,886 shares issuable upon conversion
of outstanding shares of various series of Preferred Stock and
warrants issuable upon such conversion, (e) up to 1,553,809 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.
Income Statement Data:
<TABLE>
<CAPTION>
Year ended November 30,
1996 1995
---- -----
<S> <C> <C>
Net Revenues.................... $18,334,866 $18,113,462
Operating Expenses.............. $21,972,383 $19,793,808
Interest Expense................ $177,471 $32,608
Net Income (Loss) Available
to Common Stockholders........ $(3,881,428) $(1,732,034)
Net Income (Loss) per Share
of Common Stock............... $(0.49) $(0.22)
Average Number of Shares 7,991,997 7,966,186
Balance Sheet Data:
November 30, 1996
Actual As Adjusted (1)
----------- -----------------
Total Assets(2)................ $9,711,124 $12,586,847
Long-Term Debt, excluding
current maturities............. $953,333 $953,333(3)
Working Capital................ $2,145,771 $5,021,494
Stockholders' Equity $5,089,207 $7,964,930
=============================== =================== ====================
- ------------------------------
<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 November 30, 1996 and 1995, assets included goodwill of $3,373,535 and
$3,665,990, respectively.
(3) Assumes no proceeds of offering will be used to retire debt. See "Use of
Proceeds."
</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 and the Riverdale Review (collectively, the "Bronx Newspapers"),
weekly paid circulation newspapers 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. It had net losses
of $3,881,428 and $1,732,034 for the fiscal years ended November 30, 1996 and
1995, respectively. As of November 30, 1996, the Company's accumulated deficit
was $(11,047,235). 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 or established. Such persons include Dan Rattiner, who is
the publisher and editor of Dan's Papers, and Thomas Allon, who is publisher and
editor-in-chief of Manhattan Spirit and Our Town. If the affiliation of any of
these persons were to cease before a qualified successor could be found, there
could be a material adverse effect on the business and prospects of the
8
<PAGE>
publications of which such person is a publisher, editor or operator and on
the business and prospects of the Company as a whole. The Company has employment
agreements with Messrs. Finkelstein, Schenkler, Rattiner and Allon. 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 5,015,362 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. Potential Securities Law Violations and Contractual Liabilities.
Because a current prospectus was not in effect at the time the holders of 98,195
Public C Warrants exercised those Warrants, such persons are entitled, under the
federal securities laws, to rescind their exercises. The Company may have
contractual liability to them, including liability for damages, arising out its
inability to deliver the shares of Common Stock issuable on exercise of the
Warrants in a timely manner.
11. 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.
12. 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
10
<PAGE>
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."
13. Potential Depressive Effect of Shares Eligible for Future Sale Pursuant
to Rule 144; Other Potential Sales. At present, approximately 2,344,715 shares
of the Company's outstanding Common Stock are "restricted" securities as that
term is defined in Rule 144 under the Securities Act of 1933. Of the restricted
shares, approximately 2,274,715 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."
14. 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
7,910,848 shares are outstanding, 1,311,886 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, 3,920,476 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 3,703,476 shares are issued
and outstanding, and 162,143 shares are reserved for issuance in connection with
the acquisition of the Nassau Newspapers. The balance of the authorized but
unissued shares of Common Stock will be issuable, in the discretion of the Board
of Directors, without seeking stockholder approval. Management has no plans at
the present time to issue any of these authorized but unissued shares except in
payment of dividends on the 10% Preferred Stock. The Company is also authorized
to issue 500,000 shares of "blank check" Preferred Stock (of which 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."
15. 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,
11
<PAGE>
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."
16. 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). At November 30, 1996, if none of the
Public D Warrants are exercised, such dilution would be $1.76 (88%) to the
holders of the Public C Warrants and if all of the Public D Warrants were
exercised, such dilution would be $1.51 (75%) to the holders of the Public C
Warrants and $2.51 (84%) to the holders of the Public D Warrants.
17. 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."
18. 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
position, results of operations or liquidity of the Company, depending upon the
amount of such judgment.
19. 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 Public D Warrants could be adversely affected. At present, there
is no market maker for the Public D Warrants.
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> <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
February 28, 1997 2.88 1.97 N/A N/A
===================================================================================================================
</TABLE>
On April 1, 1997, the last sale price of the Common Stock
was $1.9375.
At April 1, 1997, 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."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the
Company at (a) November 30, 1996; and (b) as adjusted to give effect to (i) the
issuance of 23,809 shares of Common Stock subsequent to that date, 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>
Long-term debt............................................................ $953,333 $953,333(1)
======== ========
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, 167 as adjusted...................................... 217 167
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 200,000 200,000
Paid-in Capital Preferred Stock...................................... 2,201,690 2,151,740
Common Stock, $.01 par value, 100,000,000 shares authorized,
8,038,039 issued, 9,098,978 as adjusted(2) 80,380 90,989
Paid-in Capital Common Stock......................................... 14,062,652 16,977,766
(Deficit)............................................................... (11,047,235) (11,047,235)
---------- ----------
Totals.................................................................. $5,497,936 $ 8,373,659
Less: Treasury Stock, 151,000 shares actual and as adjusted............. (408,729) (408,729)
----------- ------------
Total stockholder's equity........................................... $5,089,207 $7,964,930
========== ==========
- --------------------------------
<FN>
(1) Assumes no proceeds of offering will be used to retire debt. See "Use of
Proceeds."
(2) 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 1,311,886 shares issuable upon
conversion of outstanding shares of various series of Preferred Stock and
warrants issuable upon such conversion, (e) up to 1,553,809 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.
</FN>
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information
which management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. The discussion should
be read in conjunction with the audited financial statements of the Company and
notes thereto. This Prospectus contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company, including those set forth below under the captions "Liquidity and
Capital Resources" and "Outlook." Investors are cautioned that such statements
are only predictions and that actual events or results may differ materially. In
evaluating such statements, investors should carefully consider the various
factors identified in this Prospectus which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
those set forth in the section entitled "Risk Factors."
RESULTS OF OPERATIONS
New management has reviewed the Company's financial
condition in depth and as a result has significantly increased the provision for
doubtful accounts by $1,086,000 for the fiscal year ended November 30, 1996.
There is no cash effect or additional operational cash cost of this adjustment.
In addition, the 1996 financial statements contain
adjustments related to the following items: $154,000 accrual of prior year
franchise taxes; $145,000 charge for warrants issued in connection with
consulting services and a loan; $79,000 liability related to accrued vacation
time; $123,000 deferral of prepaid classified revenue; $68,000 accrual of an
adjustment to workers compensation insurance premiums; $82,000 charge for a
publisher's bonus in order to reflect charges on a current basis; $43,000
accrual of sales commissions in order to reflect charges on a current basis.
The effect of the above financial adjustments is a reported
increase in loss as compared to previous years of approximately $1,780,000. The
total net loss for 1996 was approximately $3,881,000 an increase of $2,149,000
or 124% from 1995's loss of $1,732,000.
Total revenues in 1996 were approximately $220,000 (1%) over
1995, even though 1995 had the benefit of an additional issue for most
publications. The increase in revenues was primarily attributable to the Queens
Tribune's expansion with the "Bayside Trib at Home ($230,000, 7%);" Brooklyn
Skyline's expansion into a fifth zone ($194,000, 8%); Manhattan File's
additional special supplements ($230,000, 15%); and 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
($222,000, 7%).
These revenue gains were offset by decreased revenues at The
Hill (where advertising is directed at Congress) due to a decrease in
Congressional activity as a result of a presidential and congressional election
($332,000, 20%); a decrease at Nassau Newspapers, primarily from the sale of two
shoppers ($124,000, 5%); while a turnover in sales management adversely affected
the sales staff, causing a decrease in revenues at the Manhattan papers (Our
Town, Manhattan Spirit and Westsider) ($200,000, 5%).
Salaries and outside labor costs increased approximately
$306,000 (3%) in 1996. Savings from budget cuts phased in beginning the second
quarter of 1996 which reduced staff 11% to 274 at November 30, 1996 from 307
employees at the end of 1995 were offset by additional labor costs relating to
the expansions in publications noted above and increased sales commissions and
bonuses.
Direct mechanical costs increased approximately $360,000
(5%) in 1996 mostly as a result of printing costs which increased as a result of
expansions noted above and newsprint prices which were
16
<PAGE>
at a historic high until May 1996. Although prices have decreased, they are
still generally higher than prices at the beginning of 1995.
The provision for doubtful accounts increased $1,086,000 as
a result of the Company modifying its assumptions in estimating its allowance
for bad debt as of November 30, 1996. (Write-offs of $2,044,000 were taken
against the increased allowance for bad debt.) A charge for warrants issued in
connection with a consulting agreement ($128,000), recording of a liability for
accrued vacation time ($79,000) and franchise taxes ($154,000) were the primary
causes for the increase in General and Administrative costs. Additional bank
loans and the loan from shareholder caused the increase in interest expense of
approximately $177,000.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended November 30, 1995, net cash used by
operations was $1,983,000. These funds were provided by $925,000 from the sale
of marketable securities, $500,000 from bank loans, and $558,000 from cash on
hand at the beginning of the year.
At November 30, 1996, the Company had an excess of current
assets over current liabilities in the amount of approximately $2,146,000. Net
cash used by operations was $2,133,000. The funds were provided from a
$1,000,000 two-year loan from its largest shareholder in May 1996, a $675,000
increase in a bank loan and from the issuance of $2,000,000 in $10 Convertible
Preferred Stock in October 1996. Approximately $500,000 of the proceeds was used
to reduce the Company's accounts payable through November 30, 1996. In February
1997 the Company repaid $275,000 of the bank loans. The Company presently has
no material commitment for capital expenditures.
Management believes that the Company will generate positive
cash flow for the fiscal year ending November 30, 1997. Although there can be no
assurances to this effect, management is confident that it has available a
variety of funding and revenue sources to meet the Company's future cash needs.
OUTLOOK
In the last quarter of the 1996 fiscal year, the Company
underwent a change in management which was accompanied by the election of eight
new Directors (half of the Board), a new CEO, and an infusion of additional
capital. Although, the effect of this change in management could not be felt
operationally in the 1996 fiscal year, new management's diligence in assessing
the financial condition of the Company and its decision to record adjustments
will enable the Company to move forward and institute additional cost savings,
revenue producing and collection policies that will in the long term, management
believes, accrue to the Company's benefit.
Specifically, the Company expects to: increase its revenue
growth in 1997 through an increased sales effort, and improvement in its
recruitment and training of sales staff; continue implementation of cost cutting
measures begun in 1996 which is anticipated to have more of an impact during the
upcoming year; review and improve is policies and procedures as they relate to
credit and collection of receivables; and to focus on the recent start-ups (The
Hill and Manhattan File) and acquisitions (Westside and Nassau) in order to
speed up their turnaround into income producing publications.
The Company expects to improve results from operations as a
result of a series of budget costs instituted during fiscal year 1996 and
modified in the current year. In addition to the cutbacks in staff previously
described, the Company anticipates estimated annualized savings of approximately
$50,000 by a change in health insurance carrier, and $650,000 through a variety
of production and distribution cutbacks and repositionings such as elimination
of door-to-door distribution in some areas, reduced page counts and a reduction
in certain page sizes.
17
<PAGE>
While there can be no assurances, new management believes
that the steps it is undertaking to improve operations, if effective, will
result in a significant improvement in the profitability of the Company.
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;
see "The Company"), has been primarily engaged, through various wholly owned and
partly-owned subsidiaries, in the publication and distribution of advertiser
supported, community oriented newspapers and related targeted audience
publications. The community newspapers are directed at specific geographic
communities and, for the most part, 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 (89% for the
fiscal year ended November 30, 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 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
18
<PAGE>
generally significantly lower than the additional advertising revenues that
would be derived, management believes that it can offer potential new
advertisers low rates and still increase its operating profits. It also believes
the Company can take advantage of economies of scale, combination of operations
and other synergies not available to individual publications. In management's
opinion, businesses of the type that advertise in local newspapers such as those
published by the Company, such as merchants and other local businesses, are apt
to consider such newspapers favorably when compared to other advertising media
because of the ability of such newspapers to reach specifically targeted
audiences. The advertisers need not pay rates that are based on broader
audiences not of interest to them.
The Manhattan Spirit
The Manhattan Spirit is a weekly free circulation newspaper
founded in 1985, and published by Access, 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 published in a 4-color tabloid
format. 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.
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DPI also publishes the Montauk Pioneer, which has been
designated by the Montauk Village Association as the official newspaper of the
community of Montauk.
Dan's Papers was first published in 1960 by Mr. Daniel
Rattiner, and is believed by the Company to be the first free resort newspaper
in the United States. The Company acquired its 80% interest in DPI (Mr. Rattiner
is the owner of the other 20%) in October 1988. Mr. Rattiner continues to be the
publisher and editor of Dan's Papers under an employment agreement with DPI
expiring in 1998, subject to earlier termination on certain conditions.
Queens Tribune
In May 1989, Tribco acquired, by way of merger, all the
outstanding stock of two companies which, together, published and distributed
the Queens Tribune, which now consists of 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 13% and 9% of
its revenues in the fiscal years ended November 30, 1996 and November 30, 1995,
respectively.
The Bronx Newspapers
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 the 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.
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. Approximately 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.
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The Nassau Newspapers
On December 9, 1993, the Company, through its subsidiary,
Nassau Community Newspaper Group, Inc. ("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 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 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 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
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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. It is printed on newsprint with
the use of spot color and is distributed by crews supervised and trained by the
Company. The Brooklyn Skyline operates out of an office in the Mill Basin
section of Brooklyn.
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
25-year-old community newspaper, covers the area from 59th-125th Streets from
Riverside Drive to Central Park West. The Chelsea-Clinton News, a 56- year-old
community newspaper, covers the area from 14th-59th Streets from 5th Avenue to
11th Avenue. These two publications rely on revenue from display advertising,
classified advertising, subscriptions, newsstand sales, legal advertising and
from an in-house typesetting shop that brings in more than 20% of the annual
revenue. The Chelsea-Clinton News and Westsider were acquired by the Company in
October 1994.
The Hill
In September 1994, the Company embarked on its most
ambitious undertaking to date -- the publication of The Hill, a new weekly
newspaper devoted to the coverage of the United States Congress. Martin Tolchin,
an award-winning, forty year veteran of the New York Times, signed a five year
contract to serve as publisher and editor and chief of The Hill. The paper,
which offers comprehensive coverage of every aspect of Congress and life 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
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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 five years. On a year-to-year basis, the Company
estimates that, over the last four fiscal years, approximately two-thirds of its
display advertising revenues have been from advertisers who were advertisers in
the prior year. No one advertising client represents more than 5% of the
Company's advertising revenues. Classified advertising has been a growing area
of revenues for the weekly publications, as has been advertising directed to
telephonic response.
The Company employs sales representatives who are
compensated 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 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 the free weekly The Independent. 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, a daily newspaper, 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.
Manhattan File is the only free distributed glossy magazine
targeting young adults in Manhattan. Competitors include national magazines like
Vanity Fair, Details, Rolling Stone and New York Magazine. 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
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display and classified advertising with other free weeklies on the West Side,
including the Manhattan Spirit and The Resident.
The Brooklyn Skyline is one of a number of free distribution
papers in Brooklyn. The Marketeer, an established door-to-door shopper, is its
primary competitor.
The Hill, which is the largest circulation paper on Capitol
Hill, services the same market as Roll Call.
---------
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, of whom 47 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 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
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lease is renewable for five years at a $152,000 base annual rent. These premises
also serve as the Company's executive and financial offices.
Parkchester Publishing Co., Inc. has 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 Supreme Court, New York County in January 1991. The complainant
alleged libel against the Company in connection with an article printed in the
Manhattan Spirit and claimed $2,000,000 in compensatory damages and unspecified
punitive damages. The Company filed an answer denying the material allegations
of the complaint and this case has been dormant for a number of years. The
Company believes that this case is without merit and shall remain dormant.
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 salesperson for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million plus back pay, front pay and
other relief. The defendants believe that the claim is without merit and have
filed an answer denying the material allegations of the complaint and asserting
affirmative defenses. The defendants intend to defend the action vigorously. The
action is presently in the early stages of the discovery process.
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MANAGEMENT
Directors and Executive Officers
The Company's directors, executive officers and other
significant employees and their ages and positions are as follows:
Name of Individual Age Position with Company and Subsidiaries
- ------------------ --- --------------------------------------
Gary Ackerman 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 81 Chairman of the Board and Director of the
Company
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 63 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 51 Director and President of the Company and
director and officer of subsidiaries
Andrew J. Stein 51 Director of the Company
Sy Syms 70 Director of the Company
Arthur Tarlow 67 Director of the Company
Hillel Weinberger 43 Director of the Company
Gary Ackerman has been a director of the Company since March
1990. He has served in the United States House of Representatives as a
Representative from New York since March 1983. From 1979 until 1983, Mr.
Ackerman was a member of the New York State Senate. From 1970 to 1979, Mr.
Ackerman was the founder, editor and publisher of the Queens Tribune.
Thomas Allon was elected Executive Vice President of the
Company in November 1994. He has been Publisher of the Manhattan Spirit and Our
Town since 1992. From 1990 to 1991 he was Managing/Associate Publisher of the
Manhattan Spirit.
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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. For
more than five years, Mr. Bernstein has been a writer and journalist. During
this period he has been a Contributing Editor to Time Magazine and is presently
a Contributing Editor to Vanity Fair. Mr. Bernstein was the co-author, with
Robert Woodward, of "All the President's Men" and "The Final Days." His most
recent publications are "Loyalties: A Son's Memoir," published by Simon &
Schuster, and, as co-author, "His Holiness: Pope John Paul II and The Hidden
History of Our Times," published by Doubleday.
Eric Breindel has been a director of the Company since October 1993. Mr.
Breindel is Senior Vice President of News Corporation, a holding company for
publishing, television and other media enterprises. From 1986 until earlier this
year, Mr. Breindel was 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 Group, Inc., a holding
company for supermarket chains in New York. Since July 1988, Mr. Catsimatidis
has served as Chairman of the Board and director of Sloan Supermarkets, Inc., an
American Stock Exchange listed company which owns and operates supermarkets. Mr.
Catsimatidis is also currently the Chairman of the Board, Chief Executive
Officer 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.
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John E. McConnaughy , Jr. was elected a director of the Company in October
1996. Mr. McConnaughy is Chairman and CEO of JEMC Corporation, a company
involved in investing. 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 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 1981, he has been President of Nederlander Organization, Inc., the
owner and/or operator of one of the world's largest chains of legitimate
theatres. Mr. Nederlander is also a director of Riddell Sports, Inc., Mego
Financial Corp., Mego Mortgage Corp., Allis Chalmers Corp. and HFS Inc.
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 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.
Mr. Schenkler is President of all of the Company's subsidiaries other than DPI
and NCNG, of which he is Vice President.
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 was a partner in the accounting firm of David Tarlow & Company
for more than 25 years until August 1995. He is currently a partner in the
accounting firm of Tarlow & Tarlow. 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.
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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.
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 - $10 Convertible Preferred Stock."
Executive Compensation
The following tables show compensation paid by the Company and its
subsidiaries to certain of its executive officers (including the chief executive
officer) for the fiscal years ended November 30, 1995, 1994 and 1993 and certain
information with respect to stock options granted to such executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------------------------------------------ Compensation
Awards
Other ------------
Annual
Compensa-
Salary Bonus tion Options
Name and Principal Position Year ($) ($) ($) (#)
- --------------------------- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Michael Schenkler, President and Chief Exec 1996 154,621 30,000 --- 10,000
utive Officer of the Company and officer of 1995 150,000 --- --- 10,000
subsidiaries 1994 142,553 --- --- 67,500
Daniel Rattiner, Officer of Dan's Papers, Inc. 1996 130,869 110,235 15,000(1) ---
1995 127,813 61,169 15,000(1) ---
1994 124,016 39,367 15,000(1) ---
Jerry Finkelstein, Chairman of the Board of 1996 195,000 --- --- 10,000
the Company 1995 195,000 --- --- 360,000
1994 175,392 --- --- 217,500
Thomas Allon, Executive Vice President of 1996 82,341 45,000 --- ---
the Company and officer of subsidiaries 1995 80,885 45,000 --- ---
1994 80,673 12,035 --- 40,000
- --------------------------------------
<FN>
(1) Mr. Rattiner is entitled to receive an aggregate of $15,000 per year for
discounted trade-sale merchandise from advertisers (who provide such
merchandise to Mr. Rattiner in lieu of paying the Company for advertising).
</FN>
</TABLE>
29
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Granted (#) in Fiscal Year ($/Sh) Expiration Date
------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
Michael Schenkler 10,000 5.9 1.625 8/17/01
Jerry Finkelstein 10,000 5.9 1.625 8/17/01
</TABLE>
AGGREGATE YEAR-END OPTION VALUES
(November 30, 1996)
<TABLE>
<CAPTION>
Number of unexercised options at Value of unexercised in-the-money
fiscal year-end(#) options at fiscal year-end($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael Schenkler 142,500 --- 19,375 ---
Jerry Finkelstein 697,500 --- 226,250 ---
Daniel Rattiner 35,000 --- 4,375 ---
</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 and restated, 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. 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.
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
30
<PAGE>
increases) and, for fiscal years beginning December 1, 1994, is entitled to a
bonus of 5% of the net profits of the Company derived from the Company's
publications Manhattan Spirit, Our Town, Manhattan File, Chelsea-Clinton News
and Westsider, but in no event shall such bonus be less than $45,000 nor more
than $70,000 for any fiscal year. The agreement requires Mr. Allon to protect
confidential information of the Company and restricts him from engaging in
certain competitive activities during the term of his employment and for one
year thereafter.
Pursuant to the agreement regarding the sale of the $10 Convertible
Preferred Stock, Wilbur L. Ross, Jr. will serve as Chief Executive Officer of
the Company and 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, 1996, the only grant made under the Discretionary Option Plan was
the grant to Mr. Ross described above. 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 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. In addition, Mr. Rattiner can require the Company to
purchase his 20% interest in DPI at any time on or after October 13, 1993 for a
price equal to 20% of DPI's retained earnings (if any) plus the greater of
$200,000 or 20% of DPI's gross collected revenues (after deduction of
advertising agency commissions) for the full fiscal year prior to the year in
which notice is given provided that DPI's after-tax profits are at least equal
to 7% of the gross collected revenues (after deduction of advertising agency
commissions). However, by letter agreement, the Company has waived the 7%
after-tax profits requirement until after November 21, 1997.
31
<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
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. ("DHBIB"), 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 DHBIB on all of their personal property and fixtures
and by a pledge made by the Company to DHBIB of all of the outstanding common
stock of Tribco and Access. As additional consideration for the loan, the
Company issued DHBIB 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 DHBIB
pursuant to which DHBIB is to act as a non-exclusive financial advisor and
investment banker to the Company. As an inducement to DHBIB's providing such
services, the Company issued DHBIB 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 and Red Apple Markets, supermarket chains that are owned by Red
Apple Group, Inc., of which Mr. Catsimatidis is Chairman, and Sloan's
Supermarkets, 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.
32
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Company's Common Stock, as of March 31, 1997, 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 386,644 (2) 4.9%
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) *
1211 Avenue of the Americas
New York, N.Y. 10036
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.
33
<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 4,309,005 (3)(9) 40.9%
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
- -------------------------------------------
<FN>
* 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.
34
<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. ("DHBIB"), 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 DHBIB expressly disclaim
beneficial ownership of all securities held by Rivkalex and Rosalind
Davidowitz.
</FN>
</TABLE>
35
<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 167 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
36
<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
37
<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.
38
<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
39
<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
40
<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 7,910,848 Common Stock
outstanding. Of this amount, approximately 2,344,715 shares are "restricted"
securities as that term is defined under Rule 144 promulgated under the
Securities Act of 1933. Of the restricted shares, approximately 2,274,715 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 5,015,362 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.
41
<PAGE>
EXPERTS
The consolidated balance sheet as of November 30, 1996 and
the consolidated statements of income, stockholders' equity, and cash flows for
the year ended November 30, 1996, included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statements of operations, stockholders'
equity and cash flows of the Company and its subsidiaries for the year ended
November 30, 1995, included in the Prospectus, have been included herein in
reliance on the report of Moore Stephens, P.C., independent auditors, given on
the authority of that firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Moore Stephens, P.C. (formerly named Mortenson & Associates, P.C.) served
as independent auditors of the Company for the fiscal years ended November 30,
1994 and 1995 and until February 3, 1997. On February 3, 1997, Moore Stephens,
P.C. was dismissed by the Company because it was determined by the Company that
its best interests would be served by retaining Coopers & Lybrand L.L.P. The
decision to change auditors was approved by the Audit Committee of the Company's
Board of Directors. The report of Mortenson & Associates, P.C. dated March 27,
1996, relating to the financial statements of the Company as of November 30,
1995 and for the two years then ended contained a statement regarding
uncertainty about the Company's ability to continue as a going concern. During
the Company's two most recent fiscal years and the subsequent interim period
preceding such dismissal, there were no disagreements between the Company and
Moore Stephens, P.C. on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
Coopers & Lybrand L.L.P. has been engaged by the Company as of February 3,
1997 as its independent auditors.
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
42
<PAGE>
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.
43
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Reports of Independent Accountants F2-F3
Consolidated Balance Sheet as of November 30, 1996 F4-F5
Consolidated Statements of Operations for the years ended
November 30, 1996 and 1995 F6
Consolidated Statements of Stockholders' Equity for the years ended
November 30, 1996 and 1995 F7
Consolidated Statements of Cash Flows for the years ended
November 30, 1996 and 1995 F8-F9
Notes to Consolidated Financial Statements F10-F26
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
News Communications, Inc.
Fresh Meadows, New York
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and Subsidiaries as of November 30, 1996, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the year ended November 30, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of News
Communications, Inc. and Subsidiaries as of November 30, 1996, and the
consolidated results of their operations and their cash flows for the year ended
November 30, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 12, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
News Communications, Inc.
Fresh Meadows, New York
We have audited the accompanying consolidated statements of
operations, stockholders' equity, and cash flows of News Communications, Inc.
and its subsidiaries for the year ended November 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated results of
operations and cash flows of News Communications, Inc. and its subsidiaries for
the year ended November 30, 1995, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
March 27, 1996
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Balance Sheet
As of November 30, 1996
<TABLE>
<CAPTION>
Assets:
<S> <C>
Current assets:
Cash $ 1,494,887
Restricted cash 198,390
Accounts receivable - [less: allowance for doubtful accounts of $862,615] 3,862,405
Due from related parties 14,000
Other 130,445
------------------
Total current assets 5,700,127
Property and equipment - at cost - net 520,791
Other assets:
Goodwill - net 3,373,535
Other - net 116,671
------------------
Total other assets 3,490,206
------------------
Total assets $ 9,711,124
==================
</TABLE>
See Notes to the Consolidated Financial Statements.
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Balance Sheet
As of November 30, 1996
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity:
<S> <C>
Current liabilities:
Accounts payable $ 1,100,720
Accrued expenses 642,656
Accrued payroll and payroll taxes 453,639
Note payable 1,175,000
Due to related party 59,688
Unearned revenue 122,653
------------------
Total current liabilities 3,554,356
Related party - long term debt 953,333
------------------
Total Liabilities 4,507,689
------------------
Commitments and contingencies
Minority interest 114,228
------------------
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 shares authorized; $2,577,000 200,449
aggregate liquidation value
Common stock, $.01 par value; authorized 100,000,000 shares;
8,038,039 shares issued 80,380
Paid-in capital - preferred stock 2,201,690
Paid-in-capital - common stock 14,062,652
Retained deficit (11,047,235)
------------------
5,497,936
Less: Treasury stock [151,000 common shares] - at cost 408,729
Total stockholders' equity 5,089,207
------------------
Total liabilities and stockholders' equity $ 9,711,124
==================
</TABLE>
See Notes to the Consolidated Financial Statements.
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Operations
For the years ended November 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
----------------- ------------------
Net revenues $ 18,334,866 $ 18,113,462
----------------- ------------------
Operating expenses:
Salaries, benefits and outside labor costs 9,818,203 9,511,879
Direct mechanical costs 6,968,414 6,606,636
General and administrative 2,762,303 2,408,344
Provision for doubtful accounts 1,481,589 396,000
Rent, occupancy and utilities 941,874 870,949
----------------- ------------------
Total operating expenses 21,972,383 19,793,808
----------------- ------------------
Loss from operations (3,637,517) (1,680,346)
Other income (expense):
Interest expense (177,471) (32,608)
Interest income --- 28,708
----------------- ------------------
Total other income (expense) (177,471) (3,900)
----------------- ------------------
Loss before income taxes and minority interest (3,814,988) (1,684,246)
Provision for income taxes --- ---
----------------- ------------------
Net loss before minority interest (3,814,988) (1,684,246)
Less: Minority interest in income of subsidiary 66,440 47,788
----------------- -------------------
Net loss $ (3,881,428) $ (1,732,034)
================= ================
Loss per common share $ (.49) $ (.22)
================= ================
Weighted average number of common shares outstanding $ 7,991,997 $ 7,966,186
================= ================
</TABLE>
See Notes to the Consolidated Financial Statements.
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Paid-in Paid-in
Preferred Capital Commom Capital Total
Stock Preferred Preferred Stock Common Common Retained Treasury Stockholders'
(Shares) Stock Stock (Shares) Stock Stock Deficit Stock Equity
-------- ------- ------- -------- ------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 warrants - - - 24,561 246 46,891 - - 47,137
Stock issued in connection with
exercise of options - - - 10,000 100 12,400 - - 12,500
Stock issued as preferred
dividends - - - 7,328 73 15,927 (16,000) - -
Dividend on preferred stock - - - - - - (41,360) - (41,360)
Net loss - - - - - - (1,732,034) - (1,732,034)
----------------------------------------------------------------------------------------------------
Balance, 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 warrants - - - 9,750 98 19,402 - - 19,500
Stock issued in connection with
exercise of options - - - 10,000 100 12,400 - - 12,500
Issuance of $10 Convertible
Preferred Stock 20,000 200,000 1,800,000 - - - - - 2,000,000
Costs of raising capital - - (118,183) 50,000 500 99,500 - - (18,183)
Warrants issued in connection
with long term debt - - - - - 64,000 - - 64,000
Warrants issued in connection
with consulting services - - - - - 128,000 - - 128,000
Stock issued as preferred
dividends - - - 10,624 106 15,894 (16,000) - -
Dividend on preferred stock - - - - - - (41,360) - (41,360)
Net loss - - - - - - (3,881,428) - (3,881,428)
------------------------------------------------------------------------------------------------------
Balance, November 30, 1996 20,449 $200,449 $2,201,690 8,038,039 $80,380 $14,062,652 $(11,047,235) $408,729 $5,089,207
========= ========= =========== ========= ======= =========== ============= ======== ===========
</TABLE>
See Notes to the Consolidated Financial Statements.
F-7
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statement of Cash Flows
For the years ended November 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (3,881,428) $ (1,732,034)
---------------------------------------------------------
Adjustments to reconcile net loss to net cash (used for)
operating activities:
Depreciation and amortization 514,110 494,606
Provision for doubtful accounts 1,481,589 396,000
Compensation recognized related to warrants issued 128,000 -
Amortization of debt discount 17,333 -
Minority interest 66,440 47,788
Changes in assets and liabilities:
(Increase) decrease in:
Account receivable (613,313) (1,526,791)
Other current assets (52,375) 84,138
Other assets 2,929 8,850
Related party receivable 105,233 (39,112)
Increase (decrease) in:
Accounts payable and accrued expenses (185,777) 69,395
Accrued payroll and payroll taxes 131,487 191,284
Other current liabilities 122,653 (6,440)
Related party payable 30,506 29,182
---------------------------------------------------
Total adjustments 1,748,815 (251,100)
---------------------------------------------------
Net cash - operating activities - forward (2,132,613) (1,983,134)
---------------------------------------------------
Investing activities:
Capital expenditures (50,431) (148,409)
Sale of marketable securities - 924,633
---------------------------------------------------
Net cash - investing activities - forward (50,431) 776,224
---------------------------------------------------
Financing activities:
Proceeds from preferred stock 2,000,000 -
Proceeds from exercise of stock options 12,500 12,500
Costs of raising capital (18,183) -
Proceeds from exercise of warrants and underwriter option 19,500 47,137
Principal payments on notes payable (24,000) (99,750)
Dividend on preferred stock (41,360) (41,360)
Proceeds from notes payable 1,675,000 500,000
---------------------------------------------------
Net cash - financing activities - forward 3,623,457 418,527
---------------------------------------------------
</TABLE>
See Notes to the Consolidated Financial Statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------
<S> <C> <C>
Net cash - operating activities - forwarded $ (2,132,613) $ (1,983,134)
Net cash - investing activities - forwarded (50,431) 776,224
Net cash - financing activities - forwarded 3,623,457 418,527
---------------------------------------------------------
Net increase (decrease) in cash 1,440,413 (788,383)
Cash - beginning of year 54,474 842,857
---------------------------------------------------------
Cash - end of year $ 1,494,887 $ 54,474
=========================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 130,969 $ 19,704
</TABLE>
See Notes to the Consolidated Financial Statements.
F-9
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization and Industry Segment:
News Communications, Inc., a Nevada corporation, is primarily engaged, through
various wholly-owned and majority-owned subsidiaries in the publication and
distribution of advertiser supported, community oriented newspapers and a
magazine. The Company's publishing 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 West
Side Newspaper Corp. ["West Side"]. News Communications, Inc. and Subsidiaries
[the "Company"] function 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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates have been made by management with
respect to the Company's allowance for doubtful accounts, amortization relating
to goodwill, depreciation and amortization in connection with property and
equipment, and the possible outcome of outstanding litigation among other items.
Actual results could differ from those estimates.
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
F-10
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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. An impairment loss would be
recognized if the unamortized goodwill balance exceeds the non-discounted cash
flows of the subsidiaries. Based upon its most recent analysis, the Company
believes that no impairment of goodwill exists at November 30, 1996.
Revenue Recognition - Advertising revenues are earned when advertisements appear
in the various publications.
Direct Mechanical Costs - Production and distribution related expenses are
classified as direct mechanical costs.
Seasonality - One of the Company's publications (which generated approximately
18% of revenues in fiscal 1996 and 1995) is a resort area newspaper, which earns
a significant portion of its revenue during the summer months.
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 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 routinely 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 allowance 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, 1996, the Company had approximately $1,600,000 with financial institutions
subject to a credit risk beyond the insured amount.
F-11
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Restricted Cash - Cash received in connection with the October 1996 exercise of
Redeemable Class C warrants, for which common stock has yet to be issued, is
reflected as restricted cash [See Note 15].
Stock-Based Compensation - Stock-based employee, officer and director
compensation is accounted for in accordance with Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options issued to employees, officers and directors
is measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount a recipient must pay to acquire the
stock. For the years ended November 30, 1996 and 1995, the Company only has
granted options at market value on the date of grant. Accordingly, no
compensation cost has been recognized for stock option plans [See Note 14].
3. Property and Equipment and Depreciation and Amortization:
Major classes of property and equipment as of November 30, 1996 are as follows:
Leasehold improvements $ 326,300
Computer equipment 445,549
Machinery and equipment 227,261
Furniture and fixtures and office equipment 236,911
Distribution boxes 119,492
Automobiles 31,987
--------------
Total - at cost 1,387,500
Less: Accumulated depreciation and amortization 866,709
--------------
Property and equipment - net $ 520,791
--------------
Depreciation and amortization expense for the years ended November 30, 1996 and
1995 amounted to $187,076 and $179,477, respectively.
F-12
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. Intangible Assets:
A breakdown of intangible assets at November 30, 1996 is as follows:
Amortization
Period
Years Cost Amortization Net
Goodwill 10-20 $ 5,101,219 $ 1,727,684 $ 3,373,535
============ ============= ==========
Covenant not-to-compete 5 $ 127,400 $ 127,400 $ 0
============ ============= ==========
Organization costs 5 $ 67,933 $ 23,131 $ 44,802
============ ============= ==========
Covenant not-to-compete and organization costs are included in the caption
"Other Assets" on the balance sheet.
Amortization expense of $327,034 and $315,129 was recognized for the years ended
November 30, 1996 and 1995, respectively.
5. Notes Payable
Short-term note payable at November 30, 1996 consisted of a $1,175,000 offering
basis loan due on January 6, 1997 at the Bank's prime rate plus 2 percent. The
prime rate at November 30, 1996 was 8.25 percent. While under no obligation to
do so, the Bank, at its sole option, can continue to extend the due date of the
loan in intervals of two months.
On January 6, 1997, the due date of the loan was extended to March 6, 1997.
However, $275,000 of the note was paid prior to that date. On March 6, 1997, the
due date of the remaining loan balance was extended to May 6, 1997.
All of the Company's accounts receivable are pledged as collateral for the loan.
Long-term note payable in the amount of $ 953,333 (net of unamortized discount
of $46,667) at November 30, 1996 consisted of a promissory note due to a
principal shareholder of the Company. The note is due on May 21, 1998, and has a
stated interest rate of 8.5 percent per annum. Interest is payable quarterly
commencing July 1, 1996. As additional consideration for the promissory note,
detachable warrants to purchase 200,000 shares of the Company's common stock at
$2.50 per share were issued to the lender and, accordingly, $64,000 of the
proceeds of the promissory note was allocated to the detachable warrants and
included in additional paid-in-capital - common stock. All
F-13
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
of the assets of the Company, as well as all of the outstanding common stock of
Tribco and Access, are pledged as collateral for the note.
Interest expense for the years ended November 30, 1996 and 1995 amounted to
approximately $177,000 and $32,600, respectively.
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards ["SFAS"] No. 107, "Disclosures about
Fair Value of Financial Instruments," and SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
require the disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the consolidated balance sheet,
for which it is practicable to estimate fair value. The Company's financial
instruments include cash and cash equivalents, trade receivables, trade
payables, and current and long-term debt. The carrying value of the Company's
financial instruments approximates fair value. The fair values of cash and cash
equivalents, net accounts receivable, trade payables and short-term debt
approximate cost because of the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt is estimated based on
discounting expected cash flows at rates currently available to the Company for
instruments with similar risks and maturities.
7. Related Parties:
Certain Company office facilities are leased from an officer of a subsidiary of
the Company. Rental expense amounted to approximately $49,000 and $48,000 for
the years ended November 30, 1996 and 1995, 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 of five years. The original lease
term expires on October 31, 1998.
At November 30, 1996, amounts owed to an officer of a subsidiary of the Company
for a bonus and expenses amounted to approximately $60,000.
As discussed in Note 5, at November 30, 1996, the Company has a long term note
payable due to a principal shareholder. The Company also has issued 600,000
warrants to a principal shareholder, for which a total value of $192,000 has
been assigned [See Note 15].
F-14
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Revenues from related parties amounted to $354,125 and $28,135 during the years
ended November 30, 1996 and 1995, respectively.
8. Leases:
The Company leases all operating facilities under operating leases expiring
through January 2001. Rent expense under operating leases was approximately
$512,000 and $464,000 for years ending November 30, 1996 and 1995, respectively.
The future minimum payments under non-cancelable operating leases consisted of
the following at November 30, 1996:
Fiscal Year Ending Operating
November 30, Leases
1997 $ 446,236
1998 451,929
1999 335,763
2000 201,742
2001 12,564
-------------
$1,448,234
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.
F-15
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
9. Commitments and Contingencies:
A subsidiary of the Company has indemnified two former employees
and a director from adverse judgments and legal fees arising in
connection with certain legal actions, except such adverse
judgments as may be based on claims that allege or involve
wrongful conduct by said former employees and director.
The Company has an employment agreement expiring in 1998 with the
President of DPI. The agreement stipulates an annual salary of
$100,000 per year, adjusted for increases in the consumer price
index, plus a bonus in each fiscal year based on net profits [as
defined] of DPI, and fringe benefits totaling approximately
$25,000 annually.
The President of DPI has a put option that requires the
Company to buy his 20 percent interest of DPI for a price equal
to 20 percent of the retained earnings, if any, of DPI plus the
greater of $200,000 or 20 percent 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 (hereafter referred to as the
"seven percent requirement".) On November 22, 1996, the seven
percent requirement was waived, for a one-year period ending
November 21, 1997, by mutual agreement of News Communications
and the President of DPI. The put option, therefore, was
exercisable at November 30, 1996. Should the option be exercised,
the Company estimates it would be required to pay approximately
$860,000 for the shares. The option is related to the 1988
acquisition of DPI by the Company.
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. In October 1996, the
agreement was amended to extend the employment period through
August 2003. 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. 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.
F-16
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
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 percent of the net profits of the Company
derived from [for fiscal years beginning December 1, 1994] 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.
10. 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 Communica-
tions, Inc., and Media Venture Group, Inc., was initiated in
September 1996 in the United States District Court
F-17
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 believes that the claim is without merit and has filed an
answer denying the material allegations of the complaint and
asserting affirmative defenses. The Company intends to defend the
action vigorously. The action is presently in the early stages of
the discovery process.
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.
11. Common Stock:
At November 30, 1996, the Company has approximately 8,443,000
shares of common stock reserved for issuance upon conversion of
outstanding preferred stock and exercise of options and warrants.
In addition, the Company has reserved for issuance 162,143 shares
of common stock (valued by the Company at approximately $355,000)
in connection with the Company's 1993 acquisition of the Nassau
Newspapers, which is to be issued by the Company at various
installment dates ending December 9, 1998.
12. Preferred Stock:
Preferred Stock at November 30, 1996 consisted of the following:
10% non-voting convertible preferred stock, $ 32
1,250 shares authorized; 32 issued and
outstanding, $500 per share per annum
cumulative dividends, $160,000
liquidation value
8% convertible preferred stock, $217
500 shares authorized, 217 issued and
outstanding, $80 per share per annum
cumulative dividends, $217,000 liquidation
value
F-18
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
12% convertible preferred stock, $200
200 shares authorized, 200 shares issued and
outstanding, $120 per share per annum cumulative
dividends, $200,000 liquidation value
$10 convertible preferred stock, 200,000 $200,000
shares authorized, issued and
outstanding, $2,000,000 liquidation value
(a) The 10% Non-voting Convertible Preferred Stock is redeemable at the
option of the Company, under certain circumstances. The holders can
convert their shares of preferred stock into shares of common stock at
the rate of 1,800 shares of common stock for each share of preferred
stock, subject to standard anti-dilution provisions.
In October 1996, the Company distributed 10,624 shares of its common
stock in payment of a $500 dividend per share due holders as of
September 19, 1996 on each of the 32 shares of 10% Non-voting
Convertible Preferred Stock. As a result, common stock at par was
increased by $106, additional paid-in-capital - common stock was
increased by $15,894 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.
(b) The 8% Convertible Preferred Stock and the 12% Convertible 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 of $2.10, which is
subject to standard anti-dilution provisions. 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.
F-19
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During the years ended November 30, 1996 and 1995, 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, 1996, 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.
In December 1996, a holder of the Company's 8% Convertible Preferred
Stock converted 50 shares to 23,809 shares of common stock and 23,809
warrants to purchase common stock exercisable at $2.10 per share.
(c) In October 1996, the Company entered into an agreement with a group of
investors to which the Company issued 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 for an aggregate
consideration of $2,000,000. The holders of $10 Convertible Preferred
Stock, acting as a single class, are entitled to nominate and elect, at
all times, one-half of the total number of Directors of the Company.
Dividends on the $10 Convertible Preferred Stock are noncumulative and
are payable at a rate of five times the amount of dividends, if any,
per share declared and paid by the Company on its common stock. During
1996, no dividends were declared and paid on the $10 Convertible
Preferred Stock.
The holders of the $10 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 the $10 Convertible Preferred
Stock may be converted shall be obtained by dividing $10 by a
conversion price. The conversion price is initially set at $2.00, and
is subject to adjustments generally for dilution or decline in the
market price below $2.00.
The holders of the $10 Convertible Preferred Stock have substantially
the same voting rights as the holders of the Company's common stock;
however, the vote of the holders of the $10 Convertible Preferred
Stock, acting as a single class, is required for shareholder approval
of certain corporate matters to be considered obtained. Each holder of
the $10 Convertible Preferred Stock is entitled to the number of votes
that he or she would have had if each share of $10 Convertible
Preferred Stock had been converted into shares of common stock.
F-20
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. Treasury Stock:
Treasury stock is shown at cost and consists of 151,000 shares of
Common Stock.
14. Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ["FASB"]
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123 establishes financial accounting and reporting standards for
employee stock-based compensation plans and to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. SFAS No. 123 encourages, but does not require, companies
to record compensation cost for employee stock-based compensation plans
at fair value, and the Company may continue to account for its employee
plans using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25. The Company does not expect to adopt the new
accounting standard for its employee stock-based compensation plans.
However, pro forma disclosures of net income and earnings per share
must be made as if the SFAS No. 123 accounting standard had been
adopted. If the Company chooses to continue to apply the provisions of
APB Opinion No. 25, adoption of the SFAS No. 123 disclosure
requirements is not required by the Company until 1997, at which time
comparative pro forma disclosures will be presented for grants of
employee stock-based compensation made in 1996 and 1997.
The accounting requirements of SFAS No. 123 for transactions with other
than employees are mandatory and are effective for transactions entered
into after December 15, 1995. The Company has applied the recognition
provisions of SFAS No. 123 for those non-employee transactions entered
into subsequent to December 15, 1995.
Information regarding the Company's stock option plans is as follows:
(a) Stock Option Plan - The Company has a Stock Option Plan [the 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. Under the Plan, a maximum of 366,666 shares of common
stock is available for issuance. 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. At November 30, 1996 and 1995,
approximately 121,200 and 64,200 options were exercisable,
respectively. The following is a summary of transactions relating to
the Stock Option Plan:
F-21
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1995
----------------- --------------
<S> <C> <C>
Outstanding - Beginning of year 179,167 136,166
Granted during the year - 58,001
Terminated during the year - 15,000
----------------- -----------------
Outstanding - End of year (1) 179,167 179,167
================= ======================
<FN>
(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. The options outstanding at
November 30, 1995 include options granted on July 5, 1995 that
were approved by the Company's stockholders on December 15,
1995. The weighted average exercise price at November 30, 1996
was $2.24 per share.
</FN>
</TABLE>
At November 30, 1996 and 1995, there were 187,500 shares (after giving
effect to the December 15, 1995 amendment to the Stock Option Plan to
increase the number of shares of common stock available for issuance
pursuant to the Plan) available for future grants.
(b) Directors and Officers Stock Option Plan - On August 17, 1993, the
Board of Directors adopted a Discretionary Directors and Officers
Stock Option Plan as amended [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 the market
price on the date of grant for periods (generally five years), 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.
On August 17, 1993, the Board also adopted a Non-Discretionary Direc-
tors 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.
F-22
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following is a summary of transactions relating to the Directors and
Officers Stock Option Plans:
<TABLE>
<CAPTION>
1996 1995
--------------- ------------
<S> <C> <C>
Outstanding - Beginning of year 1,760,500 1,290,500
Granted during the year 360,000 470,000
-------------- -------------
Outstanding - End of the year (1) 2,120,500 1,760,500
============== ==============
<FN>
(1) With an exercise price per share ranging from $1.25 to $2.69. The
weighted average exercise price at November 30, 1996 was $2.23 per
share.
</FN>
</TABLE>
15. Stock Warrants
At November 30, 1996, the Company had 2,437,130 of common stock reserved for
issuance upon exercise of warrants. Information regarding the Company's
warrants outstanding is as follows:
Redeemable Class C 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 expired October 9, 1996. During the
year ended November 30, 1995, 24,561 Redeemable Class C Warrants were
exercised. The net proceeds of these transactions was $47,137. During the
year ended November 30, 1996, 107,945 Redeemable Class C Warrants were
exercised for proceeds of $215,890. Common stock has yet to be issued in
connection with the October 1996 exercise of 99,195 of the Redeemable Class C
warrants. The proceeds received from the exercise ($198,390) are reflected as
"Restricted Cash" with a corresponding liability reflected in "Other Current
Liabilities" in the consolidated financial statements.
Redeemable Class D Warrants - 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 Class D
Warrants are redeemable by the Company under certain conditions. At November
30, 1996 and 1995, the Company had outstanding 853,935 Redeemable Class D
Warrants.
Non-Redeemable Warrants - At November 30, 1996 and 1995, the Company had
outstanding 1,585,000 and 185,000 non-redeemable warrants, respectively. Each
F-23
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
warrant entitles the holder to purchase one share of the Company's
common stock at an exercise price ranging from $1.38 to $3.00 per share.
The warrants are all currently exercisable and expire on the following
dates:
Number of Warrants Expiration Date
85,000 October 1998
100,000 May 1999
600,000 May 2001
800,000 October 2001
There were no exercises of non-redeemable warrants during the years ended
November 30, 1996 and 1995.
All of the warrants that expire May 2001 were issued to a principal
shareholder of the Company, of which 200,000 were issued in connection with a
promissory note [See Note 5] and 400,000 were issued as consideration for
consulting services.
16. Income Taxes
The Company has a deferred tax asset amounting to $3,342,329 at November 30,
1996, principally relating to net operating loss carryforwards of $7,493,210
and a basis difference in the carrying amount of trade accounts receivable
for financial reporting purposes and the amount used for income tax purposes.
The Company recorded a valuation allowance amounting to the entire deferred
tax asset balance because the Company's financial condition, its lack of a
history of consistent earnings, and possible limitations on the use of
carryforwards give rise to uncertainty as to whether the deferred tax asset
is realizable. No amount of current or deferred federal or state income tax
is presented.
F-24
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
As of November 30, 1996, the approximate amount of the net operating loss
income tax carryforwards and their expiration dates are as follows:
<TABLE>
<CAPTION>
Expiring in Years Ending
November 30, Carryforwards
--------------------------- -----------------------
<S> <C> <C>
2004 $ 202,301
2005 937,798
2006 369,706
2007 701,056
2008 0
2009 263,267
2010 911,832
2011 4,107,250
----------------
Total $ 7,493,210
================
</TABLE>
17. Loss Per Share
Loss per share amounts are computed by dividing the net loss after
deduction of preferred stock dividends by the weighted average number
of shares outstanding. Options, warrants and convertible preferred
stock are assumed converted if dilutive.
18. New Authoritative Accounting Pronouncements
The FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for 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, and 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.
F-25
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
19. Significant Fourth Quarter Adjustments
During the fourth quarter of 1996, the Company recorded a charge of
$1,300,000 to increase the allowance for doubtful accounts and write
off certain accounts receivable balances. In addition, a charge of
approximately $154,000 was recorded relating to overdue state and local
franchise taxes (including interest and penalties) for the years 1993
through 1995.
F-26
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