UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended - August 31, 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
--------------
(Issuer's telephone number)
________________________________________________
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity , as of October 13, 1998: 8,207,374 shares $ .01 par value common stock.
Transitional Small Business Disclosure Format (check one) Yes No X
<PAGE>
FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at August 31, 1998..................................... 3
Unaudited Consolidated Statements of
Operations for the three and nine months
ended August 31, 1998 and August 31, 1997.............. 5
Unaudited Consolidated Statements of Cash
Flows for the nine months ended
August 31, 1998 and August 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 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures.......................................................... 12
<PAGE>
PART I-ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1998
(UNAUDITED)
Assets:
Current Assets:
Cash $ 199,634
Accounts receivable [less: allowance for
doubtful accounts of $1,282,304] 3,574,031
Due from related parties 38,610
Other 214,468
----------
Total Current Assets 4,026,743
Investment in unconsolidated entities 249,729
Property and equipment at cost- net of
accumulated depreciation of $680,924 382,209
Goodwill - net 3,271,629
Other - net 58,106
----------
Total Assets $7,988,416
----------
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1998
(UNAUDITED)
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $1,091,040
Accrued expenses 1,315,855
Note payable - bank 800,000
Note payable - related parties 2,478,834
Unearned Revenue 151,129
Due to related parties 103,438
-----------
Total current liabilities 5,940,296
-----------
Minority interest 281,474
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) (14,816,018)
Total $ 2,175,375
Less: Treasury Stock [151,000 Shares]-
At Cost (408,729)
--------
Total Stockholders' Equity 1,766,646
---------
Total Liabilities and Stockholders' Equity $ 7,988,416
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1998 1997 1998 1997
Unaudited
<S> <C> <C> <C> <C>
Net Revenues $5,112,657 $5,102,167 $13,654,111 $13,051,666
---------- ---------- ----------- -----------
Expenses:
Direct Mechanical Costs 1,801,256 1,917,530 4,458,967 4,504,294
Salaries, Benefits and
Outside Labor Costs 2,152,080 1,956,958 6,753,411 6,212,264
Rent, Occupancy & Utilities 240,251 244,060 658,691 658,144
Provisions for Doubtful Accounts 100,700 122,700 332,200 301,250
General and Administrative 634,763 657,063 1,793,030 1,757,274
----------- ---------- ------------ ---------
Total Expenses 4,929,050 4,898,311 13,996,299 13,433,226
----------- ----------- ----------- ----------
Operating Income (Loss) Before Interest
Expense and Equity in Loss From
Unconsolidated Entities 183,607 203,856 (342,188) (381,560)
Interest Expense (79,639) (45,842) (240,173) (143,101)
Equity In Loss From Unconsolidated
Entities (30,000) --- (160,000) ----
------------ ------ ----------- ------
Income from Continuing Operations 73,968 158,014 (742,361) (524,661)
Loss from Discontinued Operations ---- (149,474) ---- (348,168)
---------- --------- ---------- -----------
Net Income (Loss) $ 73,968 $ 8,540 (742,361) $(872,829)
---------- ----------- ------------- ----------
Net Income (Loss) Per Share $ .01 $.00 $(.09) $( .11)
----------- --------- --------- ---------
Weighted Average Shares
Outstanding 8,207,374 8,042,061 8,191,136 7,952,654
--------- --------- --------- ---------
</TABLE>
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended August 31,
1998 1997
---- ----
Unaudited
Operating Activities:
Net Income (Loss) $ (742,361) $ (872,829)
----------- -------------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 428,700 374,470
Provision for Losses on Accounts
Receivable 332,200 301,250
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable (426,962) (1,465,061)
(Increase) Decrease in Other Current
Assets (37,729) (7,679)
(Increase) in Due from Related Parties (58,247) 26,126
(Increase) in Investment in
Unconsolidated Entities (175,986) ----
Decrease (Increase) in Other Assets 7,705 (28,869)
Increase (Decrease) in Accounts Payable
and Accrued Expenses 265,221 355,829
Increase (Decrease) in Other Current
Liabilities 13,477 4,222
--------- ---------
Total Adjustments 348,379 (439,712)
--------- ---------
Net (Deficit) - Operating Activities - (393,982) (1,312,541)
--------- ---------
Forward
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended August 31,
1998 1997
---- -----
Unaudited
Net (Deficit) - Operating Activities -
Forwarded (393,982) (1,312,541)
--------- -----------
Investing Activities:
Capital Expenditures (109,289) (85,090)
--------- ------------
Net Cash Used in Investing Activities (109,289) (85,090)
--------- ------------
Financing Activities:
Proceeds from Exercise of Warrants ---- 131,935
Dividend on Preferred Stock (23,780) (17,620)
Proceeds from Preferred Stock 200,000 ---
Principal Payments - Notes Payable (100,000) (275,000)
Decrease in Net Assets of Discontinued Operations 202,065 88,632
-------- -----------
Net Cash Provided by (used in) Financing Activities 278,285 (72,003)
-------- ----------
Net (Decrease) in Cash (224,986) (1,469,634)
Cash - Beginning of Periods 424,620 1,546,704
-------- ----------
Cash - End of Periods $199,634 $ 77,020
-------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 94,730 $ 75,674
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the information set
forth therein. These consolidated financial statements are condensed and,
therefore, do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
results for the interim periods are not necessarily indicative of the results
for a full year.
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 othe
Post-Retirement Benefits"
<PAGE>
PART I-ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in this Item 2, Management's Discussion and
Analysis or Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act 1933, as amended (the "Securities
Act"), and Section 21E of the Securities exchange Act of 1934, as amended (the
"Exchange Act"). Actual results may materially differ from those projected in
the forward looking statements as a result of certain risks and uncertainties
set forth in this report. Although management believes that the assumptions made
and expectations reflected in the forward looking statements are reasonable,
there is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual future results will not be different from the
expectations expressed in this report.
Results of Operations:
News Communications, Inc. publishes various weekly community newspapers and
related targeted audience publications.
Three Months Ended August 31, 1998 and 1997
- -------------------------------------------
The Company recorded Net Income for the third quarter of $74,000 up from
$9,000 in 1997, an increase of $65,000 (722%). Operating income before interest
expense and equity in loss of unconsolidated subsidiary was $184,000 as compared
to $204,000 in 1997, a decrease of $20,000 (10%).
Increased profit at The Hill, which was a result of its strong increase in
revenues, was offset by an increased loss at Nassau Newspapers which is in a
transitional year due to management changes, the replacing of marginally
profitable third party printing and distribution revenues with new revenues and
excess costs due to the acquisition of the South Shore Record.
Total revenues for the Company were $5,113,000 for the third quarter of
1998, up $11,000 from $5,102,000 in 1997. The increase in revenues was primarily
a result of The Hill's increased sales effort and new sales management, and
Dan's Papers' capitalization on the continued growth of the market in the
Hamptons resort area of Long Island and its positioning as one of the
advertising standards on Long Island's east end. These increases were offset by
decreases at the Manhattan newspapers (Our Town, Manhattan Spirit and Chelsea
Clinton/Westsider). The decrease in non-advertising revenues at Nassau
Newspapers was offset by increased revenues from the South Shore Record.
<PAGE>
Direct mechanical costs decreased $116,000 (6%) from $1,917,000 in 1997 to
$1,801,000 in 1998 primarily as a result of decreases in printing and
distribution costs related to the discontinued third party revenues at Nassau
Newspapers. Payroll increased $195,000 (10%) from $1,957,000 in 1997 to
$2,152,000 in 1998 primarily as a result of the acquisition of The South Shore
Record.
Nine Months Ended August 31, 1998 and 1997
- ------------------------------------------
The Company reduced its net loss for the nine months by $130,000 (15%) from
($872,000) in 1997 to ($742,000) in 1998. Operating loss before interest expense
and equity in loss of unconsolidated subsidiary decreased by 40,000 (10%) from
($382,000) in 1997 to ($342,000) in 1998 primarily from increased profit at The
Hill, which was result of its strong increase in revenues, offset by an
increased loss at Nassau Newspapers which is in a transitional year due to
management change and has included replacing marginally profitable third-party
printing and distribution revenues with new revenues while absorbing the
acquisition of the South Shore Record. The increase in interest expense of
$97,000 (68%) from $143,000 in 1997 to $240,000 in 1998 was a result of the loan
from an affiliate of a principal shareholder and officer being outstanding in
1998.
Total revenues for the Company were $13,654,000 for the nine months of 1998
an increase of almost $602,000 (5%) from $13,052,000 in 1997. The increase in
revenues was primarily a result of The Hill's increased sales effort and new
sales management, and Dan's Papers' capitalization on the continued growth of
the market in the Hamptons resort area of Long Island and its positioning as one
of the advertising standards on Long Island's east end. These increases were
offset by decreases at the Manhattan newspapers (Our Town, Manhattan Spirit and
Chelsea Clinton/Westsider). Decreased non-advertising revenues at Nassau
Newspapers was offset by increased revenues from the South Shore Record.
Liquidity and Capital Resources:
At August 31, the Company had a shortage of current assets over current
liabilities in the amount of approximately $1,914,000. During the quarter ended
February 28, 1998, the Company repaid $100,000 of bank loans from cash on hand
at the beginning of the year. In October 1998, the bank presented the demand
loans for payment. The Company repaid $50,000 of the bank loans, and payment of
the balance has been extended to December 31, 1998.
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), the Company is planning to offer its existing shareholders the right
to purchase additional shares of its Common Stock. The gross proceeds of the
offering would be approximately $6,000,000. 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.
<PAGE>
Management believes that the Company's stock offering and operations will
generate positive cash flow for the fiscal year ending November 30, 1998.
Although there can be no assurances to this effect, management believes that it
has available a variety of funding and revenue to meet its cash needs.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K - None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: October 15, 1998 By:/s/ Michael Schenkler
---------------------
Michael Schenkler, President
Date: October 15, 1998 By:/s/ Robert Berkowitz
--------------------
Robert Berkowitz, Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1998
<CASH> 199,634
<SECURITIES> 0
<RECEIVABLES> 4,856,335
<ALLOWANCES> 1,282,304
<INVENTORY> 0
<CURRENT-ASSETS> 4,026,743
<PP&E> 1,063,133
<DEPRECIATION> 680,924
<TOTAL-ASSETS> 7,988,416
<CURRENT-LIABILITIES> 5,940,296
<BONDS> 0
<COMMON> 83,584
0
220,340
<OTHER-SE> 1,462,722
<TOTAL-LIABILITY-AND-EQUITY> 8,604,269
<SALES> 13,654,111
<TOTAL-REVENUES> 13,051,666
<CGS> 0
<TOTAL-COSTS> 13,051,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (240,173)
<INCOME-PRETAX> (742,361)
<INCOME-TAX> 0
<INCOME-CONTINUING> (742,361)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742,361)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
