U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2
(Mark One)
------ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
------ For the fiscal year ended November 30, 1996
OR
------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
------ THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18299
NEWS COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
Nevada 13-3346991
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expressway, Fresh Meadows, New York 11365
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (718) 357-3380
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share Redeemable Class D Warrants
(Title of Class) (Title of Class)
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were
$18,334,866.
As of February 28, 1997, 7,910,848 shares of Common Stock were
outstanding. The aggregate market value of shares of Common Stock (based on the
last sale price as reported by NASDAQ) held by non-affiliates of the issuer was
approximately $9,535,000.
Transitional Small Business Disclosure Format (check one):
Yes ____ No X
---
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1 of 67 Pages
EXHIBIT INDEX - PAGE 32
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
News Communications, Inc., a Nevada corporation formed in 1986
(the "Company"), has been primarily engaged, through various wholly owned and
partly-owned subsidiaries, in the publication and distribution of advertiser
supported, community oriented newspapers and related targeted audience
publications. The community newspapers are directed at specific geographic
communities and, for the most part, distributed free of charge to selected
residences and business establishments in those communities. Each publication
focuses on the lifestyle, culture, arts, entertainment, politics and social
issues of particular interest to the group of communities at which it is
directed. Some of the papers publish different editions (with variations in
editorial content and advertising) which are distributed to each community in
the targeted group. The principal source of the Company's revenues (89% for the
fiscal year ended November 30, 1996) is the sale of advertising space in its
publications.
As used herein, unless the context requires otherwise, the
term Company refers to News Communications, Inc. together with its subsidiaries,
Access Network Corp. ("Access"), publisher of the Manhattan Spirit (formerly
called the West Side Spirit), Tribco Incorporated ("Tribco"), publisher of the
Queens Tribune, the Western Queens Tribune and Bayside Trib at Home, Dan's
Papers Inc. ("DPI"), publisher of Dan's Papers and the Montauk Pioneer,
Manhattan Publishing Corp., publisher of Our Town, Parkchester Publishing Co.
Inc., publisher of the Bronx Press Review and the Riverdale Review
(collectively, the "Bronx Newspapers"), Nassau Community Newspaper Group, Inc.
("NCNG"), publisher of Lynbrook USA, the Malverne 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"), Manhattan File Publishing, Inc., publisher of Manhattan File,
Capitol Hill Publishing, Inc. ("Capitol Hill"), publisher of The Hill, Brooklyn
Newspaper Publishing, Inc., publisher of Brooklyn Skyline, and West Side
Newspaper Corp., publisher of Chelsea-Clinton News and the Westsider. All of the
subsidiaries are wholly-owned except DPI, which is 80% owned by the Company and
20% owned by Daniel Rattiner, and Manhattan File Publishing, Inc., which is 90%
owned by the Company and 10% owned by an employee.
The Company plans to develop a regional group of publications
in the greater New York Metropolitan area. The Company intends to seek
candidates through acquisition, when possible, in order to utilize existing
talent and convert a potential competitor into an ally. However, the Company
will also consider start-up situations where it deems it to be geographically
and economically in its best interest.
In addition to the New York Metro area, the Company is also
exploring opportunities in resort communities throughout the United States and
other niche publishing areas, as well as other media ventures such as electronic
publishing on the Internet.
The Company believes that advertisers would be receptive to
wide circulation at reduced cost that could be offered by a group of
publications providing a broad metropolitan audience. Furthermore, as a result
of the marginal costs of adding editorial and advertising content are generally
significantly lower than the revenues that would be derived, management believes
the Company can take advantage of economies of scale, cross-selling and other
synergies not available to individual publications.
The Manhattan Spirit
The Manhattan Spirit is a weekly free circulation newspaper
founded in 1985, which focuses on the news, 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
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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 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 Manhattan's 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 glossy cover on a
weekly basis. It is distributed each week to locations on Eastern Long Island,
including art galleries, gift shops, supermarkets, newspaper and card shops,
restaurants and boutiques. There is also weekly distribution in Manhattan.
Management of the Company believes that Dan's Papers has the largest circulation
in Eastern Long Island of any weekly publication.
DPI also publishes the Montauk Pioneer, which has been
designated by the Montauk Village Association as the official newspaper of the
community of Montauk.
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
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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. 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% of its revenues in the fiscal year ended
November 30, 1996.
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 he Concurrent
Resolutions of the Legislature.
In the last quarter of 1993, the Company started the Riverdale
Review, which serves the affluent Riverdale area of the Bronx. It is also
publishing Westchester Lifestyles, a monthly supplement to reach in to the
Westchester advertising market.
The Riverdale Review is a community weekly covering the news,
events, people and lifestyles of the Riverdale community. It is distributed free
of charge throughout the affluent northwest Bronx community which it serves.
19,000 copies are distributed door-to-door to private homes, in bulk to the
lobbies and mailrooms of the 175 apartment buildings in the area, and through
street distribution boxes and other bulk distribution to high traffic businesses
and religious and educational institutions.
The Nassau Newspapers
On December 9, 1993, the Company, through NCNG, acquired the
assets of the eight Nassau Newspapers from a group of sellers for an aggregate
purchase price of approximately $320,000 in cash 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. Each of the Nassau Newspapers has been designated as the official
newspaper of its community. The Company has expanded into six additional Nassau
County communities with a shopper-type publication called the Long Island
Market.
Recently the Company has developed a new publication, Long Island
Lifestyles, which serves
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as a second section to its fourteen existing Nassau publications and is also
distributed by itself in heavily trafficked areas. This new product offers
moderately priced advertising to the central and south Nassau marketplace.
Manhattan File
Manhattan File is a monthly (plus five special issues
annually), 4-color, perfect bound, glossy magazine that debuted in August 1994.
It targets 20-45 year-old young, affluent Manhattan residents who are fashion
and style conscious. With stories on the latest fashion trends for young men and
women, ideas on interior decorating, dining tips, profiles and interviews with
successful thirtysomethings and a comprehensive arts and entertainment guide for
the young and wealthy, Manhattan File fills a local niche that the Company
believes is not served by any other New York publication.
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 addition to local news
coverage by newly hired Brooklyn reporters distinguish the Brooklyn Skyline from
its major competition, The Marketeer, an established door-to-door shopper. In
addition to its established display sales effort, the Company introduced a
classified advertising section. Additional revenue is also generated by the
occasional sale of distribution of circulars to accompany the door-to-door
distribution of Brooklyn Skyline. The Brooklyn Skyline operates out of an office
in the Mill Basin section of Brooklyn. It is printed on newsprint with the use
of spot color and is distributed by crews supervised and trained by the Company.
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
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publication of The Hill, a new weekly newspaper devoted to the coverage of the
United States Congress. Martin Tolchin, an award-winning, forty year veteran of
the New York Times signed a five year contract to serve as publisher and editor
and chief of The Hill. The paper, which offers comprehensive coverage of every
aspect of Congress and life in the Capitol, is distributed free of charge to
members of Congress and their staffs. The Hill derives the largest portion of
its revenue from the sale of display advertising to companies wishing to
influence the decisions of Congress. Additional revenues come from classified
advertising, local retail advertising, subscriptions and the sale of the paper
outside of the Capitol area. The Hill is operated out of its own offices in
Washington, D.C. It is printed on newsprint in black ink and process four color.
It is 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 eight
Nassau Newspapers, the Westsider and Chelsea-Clinton News and one edition of the
Queens Tribune are paid circulation publications. The primary source of the
Company's revenue is through the sale of advertising space in the publications,
although several of the weekly publications also offer graphics and printing
services to outside service purchasers, including several school publications.
The advertising revenues of each of the Company's publications are derived from
a wide variety of businesses and individuals reflecting the varied
opportunities, tastes and demands of the residents of each of the targeted
distribution areas. Currently, at least 85% of the advertising space in the
Company's publications 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.
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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 magazines
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 New York Press.
Although there is no competition for subscriptions or legal
revenue because there are no other paid circulation weeklies on the West Side,
the Chelsea-Clinton News and Westsider do compete for display and classified
advertising with other free weeklies on the West Side, including the Manhattan
Spirit and The Resident.
The Brooklyn Skyline is one of a number of free distribution
papers in Brooklyn. The Marketeer, an established door-to-door shopper, is its
primary competitor.
The Hill, 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;
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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.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company and its subsidiaries operate out of eight separate locations.
The Manhattan Spirit, Our Town, Chelsea-Clinton News and the Westsider share
7,000 square foot premises at both 242 West 30th Street, New York, New York,
under a lease with an unaffiliated landlord which commenced in 1995 and
terminates in January 2001, at an annual rental of $52,000 for the first year,
increasing over the term to $75,380 in the last year.
DPI leases from Mr. Daniel Rattiner, current 20% owner and President of
DPI, 1,910 square feet of office space in a building on Montauk Highway,
Bridgehampton, New York, at an annual rate of $38,200 (plus cost-of-living
increases) for a term of ten years terminating in October 1998. The Company has
an option to renew its lease for an additional five-year term.
Tribco has a ten year lease, which commenced on November 1, 1990, with an
unaffiliated landlord to rent approximately 8,000 square feet of office space
and space for publication of the Queens Tribune in Fresh Meadows, New York, for
annual base rents ranging from $88,000 to $128,000. The lease is renewable for
five years at a $152,000 base annual rent. These premises also serve as the
Company's executive and financial offices.
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.
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ITEM 3. 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 sales person 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
Company and its subsidiaries believe that the claim is without merit and have
filed an answer denying the material allegations of the complaint and asserting
affirmative defenses. The Company and the subsidiaries intend to defend the
action vigorously. The action is presently in the early stages of the discovery
process.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of
stockholders during the last quarter of the fiscal year ended November 30, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the Nasdaq Small Cap
Market under the symbol NCOM. The Units (symbol NCOMU), each consisting of one
share of Common Stock, one Redeemable Class C Warrant (symbol NCOMM) and one
Redeemable Class D Warrant (symbol NCOML), were also quoted on the Nasdaq Small
Cap Market until October 9, 1996, when they ceased to be quoted upon expiration
of the exercise period of the Class C Warrants. The Class D Warrants, although
eligible, have not been quoted separately. The prices listed below are the high
sales and low sale prices for the periods reported.
The Company's Redeemable Class A Warrants, which were quoted
on Nasdaq under the symbol NCOMW, expired on March 29, 1996. None of the
Company's Redeemable Class B Warrants, which also expired on March 29, 1996,
were ever issued.
<TABLE>
<CAPTION>
Common Stock Units
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
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 2.37 3.25 2.50
February 28, 1996 3.25 2.38 N/A N/A
May 31, 1996 2.81 2.13 3.00 2.75
August 31, 1996 2.50 1.63 N/A N/A
November 30, 1996 2.56 1.00 2.00 2.00
=================================================================== ======================================================
</TABLE>
The Company estimates that at November 30, 1996 there were
approximately 1,900 beneficial owners of its Common Stock and approximately 650
beneficial owners of the Class D Warrants. There were approximately 1,000 record
owners of the Company's Common Stock and approximately 80 record holders of the
Class D Warrants.
Dividend Policy
The Company has never declared or paid any cash dividends on
its Common Stock and does not intend to pay cash dividends on its Common Stock
in the foreseeable future. The Company intends to retain any 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
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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.
Recent Sales of Unregistered Securities
The following securities were issued by the Company during the
fiscal year ended November 30, 1996, 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 and/or Regulation D promulgated thereunder
as transactions by an issuer not involving a public offering. All of such
securities are deemed to be restricted securities for the purposes of the Act.
All certificates representing such issued and outstanding restricted securities
of the Company have been properly legended and the Company has issued "stop
transfer" instructions to its transfer agent with respect to such securities.
(i) On May 17, 1996, the Company issued to D.H. Blair Investment Banking
Corp. ("DHBIB") an immediately exercisable warrant to purchase 400,000 shares of
Common Stock exercisable at $2.50 per share. On May 21, 1996, the Company issued
to DHBIB an immediately exercisable warrant to purchase 200,000 shares of Common
Stock exercisable at $2.50 per share.
(ii) On August 17, 1996, the Company granted immediately exercisable
options to purchase 10,000 shares of Common Stock to each of its then directors
other than Mr. Ackerman (12 persons) under the Company's Non-Discretionary
Directors Stock Option Plan, exercisable at $1.625 per share.
(iii) On October 28, 1996, the Company sold to a group of 15 private
investors an aggregate of 200,000 shares of its $10 Convertible Preferred Stock,
each of which is convertible into 5 shares of Common Stock at $2.00 per share,
and immediately exercisable warrants to purchase an aggregate of 800,000 shares
of Common Stock exercisable at $2.00 per share. On that date the Company also
granted Wilbur L. Ross, Jr. an immediately exercisable option to purchase
200,000 shares of Common Stock under the Company's Discretionary Directors and
Officers Stock Option Plan, exercisable at $2.00 per share and granted 8 persons
who became directors options to each purchase 5,000 shares of Common Stock under
the Company's Non-Discretionary Directors Stock Option Plan, exercisable at
$2.00 per share. In connection with such transactions, the Company issued 50,000
shares of its Common Stock, valued at $100,000, to Rothschild Inc. as
consideration for investment banking services rendered by that firm.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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
12
<PAGE>
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 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
13
<PAGE>
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 its 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 cuts 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 carriers, 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.
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.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The financial statements listed on page F-1 are included in
this Report beginning on page F-2.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
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 interest 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.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
As of February 28, 1997, the Company's directors, executive
officers and other significant employees and their ages and positions are as
follows:
<TABLE>
<CAPTION>
Name of Individual Age Position with Company and Subsidiaries
------------------ --- --------------------------------------
<S> <C> <C>
Gary Ackerman 54 Director of the Company
Thomas Allon 33 Executive Vice President of the Company
Robert Berkowitz 47 Controller of the Company
Carl Bernstein 52 Director of the Company
Eric Breindel 40 Director of the Company
John Catsimatidis 47 Director of the Company
Mark Dickstein 38 Director of the Company
Jerry Finkelstein 80 Chairman of the Board 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
</TABLE>
Gary Ackerman has been a director of the Company since March 1990. He has
served in the United States House of Representatives as a Representative from
New York since March 1983. From 1979 until 1983, Mr. Ackerman was a member of
the New York State Senate. From 1970 to 1979, Mr. Ackerman was the founder,
editor and publisher of the Queens Tribune.
Thomas Allon was elected Executive Vice President of the Company in
November 1994. He has been Publisher of the Manhattan Spirit and Our Town since
1992. From 1990 to 1991 he was Managing/Associate Publisher of the Manhattan
Spirit.
16
<PAGE>
Robert Berkowitz has served as Controller of the Company since December
1992. From November 1991 to November 1992, Mr. Berkowitz was a financial and
management consultant with Gobstein, Weingarten & Goldfarb, a certified public
accounting firm. From August 1989 to November 1991 he was the Chief Accounting
Officer for Meringoff Equities, an owner and manager of commercial real estate.
From August 1980 to August 1989 he was Vice-President and Controller of the
Trump Group, a private investment company specializing in the acquisition and
operation of both public and private companies. From 1977 to 1980 he was with
the public accounting firm of Price Waterhouse.
Carl Bernstein was elected a director of the Company in October 1996. 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.
17
<PAGE>
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.
18
<PAGE>
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 - $10 Convertible Preferred Stock."
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and information furnished by the
reporting person, during the fiscal year ended November 30, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except that Gary Ackerman made
a filing on Form 5 with respect to one transaction required to be reported
earlier on Form 4 and the Report on Form 3 of Carl Bernstein was filed late.
19
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table shows compensation paid by the Company and
its subsidiaries to certain of its executive officers (including the chief
executive officer) for the fiscal years ended November 30, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation
Awards
Other
Annual
Compensa-
Salary Bonus tion Options
Name and Principal Position Year ($) ($) ($) (#)
- --------------------------- ---- ----- ----- ----- ----
<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 the 1996 195,000 --- --- 10,000
Company 1995 195,000 --- --- 360,000
1994 175,392 --- --- 217,500
Thomas Allon, Executive Vice President of the 1996 82,341 45,000 --- ---
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 $15,000 per year
for discounted trade-sale merchandise from advertisers (who provide
such merchandise to Mr. Rattiner in lieu of paying the Company for
advertising).
</FN>
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Granted (#) in Fiscal Year ($/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>
20
<PAGE>
Employment Contracts and Other Employment Agreements
Pursuant to an employment agreement entered into by the
Company and Michael Schenkler as of October 15, 1994, and terminating October
14, 1999, Mr. Schenkler is employed as President of the Company and President of
Tribco. Mr. Schenkler earns a base salary of $150,000 per year (subject to
cost-of-living increases) and such annual bonuses as the Board of Directors of
the Company may determine in its sole discretion. The agreement requires Mr.
Schenkler to protect confidential information of the Company and restricts him
from engaging in certain competitive activities during the term of his
employment and for one year thereafter.
Pursuant to an employment agreement 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
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.
21
<PAGE>
Directors' and Officers' Options
On August 17, 1993, the Board adopted a "Discretionary Directors and
Officers Stock Option Plan" (the "Discretionary Option Plan") pursuant to which,
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. The only grant made under the
Discretionary Option Plan during the fiscal year ended November 30, 1996, was
the grant to Mr. Ross described 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.
22
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding
ownership of the Company's Common Stock, as of February 28, 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 tables in Item 10, 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.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership (1) Class
- ---------------- ------------------ -----------
<S> <C> <C>
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
- -------------------------------------------
* Less than one percent.
<FN>
(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.
24
<PAGE>
- --------------------------------------------------
(Footnotes continued from prior page)
(4) Includes the following numbers of shares issuable upon conversion of shares
of $10 Convertible Preferred Stock: Mr. Dickstein--100,000; Mr.
Gruson--500; Mr. Nederlander--50,000; Mr. Ross--200,000; Mr. Syms--100,000;
Mr. Weinberger--120,000.
(5) Includes (i) 29,834 shares owned by The Jerry Finkelstein Foundation, Inc.,
of which Mr. Finkelstein is President, and (ii) 200,000 shares owned by Mr.
Finkelstein's wife.
(6) Includes (i) 500 shares owned by Mr. Rattiner's wife and (ii) 1,800 shares
issuable upon conversion of the Company's 10% Preferred Stock.
(7) Does not include (a) 50,000 shares owned by Rothschild Inc. and (b) 50,000
shares issuable upon conversion of shares of $10 Convertible Preferred
Stock owned by Rothschild North America Inc. ("RNA") and 40,000 shares
issuable upon exercise of warrants owned by RNA. Mr. Ross disclaims
beneficial ownership of all of such shares.
(8) Includes 9,000 shares that are issuable upon conversion of the Company's
10% Preferred Stock owned by Mr. Schenkler's wife as custodian for two
minor children of which Mr. Schenkler disclaims beneficial ownership.
(9) Includes shares issuable upon the exercise of the options referred to in
(3) above, and 61,666 shares issuable to Mr. Thomas Allen, Executive Vice
President of the Company, upon exercises of presently exercisable stock
options and 22,501 shares issuable to Mr. Robert Berkowitz, Controller of
the Company, upon exercise of presently exercisable stock options.
(10) Includes (i) 1,843,915 shares of Common Stock and Warrants to purchase
600,000 shares owned by D.H. Blair Investment Banking Corp. ("Blair
Investment"), a wholly-owned subsidiary of D.H. Blair Holdings, Inc.
("Blair Holdings"), of which J. Morton Davis is a shareholder and director,
(ii) 61,915 shares owned by Rivkalex Corporation ("Rivkalex"), a private
corporation owned by Rosalind Davidowitz, Mr. Davis's wife, (iii) 71,600
shares owned by Rosalind Davidowitz. Mr. Davis, Blair Holdings and Blair
Investment expressly disclaim beneficial ownership of all securities held
by Rivkalex and Rosalind Davidowitz.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. Mr. Rattiner can require the Company to purchase his
20% interest in DPI at any time on or after October 13, 1993 for a price equal
to 20% of DPI's retained earnings (if any) plus the greater of $200,000 or 20%
of DPI's gross collected revenues (after deduction of advertising agency
commissions) for the full fiscal year prior to the year in which notice is given
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.
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).
25
<PAGE>
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
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.
26
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document (1) Document
- ------- ----------- -------------- --------
<S> <C> <C> <C>
3.1 Articles of Incorporation of the A 3.1
Company (formerly known as Applied
Resources, Inc.), filed
with the Secretary of State of the State of Nevada
on May 20, 1986.
3.1.1 Certificate of Amendment of the A 3.1.1
Articles of Incorporation of the Company,
filed with the Secretary of State of the
State of Nevada on December 8, 1987.
3.1.2 Certificate of Amendment of the Articles of B 3.1.2
Incorporation of the Company, filed with the
Secretary of State of Nevada on August 16, 1990.
3.1.3 Certificate of Amendment of the Articles of J 3.1.3
Incorporation of the Company, filed with the
Secretary of State of Nevada on July 26, 1994.
3.2.1 By-Laws of the Company (as amended and J 3.2.1
restated).
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Preferred Stock B 4.2
Certificate.
4.2.1 Resolution of Board of Directors fixing B 4.2.1
the terms of the 10% Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the J 4.2.2
terms of the 8% Convertible Preferred Stock.
4.2.3 Resolution of the Board of Directors fixing the J 4.2.3
terms of the 12% Convertible Preferred Stock.
4.2.4 Certificate of Amendment of Certificate J 4.2.4
of Designation of 8% Convertible Preferred
Stock.
- -------------------------------
See Notes at end of Item 13.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- -------- ------------- --------------- ---------
<S> <C> <C> <C>
4.2.5 Resolution of Board of Directors fixing the M
terms of the $10 Convertible Preferred Stock
(included as part of Exhibit 10.33). 10.33
4.7.1 Revised form of Warrant Agreement related J 4.7.1
to Class C Warrants and Class D Warrants.
4.8 Form of Class C Warrant. J 4.8
4.9 Form of Class D Warrant. J 4.9
10.1.1 1987 Stock Option Plan, as amended. L 10.1.1
10.2.1 Discretionary Directors and Officers J 10.2.1
Stock Option Plan.
10.2.2 Non-Discretionary Directors Stock J 10.2.2
Option Plan.
10.4 Shareholders' Agreement, dated as of D 2.1
October 13, 1988, between Daniel Rattiner and the Company.
10.4.1 Asset Purchase Agreement, dated as D 2.2
of October 13, 1988, between Dan's Papers,
Ltd. and DP Acquisition Corp.
10.4.3 Agreement of Lease, dated October D 2.4
31, 1988, between Daniel Rattiner and
DP Acquisition Corp., as to building known
as Dan's Papers, Ltd., located on Montauk
Highway, Bridgehampton, New York.
10.4.4 Letter dated November 22, 1996 from the Company *
to Daniel Rattiner regarding exercise of option
to purchase stock of Dan's Papers, Inc.
10.7.3.1 Employment Agreement, dated as of K 10.7.3.1
October 14, 1994, between Michael Schenkler
and the Company.
10.7.3.2 Employment Agreement dated as of K 10.7.3.2
November 1, 1994, between Thomas Allon and the Company.
10.7.4.1 Amended and Restated Employment * 10.7.4.1
Agreement, dated October 28, 1996,
between Jerry Finkelstein and the Company.
10.11 Stock Option Agreement dated September J 10.11
1, 1993, between Jerry Finkelstein and
the Company.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- -------------- --------------- ---------
<S> <C> <C> <C>
10.13 Letter Agreement, dated June 15, 1990, between B 10.21
Dan's Papers Inc. and Dan's Papers, Ltd.
10.17 Lease for space at 174-15 Horace Harding B 10.25
Expressway, Fresh Meadows, New York.
10.25.1 Form of Agreement dated December 18, J 10.25.1
1992, between the Company and Myron
Garfinkle.
10.25.2 Form of Promissory Note dated December J 10.25.2
18, 1992, in principal amount of
$79,000 issued by Company to Myron
Garfinkle.
10.25.3 Stock Pledge Agreement dated December J 10.25.3
18, 1992, between Myron Garfinkle and
the Company.
10.26 Acquisition Agreement and Employment J 10.26
Agreement between Long Island News Group,
Inc. and Barry Manning and MB Publishing,
Inc. and Barry Manning and David Manning
and Long Island Community Newspaper Group,
Inc. and the Company.
10.27 Acquisition Agreement and Employment J 10.27
Agreement between Long Island News Group,
Inc. and Barry Manning and MB Publishing,
Inc. and Barry Manning and David Manning
and Long Island Community Newspaper Group,
Inc. and the Company.
10.28 Agreement dated May 17, 1996 between D.H. M 10.28
Blair Investment Banking Corp. ("Blair") and
the Company.
10.29 Loan Agreement dated May 21, 1995 among M 10.29
Blair, the Company, Tribco Incorporated
("Tribco") and Access Network Corp.
("Access").
10.30 $1,000,000 Promissory Note dated May 21, M 10.30
1996 issued by the Company, Tribco and
Access to the order of Blair.
10.31 Warrant dated May 17, 1996, to purchase M 10.31
400,000 shares of the Company's Common
Stock issued by the Company to Blair.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------- ------------ --------------- -----------
<S> <C> <C> <C>
10.32 Warrant, dated May 21, 1996, to purchase M 10.32
200,000 shares of the Company's Common
Stock issued by the Company to Blair.
10.33 Form of Subscription Agreement made as of M 10.33
October 4, 1996 among the Company and
persons designated therein as "Purchasers,"
including Exhibit 1 thereto, form of Certificate
of Designation of $10.00 Convertible Preferred
Stock, and Exhibit 2 thereto, form of Warrant.
11.1 Statement re computation of per share *
earnings.
16.2 Letter from Moore Stephens, P.C. dated N 16.2
March 4, 1997.
22 Subsidiaries of the Company. *
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K.
None
<FN>
Notes:
(1) The Commission file number assigned to the Company's Registration
Statement on Form S-18, filed with the Commission on May 29, 1986, was
33-6126. The Company's first registration of a class of equity
securities under the Securities Exchange Act of 1934 became effective
on February 21, 1990. The Commission file number assigned to the
Company at that time was 0-18299. The Commission file number assigned
to the Company's Registration Statement on Form S-1, as declared
effective by the Commission on September 19, 1990, was 33-35484. The
Commission file number assigned to the Company's Registration Statement
on Form S-1, as declared effective by the Commission on October 9,
1992, was 33-46467.
A Annual Report of the Company on Form 10-K for the year ended November 30, 1987.
B Registration Statement of the Company on Form S-1, No. 33-35484.
D Current Report of the Company on Form 8-K relating to events occurring on October 31, 1988.
H Current Report of the Company on Form 8-K relating to events occurring on May 22, 1991.
J Registration Statement of the Company on Form S-1, No. 33-46467.
K Annual Report of the Company on Form 10-KSB for the year ended November 30, 1994.
L Annual Report of the Company on Form 10-KSB for the year ended November 30, 1995.
M Quarterly Report of the Company on Form 10-QSB for the quarter ended August 31, 1996.
N Current Report of the Company on Form 8-K/A relating to event occurring on February 3, 1997.
* Filed herewith.
</FN>
</TABLE>
30
<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, by its terms, was
therefore 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
<PAGE>
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
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amendment to its report on Form 10-KSB to be signed on its behalf by
the undersigned, thereunto duly authorized.
NEWS COMMUNICATIONS, INC.
Date: April 7, 1997 BY: /s/ Michael Schenkler
------------------------
Michael Schenkler
President
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
<S> <C> <C>
10.4.4 Letter dated November 22, 1996 from the Company to 33
Daniel Rattiner regarding exercise of option to
purchase stock of Dan's Papers, Inc.
10.7.4.1 Amended and Restated Employment Agreement, dated 34
October 28, 1996, between Jerry Finkelstein and the
Company
11.1 Statement re computation of per share earnings 39
22 Subsidiaries of the Company 40
27 Financial Data Schedule (filed electronically only) 41
</TABLE>
32
<PAGE>
NEWS COMMUNICATIONS, INC.
November 22, 1996
Mr. Dan Rattiner
Dan's Papers
2221 Montauk Highway
Bridgehampton, NY 11932
Dear Dan,
As per our discussions, I write this letter to confirm our agreement regarding
the "Rattiner Option," as described in paragraph 12A of the News
Communications/Dan's Papers shareholders agreement dated October 13, 1988
(Agreement).
News Communications, Inc., for a one year period, waives the requirements stated
in 12A(b) of the Agreement.
It is expressly intended that, for the period from November 22, 1996 through
November 21, 1997, you will have the right to exercise your option granted in
12A(a) of the agreement without regard to meeting the profit requirements in
12A(b) of the agreement.
All of the other provisions of the agreement, including paragraph 13 (Purchase
Price;Payment), remain unchanged.
This letter and its provisions are void after November 21, 1997.
Sincerely,
/s/ Michael Schenkler
- ---------------------
Michael Schenkler
President
cc: Jerry Finkelstein
Wilbur Ross
Robert Berkowitz
33
<PAGE>
EXHIBIT 10.7.4.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT dated as of October 28, 1996, between JERRY
FINKELSTEIN, residing at 812 Park Avenue, New York, New York 10021
("Executive"), and NEWS COMMUNICATIONS, INC., a Nevada corporation having its
principal office at 174-15 Horace Harding Expressway Fresh Meadows, New York
11365 (the "Company").
W I T N E S S E T H :
WHEREAS, Executive and the Company are parties to an
Employment Agreement dated as of August 20, 1993 (the "Original Agreement"); and
WHEREAS, the parties desire to extend the term of the Original
Agreement, to amend certain other provisions thereof and to restate the Original
Agreement as so extended and amended;
IT IS AGREED that the Original Agreement is hereby amended and
restated to read as set forth herein, effective as of the date first above
written:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as Chairman of its Board of
Directors ("Chairman"). All of Executive's powers and authority in any capacity
shall at all times be subject to the reasonable direction and control of the
Board of Directors of the Company ("Board"), to whom he shall report exclusively
in the manner and to the extent that has been in effect during the term of the
Original Agreement.
1.2 Executive's primary functions and duties as Chairman, in addition to
those set forth in the Company's By-Laws, shall include (i) assisting the
Company and its subsidiaries to raise capital and obtain financing and fostering
the Company's relationships with the banking and investment communities, and
(ii) promoting the expansion of the Company's business by seeking to attract
potential acquisition candidates, advertisers, joint venture partners and
others. The Board may assign to Executive such other executive and
administrative duties for the Company or any subsidiary of the Company as are
consistent with his status as Chairman. Notwithstanding the foregoing, it is
recognized that Executive is not required to devote his full business time only
to the conduct of the Company's affairs.
1.3 Executive shall be nominated for election as a member of the Board and
shall be elected as a member of the Board of Directors of each of the Company's
subsidiaries so long as his employment continues under this Agreement.
1.4 Executive accepts such employment and agrees to devote his time,
energies and attention to the performance of his duties to the extent required
of him hereunder.
1.5 Executive's services under this Agreement shall be performed primarily
in New York City, New York, or, at Executive's discretion, in such other place
or places as Executive may from time to time reside, subject, in Executive's
discretion, to reasonable domestic and overseas travel on behalf of the Company.
2. Compensation.
2.1 The Company shall pay to Executive an annual salary of $195,000, in
such periodic installments as the Company determines from time to time for the
payment of salaries to its executives generally ("Basic Salary"). Executive's
compensation shall be reviewed by the Company as of the beginning of each yearly
period during the term of this Agreement for the purpose of
34
<PAGE>
increasing Executive's compensation, but nothing herein shall require the
Company to grant any increase.
2.2 At the sole discretion of the Board, Executive shall be paid an annual
bonus ("Bonus"), which shall be based upon such factors as the results of
operation of the Company and its subsidiaries and transactions involving the
Company or its subsidiaries which have been introduced to the Company by
Executive or in which Executive has otherwise been involved on behalf of the
Company.
2.3 In consideration of Executive's employment under the Original
Agreement, the Company and Executive executed a Stock Option Agreement pursuant
to which the Company, on September 1, 1993, granted to Executive the option (not
intended to qualify as an incentive stock option under the Internal Revenue
Code) to purchase 300,000 shares of the Company's Common Stock at an exercise
price of $2.375 per share until August 31, 1998. The Stock Option Agreement
requires the Company to lend to Executive, on a non-recourse basis, the amounts
required by Executive to pay federal, state and local income taxes which may
become due and owing by him as a result of the exercise by Executive of the
stock options, which loans are to be repaid with interest (at the lowest
possible rate to avoid the imputation of interest for tax purposes) when
Executive sells the shares purchased under the option. This loan will be secured
by a pledge of the stock purchased by Executive under the option and Executive
shall be afforded certain "piggy back" registration rights with respect to these
shares, all as more fully described in the Stock Option Agreement.
2.4 At the request of Executive, he shall be entitled to (i) such medical
and other benefits and perquisites as are afforded to other senior executives of
the Company and its subsidiaries, and (ii) provision of an automobile or
automobile allowance, garage and mobile or portable telephonic equipment.
2.5 The Company will pay or reimburse Executive for (i) all expenses
relating to maintenance of appropriate office space for Executive, including
rent, and a secretary, (ii) all transportation, hotel rent and other living
expenses reasonably incurred by Executive on business trips and (iii) all other
ordinary out-of-pocket expenses actually and necessarily incurred by him in the
conduct of the business of the Company against itemized vouchers submitted with
respect to any such expenses approved in accordance with customary procedures.
2.6 The Company shall indemnify Executive and hold Executive harmless to
the fullest extent allowed by law with respect to any claim brought against
Executive as a result of or in connection with his employment hereunder or other
affiliation with the Company or its subsidiaries, whether such claim arises from
events occurring during, prior to or after the term of this Agreement, including
reasonable attorneys' fees, settlement costs, and all other costs and expenses
which may be incurred by Executive in connection with the defense or settlement
thereof, which fees, costs and expenses shall be paid on behalf of, or
reimbursed to, Executive as they are incurred to the extent legally permissible.
3. Term and Termination.
3.1 The term of this Agreement shall continue until August 19, 2003, or
until earlier terminated as herein provided.
3.2 Executive may terminate this Agreement at any time during the term
hereof by giving at least 10 days' prior written notice to the Company to such
effect.
35
<PAGE>
3.3 If Executive shall become permanently disabled or die during the term
of this Agreement, this Agreement shall thereupon terminate, except that the
Company shall continue to pay to Executive or the legal representative of
Executive's estate all monies due hereunder until August 19, 2003, including
Basic Salary and Bonus, at such times as such monies would have been paid to
Executive had he survived or not become disabled.
3.4 The Company, by notice to Executive, may terminate this Agreement and
Executive's employment with the Company for proper cause. As used herein,
"proper cause" shall mean: (a) the commission by Executive of a material breach
of any of the provisions of this Agreement; (b) misappropriating any funds or
property of the Company or any of its subsidiaries; or (c) unreasonable neglect
or refusal to perform the duties assigned to Executive under or pursuant to this
Agreement after not less than ten (10) days notice to Executive of the claimed
neglect or refusal and his failure to correct the same (or take active steps to
do so if it is not reasonable to accomplish within such period).
4. Protection of Confidential Information.
4.1 Executive acknowledges that:
(a) As a result of his employment by the Company, Executive will obtain
secret and confidential information concerning the business of the Company and
its subsidiaries, including, without limitation, the identity of suppliers,
dealers and customers, their needs and requirements, the nature and extent of
contracts with them, and related cost, price and sales information.
(b) The provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its subsidiaries.
4.2 Executive agrees that he will not at any time, either during the term
of this Agreement or thereafter, divulge to any person, firm or corporation any
information obtained or learned by him as a result of his employment with the
Company or any of its subsidiaries with regard to the operational, financial,
business or other affairs of the Company or its subsidiaries, their officers and
directors, including, without limitation, trade "know how," secrets, advertiser
and customer lists, dealers, distributors, pricing policies, operational methods
or technical processes, except (i) in the course of performing his duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of his obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. In the
event that Executive shall be required to make disclosure pursuant to the
provisions of clause (iv) of the preceding sentence, Executive promptly, but in
no event more than 24 hours after learning of such subpoena, court order, or
other government process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Executive
shall: (a) take all reasonably necessary steps requested by the Company to
defend against the enforcement of such subpoena, court order or other government
process, and (b) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
36
<PAGE>
4.3 If Executive commits a breach, or threatens to commit a breach, of any
of the provisions of Section 4.2, the Company shall have the right and remedy to
have the provisions of this Agreement specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed by Executive that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company.
4.4 If any provision of Section 4.2 is held to be unenforceable because of
the scope or duration of its applica bility, the tribunal making such
determination shall have the power to modify such scope or duration, or either
of them, and such provision or provisions shall then be applicable in such
modified form.
5. Miscellaneous Provisions.
5.1 All notices provided for in this Agreement shall be in writing, and
shall be deemed to have been duly given when delivered personally to the party
to receive the same, when given by electronic means, or when mailed first class
postage prepaid, by registered or certified mail, return receipt requested,
addressed to the party to receive the same at his or its address set forth
below, or such other address as the party to receive the same shall have
specified by written notice given in the manner provided for in this Section
5.1. All notices shall be deemed to have been given as of the date of personal
delivery, transmittal or mailing thereof.
To Executive:
Mr. Jerry Finkelstein
812 Park Avenue
New York, New York 10021
Marked "Personal and Confidential"
To the Company:
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Attn.: President
5.2 This Agreement sets forth the entire agreement of the parties relating
to the employment of Executive and is intended to supersede all prior
negotiations, understandings and agreements. No provisions of this Agreement may
be waived or changed except by a writing by the party against whom such waiver
or change is sought to be enforced. The failure of any party to require
performance of any provision hereof or thereof shall in no manner affect the
right at a later time to enforce such provision.
5.3 All questions with respect to the construction of this Agreement, and
the rights and obligations of the parties hereunder, shall be determined in
accordance with the law of the State of New York applicable to agreements made
and to be performed entirely in New York.
5.4 The article headings are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope or intent of any
provision of this Agreement.
5.5 This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company. This Agreement shall not be assignable by
Executive and shall inure to the benefit of and be binding upon Executive and
his legal representatives.
37
<PAGE>
5.6 The Company and Executive acknowledge that Graubard Mollen & Miller,
the Company's general counsel ("Graubard"), has drafted this Agreement in
accordance with the Company's instructions and that Graubard has represented
neither of them in connection herewith and each of the Company and Executive
hereby consents to such activities on the part of Graubard.
5.7 The Company acknowledges that Executive is involved in many business
activities and personal investments other than those involving the Company and
its subsidiaries, that such other activities and investments may at times be
competitive to or in conflict with the interests of the Company and its
subsidiaries and that Executive is under no obligation to either offer
competitive or conflicting opportunities to the Company or to resolve any
conflicts which may arise in a manner which is favorable or not adverse to the
interests of the Company and its subsidiaries.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
By: /s/ JERRY FINKELSTEIN
---------------------------
JERRY FINKELSTEIN
NEWS COMMUNICATIONS, INC.
By: /s/ MICHAEL SCHENKLER
---------------------------
MICHAEL SCHENKLER
Title: President
38
<PAGE>
EXHIBIT 11.1
Statement re Computation of Per Share Earnings
<TABLE>
<CAPTION>
November 30,
1996 1995
---- ----
<S> <C> <C>
Fully Diluted:
Average Shares Outstanding Disregarding Dilutive
Convertible Preferred Stock 7,991,997 7,966,186
Assuming Conversion at beginning of Year of:
$10 Convertible Preferred Stock 1,000,000 ---
10% Convertible Preferred Stock 57,600 57,600
8% Convertible Preferred Stock 103,333 103,333
12% Convertible Preferred Stock 95,238 95,238
----------- -----------
Shares Outstanding 9,248,168 8,222,357
=========== ===========
Income (Loss) $(3,881,428) $(1,754,013)
Adjustments to income (loss) relating to preferred (262,880) (57,360)
stock (preferred dividends and imputed discount on
$10 Convertible Preferred Stock)
------------ -------------
Net income (loss) available to common stockholders $(4,144,308) $(1,811,373)
for fully diluted calculations
============ =============
Per Share Amount: Net Loss $(0.45) $ (0.22)
============ ============
</TABLE>
This calculation is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although it is contrary to para 48 of APB No. 15 because it
produced an antidilutive result.
39
<PAGE>
EXHIBIT 22
Subsidiaries of the Company
All of the following subsidiaries of the Small Business Issuer
are New York corporations and wholly-owned, except as indicated otherwise:
Access Network Corp.
Dan's Papers Inc.*
Manhattan Publishing Corp.
Media Venture Group, Inc.
Parkchester Publishing Co. Inc.
Tribco Incorporated
Nassau Community Newspaper Group, Inc.
Manhattan File Publishing, Inc.**
Capitol Hill Publishing, Inc.
Brooklyn Newspaper Publishing, Inc.
West Side Newspaper Corp.
- --------
* = 80%-owned.
** = 90%-owned.
40
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of News Communications, Inc. and subsidiaries as of
November 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-1-1995
<PERIOD-END> NOV-30-1996
<CASH> 1,494,887
<SECURITIES> 0
<RECEIVABLES> 4,725,020
<ALLOWANCES> 862,615
<INVENTORY> 0
<CURRENT-ASSETS> 5,700,127
<PP&E> 1,387,500
<DEPRECIATION> 866,709
<TOTAL-ASSETS> 9,711,124
<CURRENT-LIABILITIES> 3,554,356
<BONDS> 0
0
200,449
<COMMON> 80,380
<OTHER-SE> 4,808,378
<TOTAL-LIABILITY-AND-EQUITY> 9,711,124
<SALES> 18,334,866
<TOTAL-REVENUES> 18,334,866
<CGS> 0
<TOTAL-COSTS> 21,972,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (177,471)
<INCOME-PRETAX> (3,881,428)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,881,428)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,881,428)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
<PAGE>
</TABLE>
