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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended - May 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________________ to _______________________
Commission File Number 0-18299
NEWS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expwy., Fresh Meadows, New York 11365
(Address of principal executive offices)
(718) 357-3380
(Registrant's telephone number, including area code)
______________________________________________
(Former name, former address and former fiscal
if changed since last report)
Indicate by X whether the registrant: (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 such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X__ No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes__ No__
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of July 13, 1998: 8,207,374 shares $.01 par value common stock
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FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at May 31, 1998..................................... 3
Unaudited Consolidated Statements of Operations for the
three and six months ended May 31, 1998 and May 31,
1997................................................ 5
Unaudited Consolidated Statements of Cash
Flows for the six months ended
May 31, 1998 and May 31, 1997....................... 6
Notes to Consolidated Financial Statements.......... 8
Item 2. Management's Discussion and Analysis
or Plan of Operation................................ 9
PART II. Other Information................................... 11
Item 6. Exhibits and Reports on Form 8-K
Signatures................................................................. 12
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2
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PART I-ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1998
(UNAUDITED)
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ASSETS:
CURRENT ASSETS:
Cash $ 100,827
Accounts receivable [less: allowance for
doubtful accounts of $1,007,227] 3,623,541
Due from related parties 38,476
Other 254,807
--------------
TOTAL CURRENT ASSETS 4,017,651
Investment in unconsolidated subsidiaries 195,047
Property and equipment at cost- net 374,190
Goodwill - net 3,340,806
Other - net 119,363
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TOTAL ASSETS $ 8,047,057
=============
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1998
(UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,243,487
Accrued expenses 1,162,675
Accrued payroll and payroll taxes 92,515
Note payable 800,000
Unearned Revenue 137,652
Due to related parties 1,171,688
--------------
TOTAL CURRENT LIABILITIES 4,608,017
--------------
Related party - long term debt 1,457,668
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MINORITY INTEREST 281,474
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STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
$2,727,000 aggregate liquidation value 220,340
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 8,358,374 Shares Issued 83,584
Paid-in-Capital Preferred Stock 2,257,025
Paid-in-Capital Common Stock 14,430,444
(Deficit) (14,882,766)
----------------
Total $2,108,627
Less: Treasury Stock [151,000 Shares]-At Cost (408,729)
----------------
TOTAL STOCKHOLDERS' EQUITY 1,699,898
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,047,057
================
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
UNAUDITED
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<S> <C> <C> <C> <C>
NET REVENUES $ 5,122,470 $ 4,645,625 $ 8,541,454 $ 7,949,499
----------- ----------- ----------- -----------
EXPENSES:
Direct Mechanical Costs 1,432,123 1,391,462 2,657,711 2,575,230
Salaries, Benefits and
Outside Labor Costs 2,362,005 2,235,077 4,601,331 4,255,306
Rent, Occupancy & Utilities 215,908 223,220 418,440 425,618
Provisions for Doubtful Accounts 152,000 92,550 231,500 178,550
General and Administrative 642,352 563,924 1,158,267 1,100,212
----------- ----------- ----------- -----------
TOTAL EXPENSES 4,804,388 4,506,233 9,067,249 8,534,916
----------- ----------- ----------- -----------
Operating Income (Loss) Before Interest
Expense and Equity in Loss From
Unconsolidated Entities 318,082 (139,392) (525,795) (585,417)
Interest Expense (80,177) (44,705) (160,534) (97,259)
Equity In Loss From Unconsolidated
Entities (80,000) -- (130,000) --
----------- ----------- ----------- -----------
Net Income (Loss) From Continuing
Operations 157,905 94,687 (816,329) (682,676)
Loss From Discontinued Operations -- (50,379) -- (198,693)
NET INCOME (LOSS) $ 157,905 $ 44,308 $ (816,329) $ (881,369)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ .02 $ .01 $ (.10) $ (.11)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,134,300 7,921,457 8,134,300 7,907,951
=========== =========== =========== ===========
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
SIX MONTHS ENDED MAY 31,
1998 1997
---- ----
UNAUDITED
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $(816,329) $ (881,369)
--------- -----------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 284,005 243,905
Provision for Losses on Accounts Receivable 231,500 197,450
Compensation Recognized Related to Warrants Issued -- --
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (375,772) (741,602)
(Increase) Decrease in Other Current Assets (78,068) (16,319)
(Increase) in Due from Related Parties (10,863) (38,726)
Decrease (Increase) in Other Assets (49,688) 5,464
(Increase) Decrease in Goodwill 7,818 --
(Increase) Decrease in Investment in Unconsolidated Subsidiary (121,304)
Increase (Decrease) in Accounts Payable and Accrued Expenses 559,068 49,821
Increase (Decrease) in Related Party Payable 21,000
--------- -----------
Total Adjustments 467,696 (300,007)
--------- -----------
NET (DEFICIT) - OPERATING ACTIVITIES - FORWARD (348,633) (1,181,376)
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
SIX MONTHS ENDED MAY 31,
1998 1997
-------- --------
UNAUDITED
<S> <C> <C>
NET (DEFICIT) - OPERATING ACTIVITIES -
FORWARDED (348,633) (1,181,376)
========= ===========
INVESTING ACTIVITIES:
Sale of Marketable Securities -- --
Capital Expenditures (58,600) (81,667)
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (58,600) (81,667)
--------- -----------
FINANCING ACTIVITIES:
Proceeds from Exercise of Warrants -- 152,420
Dividend on Preferred Stock (16,560) (9,340)
Principal Payments - Notes Payable (100,000) (275,000)
Proceeds from Preferred Stock 200,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 83,440 (131,920)
--------- -----------
NET INCREASE (DECREASE) IN CASH (323,793) (1,394,963)
CASH - BEGINNING OF PERIODS 424,620 1,494,887
--------- -----------
CASH - END OF PERIODS $ 100,827 $ 99,924
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 58,566 $ 51,488
</TABLE>
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The Consolidated Balance Sheet as of May 31, 1998 and the Consolidated
Statements of Operations for the three and six-month periods ended May 31, 1998
and May 31, 1997 and the Consolidated Statements of Cash Flows have been
prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been consolidated or omitted. These consolidated financial statements
should be read in conjunction with the company's annual report Form 10-KSB for
the fiscal year ended November 30, 1997 and the related audited financial
statements included therein.
B. Loss per Share:
Loss per share is based on the weighted average number of shares outstanding
during the periods.
C. New Authoritative Accounting Pronouncements:
The FASB has issued the following standards which principally relate to
presentation and disclosure items. While not required to be adopted by the
Company until 1999, the Company does not anticipate that the standards will have
a material impact on the Company's financial statement presentation or footnote
disclosures.
-SFAS No. 130, "Reporting Comprehensive Income"
-SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information
-SFAS No. 132, "Employers' Disclosure about Pensions and other
Post-Retirement Benefits"
8
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PART I-ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS:
News Communications, Inc. publishes various weekly community newspapers
and related targeted audience publications.
The Company recorded net income from continuing operations for the second
quarter of $158,000 (66%), up from of $95,000 in 1997. Operating income before
interest expense and equity in loss from unconsolidated entities was $318,000 as
compared to a loss of (139,000) in 1997. The increase in interest expense of
$35,000 (78%) from $45,000 in 1997 to $80,000 in 1998 was a result of increased
bank loans and the loan from shareholder being outstanding in 1998.
Total revenues for the Company were $5,122,000 for the second quarter of
1998 an increase of $477,000 (10%) from $4,646,000 in 1997. The increase in
revenues was primarily a result of The Hill's increased sales effort and
increased congressional activity, 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.
General and administrative costs increased $78,000 (14%) from $564,000 in
1997 to $642,000 in 1998 primarily as a result of amortization of loan discount
on loan from shareholder.
The Company increased its loss from continuing operations for the six
months by 133,000 (19%) from $(683,000) in 1997 to $(816,000) in 1998 primarily
as a result of the recording of equity in loss of unconsolidated entities of
$130.000. Operating loss before interest expense and equity in loss from
unconsolidated subsidiaries decreased $59,000 (10%) from ($585,000) in 1997 to
($526,000) in 1998. The increase in interest expense of $63,000 (65%) from
$97,000 in 1997 to $160,000 in 1998 was a result of the loan from shareholder
being outstanding in 1998.
Total revenues for the Company were $8,541,000 for the six months of 1998
an increase of $592,000 (7%) from $7,949,000 in 1997. The increase in revenues
was primarily a result of The Hill's increased sales effort and increased
congressional activity, Dan's Papers' capitalization on an ever growing market
in the Long Island posh resort area, the Hamptons and positioning itself as the
advertising standard on Long Island's east end.
9
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LIQUIDITY AND CAPITAL RESOURCES:
At May 31, the Company had an excess of current liabilities over current
assets in the amount of approximately $590,366. During the quarter ended
February 28, 1998, the Company repaid $275,000 of bank loans from cash on hand
at the beginning of the year.
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), the Company intends to offer its existing shareholders the right to
purchase additional shares of its Common Stock. The gross proceeds of the
offering would be approximately $3,500,000. To assure the Company that the
offering will raise the required funds, an officer and shareholder and holder of
preferred stock of the Company have committed to purchase all shares of Common
Stock not purchased by other shareholders. The Company has obtained a temporary
extension of the shareholder loan which was due May 21, 1998 in order that it be
repaid from the capital raised.
Management believes that the Company's stock offering and the operations
will generate positive cash flow for the fiscal year ending November 30, 1998.
Although there can be no assurances to this effect, management is confident that
it has available a variety of funding and revenue to meet its cash needs.
10
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In April 1998 the Company issued 20,000 shares of newly authorized
$10 Convertible Preferred Stock, Series 2, to Bershad Investment Group, L.P.,
for $200,000 I a transaction exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) thereof. Each share of $10 Convertible
Preferred Stock, Series 2, is convertible into 5 shares of Common Stock, subject
to adjustments in certain circumstances.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - 27 Financial Data Schedule
B. Reports on Form 8-K - None
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: July 15, 1998 By:/s/ Michael Schenkler
---------------------
Michael Schenkler, President
Date: July 15, 1998 By:/s/ Robert Berkowitz
--------------------
Robert Berkowitz, Controller
12
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<CASH> 100,827
<SECURITIES> 0
<RECEIVABLES> 4,630,768
<ALLOWANCES> 1,007,227
<INVENTORY> 0
<CURRENT-ASSETS> 4,017,651
<PP&E> 1,012,444
<DEPRECIATION> 638,254
<TOTAL-ASSETS> 8,047,057
<CURRENT-LIABILITIES> 4,608,017
<BONDS> 0
<COMMON> 83,584
0
220,340
<OTHER-SE> 1,395,974
<TOTAL-LIABILITY-AND-EQUITY> 8,047,057
<SALES> 8,541,454
<TOTAL-REVENUES> 8,541,454
<CGS> 0
<TOTAL-COSTS> 9,067,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (160,534)
<INCOME-PRETAX> (816,329)
<INCOME-TAX> 0
<INCOME-CONTINUING> (816,329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (816,329)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
