UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended - August 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________________ to ______________________
Commission File Number 0-18299
NEWS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expwy., Fresh Meadows, New York 11365
(Address of principal executive offices)
(718) 357-3380
(Issuer's telephone number)
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity , as of October 13, 1997: 8,042,631 shares $ .01 par value common stock.
Transitional Small Business Disclosure Format (check one) Yes No X
1
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FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PAGE
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PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at August 31, 1997............................................ 3
Unaudited Consolidated Statements of
Operations for the three and six months
ended August 31, 1997 and August 31, 1996..................... 5
Unaudited Consolidated Statements of Cash
Flows for the six months ended
August 31, 1997 and August 31, 1996........................... 6
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis
or Plan of Operation.......................................... 9
PART II. Other Information............................................. 10
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures............................................................................... 11
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2
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PART I-ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Assets:
Current Assets:
Cash $ 77,070
Accounts receivable [less: allowance for
doubtful accounts of $1,099,671] 4,354,010
Due from related parties 12,891
Net Assets of Discontinued Operations 305,472
Other 141,434
--------------
Total Current Assets 4,890,877
Property and equipment at cost- net of
accumulated depreciation of $946,861 438,345
Goodwill - net 3,159,695
Other - net 115,352
--------------
Total Assets $ 8,604,269
==============
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 750,507
Accrued expenses 978,680
Accrued payroll and payroll taxes 330,069
Note payable 900,000
Unearned Revenue 126,875
Due to related parties 95,864
-----------
Total current liabilities 3,181,995
-----------
Related party - long term debt 977,333
-----------
Minority interest 114,228
Stockholders' Equity:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
$2,527,000 aggregate liquidation value 200,346
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 8,193,631 Shares Issued 81,936
Paid-in-Capital Preferred Stock 2,098,793
Paid-in-Capital Common Stock 14,305,517
(Deficit) (11,947,150)
Total $4,739,442
Less: Treasury Stock [151,000 Shares]-
At Cost (408,729)
Total Stockholders' Equity 4,330,713
Total Liabilities and Stockholders' Equity $ 8,604,269
===========
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1997 1996 1997 1996
Unaudited
<S> <C> <C> <C> <C>
Net Revenues $5,102,167 $5,023,245 $13,051,666 $12,586,808
----------- ----------- ------------ ------------
Expenses:
Direct Mechanical Costs 1,917,530 1,869,090 4,504,294 4,570,069
Salaries, Benefits and
Outside Labor Costs 1,956,958 2,221,536 6,212,264 6,519,806
Rent, Occupancy & Utilities 244,060 206,925 658,144 621,751
Provisions for Doubtful Accounts 122,700 102,000 301,250 175,000
General and Administrative 657,063 465,689 1,757,274 1,629,293
----------- ----------- ------------ ------------
Total Expenses 4,898,311 4,865,240 13,433,226 13,515,919
----------- ----------- ------------ ------------
Operating Income (Loss) Before Interest
Expense and Interest Income 203,856 158,005 (381,560) (929,111)
Interest Expense (45,842) (32,122) (143,101) (72,439)
Interest Income --- 1,750 --- 1,750
----------- ----------- ------------ ------------
Income from Continuing Operations 158,014 127,633 (524,661) (999,800)
Loss from Discontinued Operations (149,474) (26,949) (348,168) (245,551)
Gain (Loss) on Disposal
Net Income (Loss) $ 8,540 $ 100,684 $ (872,829) $(1,245,351)
=========== =========== ============ ============
Net Income (Loss) Per Share $ .00 $.01 $(.11) $( .16)
=========== =========== ============ ============
Weighted Average Shares
Outstanding 8,042,061 7,826,415 7,952,654 7,822,790
=========== =========== ============ ============
</TABLE>
5
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1997 1996
---- ----
Unaudited
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ (872,829) $ (1,245,351)
---------- ------------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 374,470 360,736
Provision for Losses on Accounts
Receivable 301,250 199,000
Compensation Recognized Related to Warrants Issued --- 128,000
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable (1,465,061) (956,522)
(Increase) Decrease in Other Current
Assets (7,679) (104,314)
(Increase) in Due from Related Parties 26,126 17,325
Decrease (Increase) in Other Assets (28,869) 1,552
(Increase) Decrease in Goodwill --- ---
Increase (Decrease) in Accounts Payable
and Accrued Expenses 434,351 370,567
Increase (Decrease) in Payroll Taxes Payable (78,522) (103,137)
Increase (Decrease) in Other Current Liabilities 4,222 (15,615)
---------- ------------
Total Adjustments (439,712) (102,408)
---------- ------------
Net (Deficit) - Operating Activities - (1,312,541) (1,347,759)
Forward
</TABLE>
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1997 1996
---- ----
Unaudited
<S> <C> <C>
Net (Deficit) - Operating Activities -
Forwarded (1,312,541) (1,347,759)
=========== ===========
Investing Activities:
Capital Expenditures (85,090) (42,194)
----------- -----------
Net Cash Provided (Used) by Investing Activities (85,090) (42,194)
----------- -----------
Financing Activities:
Principal Payments Long-Term Debt --- (24,000)
Proceeds from Exercise of Warrants 131,935 19,498
Dividend on Preferred Stock (17,620) (31,020)
Proceeds from Exercise of Stock Options --- 12,500
Proceeds from Notes Payable - Bank --- 675,000
Proceeds from Notes Payable - Shareholder --- 1,000,000
Principal Payments - Notes Payable (275,000) ---
Decrease in Net Assets of Discontinued Operations 88,684 ---
----------- -----------
Net Cash Provided by Financing Activities (72,001) 1,651,978
----------- -----------
Net Increase (Decrease) in Cash (1,469,632) 262,025
Cash - Beginning of Periods 1,546,704 54,474
----------- -----------
Cash - End of Periods $ 77,070 $ 316,499
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 75,674 $ 72,439
</TABLE>
7
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The Consolidated Balance Sheet as of August 31, 1997 and the Consolidated
Statements of Operations for the three and six-month periods ended August 31,
1997 and August 31, 1996, and the Consolidated Statements of Cash Flows have
been prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim period are not necessarily indicative of
the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been consolidated or omitted. These consolidated financial statements
should be read in conjunction with the company's annual report Form 10-KSB for
the fiscal year ended November 30, 1996 and the related audited financial
statements included therein.
B. Loss per Share:
Loss per share is based on the weighted average number of shares outstanding
during the periods.
C. Restatement:
The results of operations for 1996 have been restated to reflect additional
expenses and loss resulting from compensation recognized relating to warrants
issued and unrecorded printing expenses.
D. Accounting Pronouncements
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 specifies revised computational guidelines, presentation and disclosure
requirements for earnings per share and supersedes Accounting Principal Board
Opinion No. 15. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted, however, upon adoption SFAS No. 128 requires
restatement of all prior period earnings per shar information. The Company has
not yet determined the impact SFAS No. 128 would have on earnings per share.
E. Legal Proceedings
An action entitled Jean Jee v. News Communications, Inc. was instituted in the
Supreme Court, New York County, in January 1991. The complaint alleges libel
claims against the Company in connection with an article printed in the
Manhattan Spirit and claims $2,000,000 in compensatory damages and unspecified
punitive damages. The Company has filed an answer denying the material
allegations of the complaint. Discovery has not yet commenced and there has been
no activity in the case for a number of years. Management believes, although
there can be no assurance, that, based upon the application of the relevant law
[as explained to management by counsel representing the Company] to the facts
known to it, the claims asserted in this action are without merit.
An action entitled Tracey Robinson v. The Hill, News Communications, Inc. and
Media Venture Group, Inc., was initiated in September 1996 in the United States
District Court for the District of Columbia in which the plaintiff, a former
national advertising executive for Capitol Hill, has alleged race discrimination
and retaliation in connection with her discharge and claims compensatory and
punitive damages of $5.2 million. The Company believes that the claim is without
merit and has filed an answer denying the material allegations of the complaint
and asserting affirmative defenses. A trial is set for the Fall of 1997.
Management of the Company is unable to predict or determine the final outcome of
the aforementioned proceedings or whether the resolution of the matters could
materially affect the Company's financial position, results of operations or
liquidity.
F. Discontinued Operations
In August 1997, the Company adopted a plan to discontinue the Manhattan File
glossy magazine business. The Company anticipates that the business will be sold
by December 31, 1997. Accordingly, Manhattan File is reported as a discontinued
operation for the periods ended August 31, 1997 and 1996. Net assets of
Manhattan File consist primarily of accounts receivable and accounts payable.
8
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PART I-ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations:
News Communications, Inc. publishes various weekly community newspapers and
related targeted audience publications.
Three Months Ended August 31, 1997 and 1996
The Company recorded Income from Continuing Operations for the third
quarter of $158,000, an increase of $30,000 from $128,000 in 1996. Operating
Income before interest expense was $204,000 as compared to $158,000 in 1996, an
increase of $46,000 in 1997 even after taking into account the Company modifying
its assumptions in estimating its provision for doubtful accounts causing an
increase of $20,700 (20%) from $102,000 in 1996 to $122,700 in 1997. The
increase in interest expense of $13,000 (40%) from $32,000 in 1996 to $45,000 in
1997 was a result of the loan from shareholder being outstanding in 1997.
Total revenues for the Company were $5,102,000 for the third quarter of
1997 an increase of almost $79,000 (2%) from $5,023,000 in 1996. The increase in
revenues was primarily a result of The Hill's increased sales effort and
increased congressional activity, Dan's Papers' capitalization on an ever
growing market in the Long Island posh resort area, the Hamptons and positioning
itself as the advertising standard on Long Island's east end offset by decreases
at the Queens Tribune and Nassau Newspapers.
Direct mechanical costs had increases due to expansions made during 1996,
however, these were offset in part by budget cuts and decreased prices for
newsprint. Direct mechanical costs increased $48,000 (3%) from $1,869,000 in
1996 to $1,917,000 in 1997.
Nine Months Ended August 31, 1997 and 1996
The Company reduced its loss from continuing operations for the nine months
by 475,000 (47%) from ($1,000,000) in 1996 to ($525,000) in 1997. Operating loss
before interest expense decreased $547,000 (59%) from ($929,000) in 1996 to
($382,000) in 1997 even after taking into account the Company modifying its
assumptions in estimating its provision for doubtful accounts causing an
increase of $126,250 (72%) from $175,000 in 1996 to $301,250 in 1997. The
increase in interest expense of $71,000 (99%) fro $72,000 in 1996 to $143,000 in
1997 was a result of increased bank loans and the loan from shareholder being
outstanding in 1997.
Total revenues for the Company were $13,052,000 for the nine months of
1997 an increase of almost $465,000 (4%) from $12,587,000 in 1996. The increase
in revenues was primarily a result of The Hill's increased sales effort and
increased congressional activity, Dan's Papers' capitalization on an ever
growing market in the Long Island posh resort area, the Hamptons and positioning
itself as the advertising standard on Long Island's east end, offset by a
decrease at the Queens Tribune which included lower profit margin printing
revenue.
Liquidity and Capital Resources:
At August 31, the Company had an excess of current assets over current
liabilities in the amount of approximately $1,709,000. During the quarter ended
February 28, 1997, the Company repaid $275,000 of bank loans from cash on hand
at the beginning of the year. During the quarter ended May 31, 1997, the Company
received $181,090 from the exercise of C Warrants.
Management believes that the Company's operations will generate positive
cash flow for the fiscal year ending November 30, 1997. Although there can be no
assurances to this effect, management is confident that it has available a
variety of funding and revenue to meet its cash needs.
9
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Part II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
The following securities were issued by the Company during the period
covered by this report and were not registered under the Securities Act of 1933,
as amended ("the Act"). Each of the transactions is claimed to be exempt from
registration with the Securities Exchange Commission pursuant to Section 4 (2)
of the Act as transactions by an issuer not involving a public offering. All of
such securities are deemed to be restricted securities for the purposes of the
Act.
(i) On or about June 12, 1997, 25,238 shares of Common Stock and Warrants
to purchase an additional 22,238 shares of Common Stock (exercisable at $2.10
per share) were issued to Michael V. Sterlacci upon conversion by him of 53
shares of the Company's 8% Convertible Preferred Stock.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K - None
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: October 15, 1997 By: /s/ Michael Schenkler
------------------------------
Michael Schenkler, President
Date: October 15, 1997 By: /s/ Robert Berkowitz
------------------------------
Robert Berkowitz, Controller
11
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 77,070
<SECURITIES> 0
<RECEIVABLES> 5,453,681
<ALLOWANCES> 1,099,671
<INVENTORY> 0
<CURRENT-ASSETS> 4,890,877
<PP&E> 1,385,206
<DEPRECIATION> 946,861
<TOTAL-ASSETS> 8,604,269
<CURRENT-LIABILITIES> 3,181,995
<BONDS> 0
<COMMON> 81,936
0
200,346
<OTHER-SE> 4,048,431
<TOTAL-LIABILITY-AND-EQUITY> 8,604,269
<SALES> 13,051,666
<TOTAL-REVENUES> 13,051,666
<CGS> 0
<TOTAL-COSTS> 13,433,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (143,101)
<INCOME-PRETAX> (872,829)
<INCOME-TAX> 0
<INCOME-CONTINUING> (872,829)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (872,829)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
