U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities Exchange
--- Act of 1934. For the fiscal year ended November 30, 1998
OR
--- Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
Commission File Number: 0-18299
NEWS COMMUNICATIONS, INC.
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(Name of Small Business Issuer in Its Charter)
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Nevada 13-3346991
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
174-15 Horace Harding Expwy
Fresh Meadows, New York 11365
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (718) 357-3380
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
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Name of Each Exchange
Title of Each Class: on which Registered:
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Common Stock, $0.01 par value None
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is 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. [X]
The issuer's revenues for its most recent fiscal year were $17,822,070.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 25, 1999, is $3,601,790.
The number of shares of common stock outstanding as of February 25, 1999
was 6,646,864.
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PART I
The information set forth in this Report on Form 10-KSB including,
without limitation, that contained in Item 6, Management's Discussion and
Analysis and Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. 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.
Unless otherwise indicated, all information contained in this report
and the consolidated financial statements and the notes to such financial
statements gives effect to a 1-for-3 reverse split of News Communications'
common stock that occurred on January 14, 1999.
Item 1. Description of Business
Subsequent Events
On February 22, 1999, News Communications completed a rights offering of
3,833,333 shares of common stock for gross proceeds of approximately $5,750,000.
The offering and the 1-for-3 reverse stock split mentioned above were effected
in response to News Communications' failure to meet certain listing maintenance
requirements of the Nasdaq SmallCap Market and the possibility of its common
stock being delisted from such market. As a result of the rights offering and
the reverse stock split, News Communications currently meets the listing
maintenance requirements of the Nasdaq SmallCap Market, and its common stock
continues to quoted on the Nasdaq SmallCap Market.
Overview
News Communications is a Nevada corporation formed in 1986. It has been
primarily engaged, through various wholly-owned and partly-owned subsidiaries,
in the publication and distribution of advertiser supported, community oriented
newspapers and related targeted audience publications. The community newspapers
are directed at specific geographic communities and, for the most part, are
distributed free of charge to selected residences and business establishments in
those communities. Each publication focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of particular interest to the group of
communities at which it is directed. Some of the papers publish different
editions, with variations in editorial content and advertising, which are
distributed to each community in the targeted group. The principal source of our
revenues is the sale of advertising space in its publications.
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As used herein, unless the context requires otherwise, the term "we"
refers to News Communications, Inc. together with its subsidiaries:
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Publisher Publication
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Access Network Corp. ("Access")...... Manhattan Spirit, formerly called
the West Side Spirit
Tribco Incorporated ("Tribco")....... The Queens Tribune published in
nine editions including The
Western Queens Tribune and
Bayside Trib at Home
Dan's Papers Inc. ("DPI")............ Dan's Papers and Montauk Pioneer
Manhattan Publishing Corp. .......... Our Town
Parkchester Publishing Co. Inc. ..... Bronx Press Review and Riverdale
Review (the "Bronx Newspapers")
Nassau Community Newspaper
Group, Inc. ("NCNG")............... Lynbrook USA, Malverne Times,
Rockville Centre News & Owl,
Valley Stream MAILeader,
Independent Voice of Long Beach,
Oceanside & Island Park,
Rockville Centre-Oceanside
Beacon, Baldwin Citizen, East
Rockaway Observer, Elmont Life,
Franklin Square Life, West
Hempstead Life and Long Island
Lifestyles
South Shore Publishers, Inc.......... South Shore Record (with NCNG,
the "Nassau Newspapers")
Capital Hill Publishing, Inc.
("Capital Hill")................... The Hill
Brooklyn Newspaper Publishing, Inc. . Brooklyn Skyline
West Side Newspapers Corp. .......... Chelsea-Clinton News and
Westsider
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All of the subsidiaries are wholly-owned except DPI, which is 80% owned by us.
Manhattan Spirit
The Manhattan Spirit is a weekly free circulation newspaper founded in
1985 which focuses on the lifestyle, culture, arts, entertainment, politics and
social issues of interest to the West Side and lower Manhattan. Editors and
support staff of Access, together with a variety of contributing free-lance
writers and columnists, write and edit all material for each weekly issue of the
Manhattan Spirit and perform all composition, layout, and typesetting work.
Printing is performed by outside contractors. In addition, the Manhattan Spirit
offers graphics and printing services to its customers.
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The Manhattan Spirit has won many awards, including, 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. 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, theater and
topics of community interest.
The Manhattan Spirit is published in a 4-color tabloid format. It is
distributed each Thursday and Friday 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, is a 27-year-old weekly publication distributed in a single
edition predominantly on the Upper East Side of Manhattan. We acquired Our Town
in May 1991. 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 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 Hamptons
resort area. Its articles and columns include humor, news, celebrity profiles,
reviews of art gallery shows, restaurants, concerts, nightclubs and movies,
social satire, editorial cartoons and local environmental and political issues,
as well as a special section on real estate. Dan's Papers is published in
tabloid format, with a glossy cover for approximately 17 summer and 9 other
issues, on a weekly basis. It is distributed each week to locations on Eastern
Long Island, including art galleries, gift shops, supermarkets, newspaper and
card shops, restaurants and boutiques. There is also weekly distribution in
Manhattan
DPI also publishes the Montauk Pioneer, which has been designated by the
Montauk Village Association as the official newspaper of the community of
Montauk, New York.
Queens Tribune
The Queens Tribune, started in 1970, publishes eight 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.
The format of The Queens Tribune is a tabloid with four-color front and
additional pages. Editorial content focuses on local, borough-wide and
occasionally city-wide political
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and social issues. Features include community news and activities of the week,
crime reports, restaurant reviews and similar matters of interest to the
targeted circulation area. Substantially all of the articles and columns are
written by Tribco's editors and support staff. The Queens Tribune has won
numerous awards for journalistic excellence, including this year's New York
Press Association's coveted first place award for community leadership. Delivery
is made by independent contractors to heavy traffic locations, such as banks,
supermarkets, and sidewalk distribution boxes. Printing, graphics, consulting,
distribution, flyer and insert revenue are significant sources of income to The
Queens Tribune operation, D/B/A Multimedia, providing approximately 14% of its
revenues in the fiscal year ended November 30, 1998.
The Bronx Newspapers
Parkchester Publishing Co., Inc. is the publisher of the Bronx Press
Review, a 54 year old paper which took on a Bronx-wide identity to fill a vacuum
left by the absorption of the daily Bronx Home News by the New York Post in the
late 1940s. It is a tabloid paper with a 4-color front and back page. The Bronx
Press Review has been designated by the New York City Council as the official
newspaper of Bronx County for the publication of the Concurrent Resolutions of
the Legislature.
In the last quarter of 1993, we started the Riverdale Review, which
serves the affluent Riverdale section of the Bronx. The Riverdale Review is a
community weekly covering the news, events, people and lifestyles of the
Riverdale community. It is distributed free of charge throughout the affluent
northwest Bronx community which it serves. Approximately 19,000 copies are
distributed door-to-door to private homes, in bulk to the lobbies and mailrooms
of the 175 apartment buildings in the section, and through street distribution
boxes and other bulk distribution to high traffic businesses and religious and
educational institutions.
The Nassau Newspapers
Our Nassau Community Newspaper Group, Inc. publishes eight 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 89 years.
The group averages over 51 years of continuous weekly publication per paper.
Each of the Nassau Newspapers, other than Elmont Life, Franklin Square Life and
West Hempstead Life, has been designated as the official newspaper of its
community. We have expanded into six additional Nassau County communities with a
shopper-type publication called the Long Island Market.
In 1995, we developed a new publication, Long Island Lifestyles, which
serves as a second section to all of our Nassau publications and is also
distributed by itself in heavily trafficked areas. This new publication offers
moderately priced advertising to the central and south Nassau marketplace.
We introduced Elmont Life and Franklin Square Life in 1996 and West
Hempstead Life in 1997. Also in 1997, we acquired the South Shore Record, a
33-year old mailed subscription newspaper serving the affluent "five-towns" area
of Nassau County.
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Brooklyn Skyline
The Brooklyn Skyline is a five year old weekly published in five
editions which are distributed door-to-door in Brooklyn's southern tier.
Originally a tabloid shopper-type publication, we are in the on-going process of
converting the Brooklyn Skyline to a community newspaper to complement our other
publications. The introduction of "Koch at the Movies," the News Communication
Telephone Poll and our citywide political page "NYConfidential" in addition to
local news coverage by Brooklyn reporters distinguish the Brooklyn Skyline from
its major competition, The Marketeer, an established door-to-door shopper. In
addition to our established display sales effort, we have introduced a
classified advertising section. Additional revenue is also generated by the
occasional sale or distribution of circulars to accompany the door-to-door
distribution of Brooklyn Skyline. It is printed on newsprint with the use of
spot color and is distributed by crews that we supervise and train.
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 to 125th Streets from Riverside
Drive to Central Park West. The Chelsea-Clinton News, a 56 year-old community
newspaper, covers the area from l4th-59th Streets from 5th Avenue to 11th
Avenue. These two publications rely on revenue from display advertising,
classified advertising, subscriptions, newsstand sales and legal advertising.
The Hill
In September 1994, we began the publication of The Hill, a weekly
newspaper devoted to the coverage of the United States Congress. The paper,
which offers comprehensive coverage of every aspect of Congress and life on
Capitol Hill, is distributed free of charge to members of Congress and their
staffs, governmental agencies, law firms, lobbying organizations and others. 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. We also have a five day a week
morning show, The Hill Reporter, which is carried in the Washington, D.C. area
pursuant to a Program Services Agreement with radio station WYRE-AM.
The New York Blade News
In a joint venture that began in the summer of 1997, we joined with the
Washington Blade, a large and respected gay and lesbian weekly newspaper, to
publish The New York Blade News, a weekly, 4-color tabloid newspaper that
debuted in 1997. The paper, which is distributed by independent contractors to
more than 800 locations in the New York
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metropolitan area that are frequented by New York's gay and lesbian community,
derives its revenue from the sales of display and classified advertising and
personal advertisements. The New York Blade News, which is distributed each
Friday throughout Manhattan and areas of Brooklyn, the Bronx, Queens, Staten
Island as well as Long Island and New Jersey, is operated out of its own offices
in New York City but shares production and distribution staff with Our Town,
Manhattan Spirit, Westsider and Chelsea-Clinton News.
Printing and Production
The printing of each of our publications is presently done by
independent printing shops. We send 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, such as paper, ink, etc., for
printing, and bills the company for its services and materials used. We believe
that we obtain our printing services at competitive prices, and if, for any
reason, the arrangements that we have with any of our 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 our publications are weeklies primarily distributed free of
charge to their readers. The Bronx Press Review, nine of the Nassau Newspapers,
Westsider and Chelsea-Clinton News and one edition of The Queens Tribune are
paid circulation publications. The primary source of our 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 our 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 our publications which have been in existence at least
six months represents multiple insertion advertising. This is where an
advertising client runs an advertisement in two or more issues of a publication.
This percentage has remained fairly stable for our publications over the last
five years. On a year-to-year basis, we estimate that, over the last four fiscal
years, approximately two-thirds of our display advertising revenues have been
from advertisers who were advertisers in the prior year. No one advertiser
represents more than 5% of our advertising revenues. Classified advertising has
been a growing area of revenues for the weekly publications.
We employ sales representatives who are paid through incentive-based
compensation packages. We have commenced supplementing the sales activities of
the individual publications with centralized group sales activities seeking
advertisers for all or a combination of our 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.
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Competition
We compete directly for advertising revenues with newspapers and
magazines which are sold to readers or are distributed free, as well as other
advertising media. We do not significantly compete, however, with other
publishers of newspapers or magazines for paid circulation revenues, as most of
our publications are distributed free of charge to readers.
Those newspapers and magazines competing with the Manhattan Spirit and
Our Town for advertising and targeted at Manhattan or parts thereof include,
among others, The Resident, New York Press, New York Observer and The Village
Voice. In order to compete with the lower advertising rates of smaller
publications in the Manhattan Spirit's market area, we utilize 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. 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.
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, a paid circulation that delivers twice
weekly and has been in publication nearly 50 years.
There are numerous other publications distributed in our circulation
areas, some of which have resources substantially greater than our resources,
which compete for advertising
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against our publications. Management believes our publications are competitive
because we can offer customers the ability to focus their advertisements on a
specific market, thereby giving the customers a chance to control costs by
narrowing their advertising scope. Management believes that, over the years of
publication, our newspapers have developed a favorable reputation and following.
We also believe that we can compete favorably by offering advertisers the
opportunity to choose from a menu of 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 1, 1998, we had 242 full-time and 43 part-time employees,
of whom 53 were editorial; 88 were engaged as display and classified advertising
sales personnel; 78 were engaged in production; and 66 were engaged in
administrative and clerical activities. We also maintain a roster of free-lance
contractors. Management considers its relations with our employees to be
satisfactory. None of our employees are represented by a union.
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. The
Hill's revenues also vary throughout the year depending on whether or not
Congress is in session.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
Item 2. Description of Properties
We operate out of seven separate locations. The Manhattan Spirit, Our
Town, Chelsea-Clinton News and the Westsider share 7,000 square foot premises at
242 West 30th Street, New York, New York, under a lease 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 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 2008.
Pursuant to the lease, we have agreed to an increased rental amount if the owner
expands the building. News Communications has an
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option to renew this lease for an additional five-year term and commencing
November 2008. See "Certain Transactions" for information regarding DPI's lease
of this space from Mr. Daniel Rattiner, DPI's President, Publisher, Editor and
director.
Tribco has a ten year lease, which commenced on November 1, 1990, 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 our 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. News
Communications has an option to renew this lease for an additional five years.
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 five year lease for 2,110
square feet of office space at 2102 Utica Avenue, Brooklyn, New York, commencing
February 1998, at an annual rental of $38,400, increasing over the term to
$46,675 in the last year.
We believe that our present space is adequate for current purposes and
offers moderate expansion possibilities.
Item 3. Legal Proceedings
An action entitled Tracey Robinson v. The Hill, News Communications,
Inc. and Media Venture Group, Inc. et al. was instituted in September 1996 in
the United States District Court for the District of Columbia in which the
plaintiff, a former salesperson for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million plus back pay, front pay and
other relief. The case was tried to a jury and resulted in an adverse
determination of liability to News Communications and the other defendants in
the amount of $100,000, plus fees and costs resulting in approximately $150,000.
We intend to pay this amount.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our shares trade on The Nasdaq SmallCap Stock Market under the trading
symbol "NCOM". The following table sets forth, for the periods indicated, the
range of high and low closing bid quotations as reported by Nasdaq for each
quarter during the last three fiscal years. The bid quotations set forth below
reflect inter-dealer prices, without retail markup, mark-down or commission and
may not necessarily represent actual transactions.
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High Low
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Fiscal Year Ended November 30, 1997
First Quarter................................ $8.64 $5.91
Second Quarter............................... 7.50 5.25
Third Quarter................................ 6.75 4.89
Fourth Quarter............................... 7.32 4.50
Fiscal Year Ended November 30, 1998
First Quarter................................ $5.85 $3.42
Second Quarter............................... 4.68 3.60
Third Quarter................................ 3.96 2.52
Fourth Quarter............................... 3.28 1.22
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On February 25, 1999, the last reported sales price for the common stock
on The Nasdaq SmallCap Stock Market was $1.94 per share. At February 25, 1999,
we had 941 stockholders of record. We estimate that there are approximately
2,100 beneficial owners of our common stock.
We have never paid cash dividends on our common stock and do not expect
to pay such dividends in the foreseeable future. We currently intend to retain
any future earnings for use in our business. The payment of any future dividends
on our common stock will be determined by the Board in light of the conditions
then existing, including our financial condition and requirements, future
prospects, restrictions in future financing agreements, business conditions and
other factors deemed relevant by the Board.
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 News Communications has sufficient authorized but unissued common
stock even if we have sufficient assets or net profits to pay such dividends in
cash. It is anticipated that any permitted dividends will, at least in the
foreseeable future, continue to be paid in common stock. See "Consolidated
Financial Statements" for more information regarding our securities and any
dividends we have paid.
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Recent Sale of Unregistered Securities
The following securities were issued by News Communications within the
past three years and were not registered under the Securities Act of 1933, as
amended. Each of the transactions is claimed to be exempt from registration with
the SEC pursuant to Section 4(2) of the Act as transactions by an issuer not
involving a public offering. All of such securities are deemed to be restricted
securities for the purposes of the Securities Act. All certificates representing
such issued and outstanding restricted securities have been properly legended
and News Communications has issued "stop transfer" instructions to its transfer
agent with respect to such securities.
1. On May 17, 1996, News Communications issued to D.H. Blair Investment
Banking Corp. an immediately exercisable warrant to purchase 133,330
shares of common stock exercisable at $7.50 per share.
On May 21, 1996, News Communications issued to D.H. Blair Investment
Banking Corp. an immediately exercisable warrant to purchase 66,000
shares of common stock exercisable at $7.50 per share.
2. On August 17, 1996, News Communications granted immediately exercisable
options to purchase 3,333 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 $4.785
per share.
3. On October 28, 1996, News Communications sold to a group of 15 private
investors an aggregate of 66,000 shares of its $10 convertible
preferred stock, each of which is convertible into 1.667 shares of
common stock at $10.00 per share, and immediately exercisable warrants
to purchase an aggregate of 266,666 shares of common stock exercisable
at $6.00 per share. On that date News Communications also granted
Wilbur L. Ross, Jr. an immediately exercisable option to purchase
66,000 shares of common stock under its Discretionary Directors and
Officers Stock Option Plan, exercisable at $6.00 per share and granted
8 persons who became directors options to each purchase 1,666 shares of
common stock under its Non-Discretionary Directors Stock Option Plan,
exercisable at $6.00 per share. In connection with such transactions,
News Communications 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.
4. On November 5, 1997, DPI and News Communications entered into a Loan
Agreement with Rothschild Recovery Fund L.P. pursuant to which DPI
borrowed $1,500,000 from Rothschild. In connection with the execution
of the Loan Agreement, News Communications issued to Rothschild a
five-year warrant to purchase, on or after February 28, 1998, 33,000
shares of common stock at an initial exercise price of $6.75 per share
(subject to adjustment).
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5. In April 1998 News Communications issued 6,666 shares of newly
authorized $10 convertible preferred stock, series 2, to Bershad
Investment Group, L.P., for $200,000. Each share of $10 convertible
preferred stock, series 2, is convertible into 1.667 shares of common
stock, subject to adjustments in certain circumstances.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of News
Communications' results of operations and financial condition. The discussion
should be read in conjunction with our audited consolidated financial statements
and notes thereto.
Results of Operations
Fiscal Year Ended November 30, 1998 Compared to Fiscal Year Ended November 30,
1997
1998 was a year of change for News Communications. We reduced our net
loss for the twelve months by $242,000 (8%) from ($2,954,000) in 1997 to
($2,712,000) in 1998. Loss from operations increased by $359,000 (25%) from
($1,599,000) in 1997 to ($1,994,000) in 1998. This increase was primarily from
Nassau Newspapers management changes and replacing marginally profitable
third-party printing and distribution revenues with new revenues, primarily from
the acquisition of the South Shore Record, while absorbing all the related
expenses of the South Shore Record. The additional revenues acquired with the
South Shore Record are projected to grow, while the elimination of certain
executive and production positions in December 1998 will reduce expenses, which
should result in profitability in fiscal 1999. Additional increases in losses
were incurred at the Manhattan newspapers, which are Our Town, Manhattan Spirit
and Chelsea Clinton/Westsider which were affected by changes in sales management
and staff. Management believes that the effect of these changes will result in
increased profit at those operations in 1999. These increased losses were offset
in part by increased profit at The Hill and Dan's Papers which continue their
strong increases in revenues. Additional losses resulted from a full year of
losses from unconsolidated subsidiaries which are in the start-up phase and from
amortization of loan discounts on the loan from an affiliate of a principal
stockholder. This loan which was made in November 1997 and was outstanding for a
full year in 1998, was also the main reason for the increase in interest expense
of $122,000 (61%).
Our total revenues were $17,822,000 in fiscal 1998, an increase of more
than $298,000 (2%) from $17,524,000 in fiscal 1997, while advertising rates
remained level. The increase in revenues was attributable primarily to The Hill,
where increased sales effort and new sales management resulted in an increase of
$496,000 (22%), Dan's Papers, where 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 resulted in an increase
of $402,000 (10%), and Brooklyn Skyline where its increased acceptance as a
newspaper and as an advertising force in the community along with its 1996
expansion into a fifth zone helped
13
<PAGE>
increase revenues $91,000 (6%). These increases were offset by decreases at the
Manhattan newspapers of $695,000 (17%). Management has responded to these
decreases by reducing payroll and production costs. During the fourth quarter a
new sales manager was brought in and along with other changes in the sales
staff, we expect to increase revenues at the Manhattan newspapers. Decreased
non-advertising revenues at the Nassau Newspapers was offset by increased
revenues from the South Shore Record.
Salaries and outside labor costs increased $907,000 (10%) primarily as a
result of additional salaries incurred with the acquisition of the South Shore
Record and of commissions on increased revenues and increased bonuses at The
Hill and Dan's Papers.
Management has undertaken a number of steps to reverse the losses
incurred over the past years. In February 1998, we sold our Manhattan File
subsidiary, which had been continually incurring losses. There were also changes
in sales management and staff at The Hill, which also had been incurring losses
since its start-up in the fourth quarter of 1994, resulting in profitable
operations at that subsidiary and at the Manhattan papers where we expect an
increase in revenues in fiscal 1999. In addition, we have new management at
Nassau Newspapers where, along with the synergies from the acquisition of the
South Shore Record, it is expected that the operations will become profitable.
Discontinued Operations
We owned 90% of Manhattan File Publishing, Inc. ("MFPI"), publisher of
Manhattan File, a monthly with additional special issues annually, 4-color,
perfect bound, glossy magazine, until February 1998, when we sold 80% of MFPI to
an employee. We now own 10% of MFPI and the employee owns 90% of MFPI. All
financial results for 1997 and 1996 attributable to Manhattan File have been
reclassified as discontinued operations.
Income Taxes
News Communications currently has a net operating loss (NOL)
carryforward for financial statement purposes of approximately $11,000,000. NOL
carryforwards for federal income tax purposes of approximately $8,700,000 are
available to offset federal taxable income through the year 2018.
The difference between the NOL for financial reporting purposes and
federal income tax purposes results from differences in accounting for accrued
liabilities and allowances not currently deductible for tax purposes. News
Communications has provided a 100% valuation allowance on deferred tax assets
substantially resulting from the NOL carryforwards discussed above.
Effects of Inflation
We do not believe that inflation has had a significant impact on our
financial position or results of operations in the past three years.
14
<PAGE>
Liquidity and Capital Resources
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), from January 19, 1999 through February 16, 1999, News Communications
offered its existing stockholders the right to purchase additional shares of its
common stock. On February 22, 1999 the Company successfully completed this
offering which resulted in gross proceeds of $5,750,000. This has significantly
improved the liquidity of the Company from its position at November 30, 1998.
The Company now has adequate capital and financial resources to fund its working
capital, possible acquisitions, investments and cash needs for the forseeable
future.
At November 30, 1998, we had a shortage of current assets over current
liabilities in the amount of approximately $2,005,000. During the year ended
November 30, 1998, we repaid $150,000 of loans from Chase Manhattan Bank NA from
cash on hand at the beginning of the year. We repaid the $750,000 balance of the
bank loans in January 1999 from a $1,200,000 loan, payable February 28, 1999, it
received from Messrs. Ross, Weiss and Davis on December 31, 1998. During the
year ended November 30, 1998, we advanced $312,000 of expenses to our
unconsolidated subsidiaries to fund operations. The unconsolidated subsidiaries
are start-up companies, and the company made these investments as part of its
plan to promote their growth in an effort to attain profitability. We estimate
that News Communications will need to contribute approximately $15,000 per month
toward our unconsolidated subsidiaries. That amount is expected to decrease
through the middle of fiscal 2000 when profitability should be achieved.
Additional funds were provided from the issuance of $200,000 in $10 convertible
preferred stock in April 1998. For the year ended November 30, 1998, net cash
provided by operations was $187,979 and cash used for investing activities was
$451,949.
Management believes that News Communications will generate positive cash
flow for the fiscal year ending November 30, 1999. Although there can be no
assurances to this effect, management is confident that it has adequate cash
available from the stock rights offering to meet News Communication's future
cash needs.
Impact of Year 2000 Compliance
The Year 2000 issue is the result of computer programs which were
written using two digits rather than four to define the applicable year. For
example, date-sensitive software may recognize a date using "00" as the Year
1900 rather than the Year 2000. Such misrecognition could result in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We have appointed two of our officers to develop a comprehensive Year
2000 plan with the goal of completing updates to key systems by December 31,
1999. We have assessed the scope of our risks related to problems our computer
systems may have in processing date information related to the Year 2000 and
believe such risks are not significant.
15
<PAGE>
We have identified all of our significant internal software applications
which contain source codes that may be unable to appropriately interpret the
year 2000 and have already begun to modify or replace those applications. We
have determined that our employee payroll system is Year 2000 compliant. We have
surveyed all hardware components and are not aware of any material investment
required for our critical hardware to be Year 2000 compliant. Our accounting
system is the only operating program that is not Year 2000 compliant, but due to
software that we have recently purchased, we believe that it will be compliant
by June 1999. Management has spent approximately $10,000 for hardware and less
than $1,000 for software to render our payroll system compliant, and estimates
that it will spend approximately $25,000 to modify our accounting system. Should
our accounting system prove not to be Year 2000 compliant, the risk to us would
be the inability to electronically bill our advertisers and keep track of their
payments. We are prepared to hire additional personnel on a temporary basis to
perform our accounting work manually. Performing accounting services manually
may be less accurate and more time-consuming than performing such functions by
computer. This may result in slower entries of our accounts receivable and
payable and slower billing of our advertisers. We are unable to determine the
expense that these additional employees will create.
In addition, we have inquired of certain of our advertisers about their
progress in identifying and addressing problems relating to the Year 2000.
Several of our advertisers have informed us that they do not anticipate problems
in their business operations due to Year 2000 compliance issues, and others have
informed us that they have not yet addressed this issue. We are currently unable
to determine the extent to which Year 2000 issues will affect our advertisers,
or the extent to which we would be vulnerable to their failure to remedy any
such problems. However, we anticipate that at least some of our traditional
advertisers will not be Year 2000 compliant when the time comes, which will
result in their inability to pay us in a timely manner. We are prepared to focus
our time and effort on monitoring those accounts, providing assistance if
possible and finding alternate advertisers if absolutely necessary. Although we
do not expect this to occur, the worst case scenario is that this contingency
plan may cause us to incur additional expense, and we may not be able to assist
advertisers with their year 2000 problems and, therefore, we may not succeed in
generating sufficient advertising revenue to publish some of our publications.
Item 7. Financial Statements
The consolidated financial statements of News Communications, Inc. and
its subsidiaries including the notes thereto, together with the reports thereon
of BDO Seidman LLP and PricewaterhouseCoopers LLP, are presented beginning at
page F-1.
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 our independent auditors for the fiscal years ended November 30, 1994
and 1995 and until
16
<PAGE>
February 3, 1997. On February 3, 1997, we dismissed Moore Stephens, P.C.,
because we determined that our best interests would be served by retaining
PricewaterhouseCoopers LLP. The decision to change auditors was approved by the
Audit Committee of our Board of Directors. The report of Mortenson & Associates,
P.C. dated March 27, 1996, relating to our financial statements as of November
30, 1995 and for the two years then ended contained a statement regarding
uncertainty about our ability to continue as a going concern. During our two
most recent fiscal years and the subsequent interim period preceding such
dismissal, there were no disagreements between us and Moore Stephens, P.C. on
any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures.
We then engaged Coopers & Lybrand LLP as our independent auditors as of
February 3, 1997.
On October 9, 1998, PricewaterhouseCoopers LLP, successors to Coopers &
Lybrand L.L.P., declined to stand for reelection as our independent accountants.
PricewaterhouseCoopers' reports on our financial statements for the
fiscal years ended November 30, 1997 and 1996 did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles. In connection with the
audits for the fiscal years ended November 30, 1997 and 1996 and through October
9, 1998, there were no disagreements with PricewaterhouseCoopers on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of PricewaterhouseCoopers would have caused them to make reference
thereto in their report on the financial statements for such year. The decision
to change accountants was approved by the Audit Committee of our Board of
Directors.
In a letter dated June 30, 1997, in connection with the audit of our
financial statements for the year ended November 30, 1996,
PricewaterhouseCoopers reported to management and the Audit Committee of our
Board of Directors that the following reportable conditions existed in our
internal control structure:
1. A need for us to implement formal accounting closing procedures to
ensure annual and quarterly financial statements are prepared in a timely,
accurate and consistent manner, reflecting all significant accruals and
estimates necessary for the results of each annual and interim period to provide
meaningful information with respect to our operations.
2. A need for us to restrict access to accounting records and
information systems to authorized personnel.
We have taken measures to improve our internal control structure in
response to the above recommendations by PricewaterhouseCoopers and, as a
result, believe that our internal control structure is sufficient.
17
<PAGE>
On October 30, 1998, we engaged BDO Seidman LLP as our new independent
accountants to audit our financial statements beginning with the fiscal year
ending November 30, 1998.
We did not consult BDO Seidman LLP regarding the application of
accounting principles to a specific completed or contemplated transaction or the
type of audit opinion that might be rendered on our financial statements for
which advice was provided that was an important factor considered by us in
reaching our decision as to the accounting, auditing or financial reporting
issue.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Our executive officers and other significant employees and their ages
and positions are as follows:
<TABLE>
<CAPTION>
Name of Individual Age Position with News Communications and Subsidiaries
- ------------------ --- --------------------------------------------------
<S> <C> <C>
Jerry Finkelstein (3) 83 Chairman of the Board and Director of News Communications
Wilbur L. Ross, Jr. (3) 61 Director and Chief Executive Officer of News Communications
Michael Schenkler (3) 54 Director and President of News Communications and director
and officer of subsidiaries
Gary Ackerman 56 Director of News Communications
Carl Bernstein 54 Director of News Communications
John Catsimatidis (1) 50 Director of News Communications
Mark Dickstein 40 Director of News Communications
Andrew J. Maloney 67 Director of News Communications
Robert E. Nederlander (2) 65 Director of News Communications
Andrew J. Stein 53 Director of News Communications
Sy Syms 72 Director of News Communications
Arthur Tarlow (1)(2) 69 Director of News Communications
Hillel Weinberger 45 Director of News Communications
Thomas Allon 35 Executive Vice President of News Communications
Robert Berkowitz 50 Chief Financial Officer and Controller of News Communications
Daniel Rattiner 59 President, Publisher, Editor and Director of Dan's Papers Inc.
Marty Tolchin 71 President, Publisher, and Editor of The Hill.
</TABLE>
- ---------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Executive Committee
18
<PAGE>
Jerry Finkelstein has been a director of News Communications 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.
Wilbur L. Ross, Jr. was elected a director of News Communications 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., a premier
developer of timeshare properties, and Syms Corp., a clothing retailer.
Michael Schenkler has been a director of News Communications since March
1990, and has served as President since December 1991. He has been President of
The Queens Tribune since 1979 and is its publisher. Prior to taking over the
Queens Tribune 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 News
Communications' subsidiaries other than DPI and NCNG, of which he is Vice
President.
Gary Ackerman has been a director of News Communications 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.
Carl Bernstein has been a director of News Communications since October
1996. Mr. Bernstein is a noted author and journalist. 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.
John Catsimatidis has been a director of News Communications since
December, 1991. Mr. Catsimatidis is 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's
Supermarkets, Inc., an American Stock Exchange listed company, which owns and
operates supermarkets. Mr. Catsimatidis is also currently the
19
<PAGE>
Chairman of the Board, Chief Executive Officer and director of United Refining
Company, a refiner and retailer of petroleum products.
Mark Dickstein has been a director of News Communications since October
1996. Since 1986, Mr. Dickstein has been President of Dickstein Partners Inc., a
private investment firm. He is also a director of Hill Stores Company, a leading
retailing organization, Leslie Fay Company, Inc., a women's apparel manufacturer
and Marvel Enterprises Inc., an entertainment-based marketing and licensing
company.
Andrew J. Maloney has been a director of News Communications since
September 1993. He is a partner at the New York law firm of Kramer, Levin,
Neftalis & Frankel LLP. 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 University
School of Law.
Robert E. Nederlander has been a director of News Communications since
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 theaters. Mr. Nederlander is also a director of Riddell Sports, Inc.,
Mego Financial Corp., Allis Chalmers Corp., and Cendant Corp.
Andrew J. Stein has been a director of News Communications 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 has been a director of News Communications since October 1996.
He is Chairman and Chief Executive Officer of Syms Corp., a clothing retailer, 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 News Communications 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.
20
<PAGE>
Hillel Weinberger has been a director of News Communications since
October 1996. Since 1988, he has been Senior Vice President and Senior Portfolio
Manager of Loews/CNA Holdings, a diversified holding company. He is also a
director of Global Crossing Ltd., a provider of fiber optic global Internet and
long-distance telecommunications facilities and services.
Thomas Allon has been Executive Vice President of News Communications
since 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.
Robert Berkowitz has served as Controller of News Communications 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.
Daniel Rattiner is Publisher and Editor of Dan's Papers, having held
these positions since he founded the publication in 1960. He has also been
President and a director of DPI since its organization in October 1988.
Marty Tolchin is publisher and editor-in-chief of The Hill. This capped
a 40-year career at the New York Times, including two decades in the Washington
Bureau. With his wife Susan he is the co-author of five books, including "To the
Victor: Political Patronage from the Clubhouse to the White House," which was
cited in three decisions of the U.S. Supreme Court. Their last two books have
been on international trade. Mr. Tolchin has been with The Hill since its
inception in September 1994.
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, our 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, Nederlander, Ross, Syms and
Weinberger are the Board designees of the holders of the $10 convertible
preferred stock. There are presently three vacancies on the board of directors
due to the death of Sydney Gruson on March 1, 1998, the death of another former
director, Eric Breindel, on February 28, 1998 and the resignation of John H.
McConnaughy, Jr. effective April 1998. News Communications and the $10
convertible preferred stockholders are currently involved in discussions about
eliminating the rights of the $10 convertible preferred stockholders to appoint
any Board members. Should that occur, we intend to reconstitute the Board.
21
<PAGE>
Committees of the Board of Directors
The Board currently has three committees: the Executive Committee, the
Audit Committee and the Compensation Committee.
The Executive Committee is comprised of Messrs. Ross, Finkelstein and
Schenkler. Mr. Ross serves as Chairman of the Executive Committee.
The Audit Committee is comprised of Messrs. Nederlander and Tarlow. The
Audit Committee recommends the independent accountants appointed by the Board to
audit our the financial statements, which includes an inspection of our books
and accounts, and reviews with such accountants the scope of their audit and
their report thereon, including any questions and recommendations that may arise
relating to such audit and report or our internal accounting and auditing system
procedures. The composition of the Audit Committee complies with the independent
director requirements of Nasdaq.
The Compensation Committee is comprised of Messrs. Catsimatidis and
Tarlow. The function of the Compensation Committee is to review and approve the
compensation of executive officers and establish targets and incentive awards
under our incentive compensation plans. The Compensation Committee reports to
the Board.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires a
company's officers, directors and persons who own more than ten percent of a
registered class of such company's equity securities to file reports of
ownership and changes in ownership with the SEC. Officers, directors and ten
percent stockholders are required by regulation to furnish us with copies of all
Section 16(a) forms they file. Based on our records, we believe that during
fiscal 1998, our officers, directors and ten percent beneficial owners complied
with all applicable filing requirements.
Item 10. Executive Compensation.
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 1998, 1997 and 1996 concerning compensation of all
individuals serving as executive officers of News Communications during the
fiscal year ended November 30, 1998 and each other executive officer or key
employee of the company whose total annual salary and bonus exceeded $100,000 in
fiscal 1998:
22
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Other Annual Compensation
Annual Compensation Compensation Awards
----------------------------- --------------- ----------------
Salary Bonus Options
Name and Principal Position Year ($) ($) ($) (#)
-------- --------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Jerry Finkelstein, Chairman of the 1998 195,000 --- --- ---
Board of News Communications 1997 195,000 --- --- ---
1996 195,000 --- --- 3,334
Wilbur L. Ross, Jr., Chief Executive 1998 $1 --- --- ---
Officer of News Communications 1997 $1 --- --- ---
1996 $1 --- --- 66,667
Michael Schenkler, President of News 1998 167,223 --- ---
Communications and officer of 1997 158,197 --- --- ---
subsidiaries 1996 154,621 30,000 --- 3,334
Thomas Allon, Executive Vice 1998 90,516 45,000 --- ---
President of News Communications 1997 84,141 45,000 --- ---
1996 82,341 45,000 --- ---
Daniel Rattiner, Publisher, Editor 1998 146,890 95,000 15,000 (1) ---
and President of Dan's Papers, Inc. 1997 133,770 81,000 15,000 (1) ---
1996 130,869 110,235 15,000 (1) ---
</TABLE>
- ----------------------
(1) Mr. Rattiner is entitled to receive an aggregate of $15,000 per year for
discounted trade-sale merchandise from advertisers. These advertisers
provide such merchandise to Mr. Rattiner in lieu of paying News
Communications for advertising. Beginning in November 1997, Mr. Rattiner
became entitled to a new leased or purchased automobile every two years,
having a value not in excess of $40,000, and a new leased portable
computer every two years, having a value not in excess of $4,000.
23
<PAGE>
AGGREGATE YEAR-END OPTION VALUES
(November 30, 1998)
<TABLE>
<CAPTION>
Number of unexercised options at Value of unexercised in-the-money
fiscal year-end (#) options at fiscal year-end ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Wilbur L. Ross 66,667 --- 0 ---
Michael Schenkler 47,500 --- 417 ---
Jerry Finkelstein 232,500 --- 417 ---
Daniel Rattiner 11,667 --- 0 ---
</TABLE>
Employment Agreements
Pursuant to an amended and restated employment agreement entered into by
News Communications and Jerry Finkelstein as of August 20, 1993, and terminating
on August 19, 2003, Mr. Finkelstein is employed as Chairman of the Board of
Directors of News Communications 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 our results of operations and transactions involving
News Communications which are introduced to us by Mr. Finkelstein or in which he
is otherwise involved on our behalf. We also provide Mr. Finkelstein with
medical and other benefits and perquisites. Mr. Finkelstein may terminate the
agreement at any time by giving us at least 10 days' notice. In the event of his
permanent disability or death, 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.
Pursuant to an employment agreement entered into by News Communications
and Michael Schenkler as of October 15, 1994, and terminating October 14, 1999,
Mr. Schenkler is employed as President of News Communications and President of
Tribco. The employment agreement provides for a minimum base salary of $150,000
per year, subject to cost-of-living increases, and such annual bonuses as the
Board of Directors of News Communications may determine in its sole discretion.
The agreement requires Mr. Schenkler to protect confidential information of News
Communications 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 between DPI and Daniel Rattiner
terminating in 2007, Mr. Rattiner earns a base salary from DPI of $133,770 per
year, adjusted for increases in the consumer price index after 1997, plus a
bonus in each fiscal year based on net profits, as defined, of DPI and fringe
benefits totaling approximately $37,000 annually. 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.
24
<PAGE>
We have no established compensation arrangements with our directors. See
"Directors' and Officers' Options" for a discussion of our Directors and
Officers Stock Option Plan and options granted to certain directors and
officers.
Directors' and Officers' Options
On August 17, 1993, the Board adopted a Discretionary Directors and
Officers Stock Option Plan pursuant to which, as amended, the Board may award
options to purchase an aggregate of 500,000 shares of common stock to directors
and officers of News Communications 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. No grants were made under the
Discretionary Option Plan during the fiscal year ended November 30, 1998.
On August 17, 1993, the Board also adopted a Non-Discretionary Directors
Stock Option Plan pursuant to which each director was granted on August 17, 1993
and is granted each anniversary thereof on which he or she continues to be a
director, a five-year option to purchase 3,333 shares of common stock at the
market price on the date of grant. The Non-Discretionary Option Plan also
provides that any person becoming a director within the six months after any
August 17, 1998 will be granted an option for 3,333 shares on the date he or she
becomes a director. Pursuant to the Non-Discretionary Option Plan, each person
who was a director of News Communications, other than Mr. Ackerman, on August
17, 1996 received a grant of an option to purchase 3,333 shares of common stock
exercisable at $4.875 per share and each person who became a director on October
28, 1996 received a grant of an option to purchase 1,666.67 shares of common
stock exercisable at $6.75 per share. The latter grants completed the grants
that may be made under the Non-Discretionary Option Plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding ownership
of News Communications' common stock, as of February 25, 1999 by each person
known to us to own beneficially more than 5% of our outstanding common stock, by
each person who is a director of News Communications, by each person listed in
the Summary Compensation Table and by all directors and officers of News
Communications as a group.
The information contained in the table was furnished by the persons
listed therein. The calculations of the percent of shares beneficially owned are
based on 6,646,864 shares of common stock outstanding on February 25, 1999.
25
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Current Percent
Name and Address of Common Stock of Class
- ---------------- -------------------- ---------------
<S> <C> <C>
Gary Ackerman 300,408 (1) 4.5%
218-14 Northern Boulevard
Bayside, NY 11432
Thomas Allon 20,000 (2) *
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Carl Bernstein 1,667 (2) *
35 East 84th Street
New York, NY 10028
John Catsimatidis 18,333 (2) *
823 11th Avenue
New York, NY 10019
Mark Dickstein 94,999 (2)(3) 1.4%
120 East End Avenue
New York, NY 10028
Jerry Finkelstein 496,501 (2)(4) 7.2%
150 East 58th Street
33rd Floor
New York, NY 10158
Andrew J. Maloney 17,667 (2) *
1 World Trade Center
New York, NY 10001
Robert E. Nederlander 39,333 (2)(3) *
810 7th Avenue, 21st Floor
New York, NY 10019
Daniel Rattiner 56,103 (2)(5) *
26 Three Mile Harbor
Hog Creek Road
East Hampton, NY 11932
Wilbur L. Ross, Jr. 558,102 (2)(3)(6) 8.0%
1251 Avenue of the Americas
New York, NY 10020
Michael Schenkler 248,901 (2)(7) 3.7%
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Andrew J. Stein 60,000 (2) *
625 Madison Avenue
New York, NY 10022
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
Sy Syms 61,667 (2)(3) *
Syms Way
Secaucus, NJ 07094
Arthur Tarlow 26,572 (2) *
1505 Kellum Place
Mineola, NY 11501
Hillel Weinberger 223,667 (2)(3) 3.3%
667 Madison Avenue
New York, NY 10021
Melvyn I. Weiss 1,112,857 (2)(3)(8) 16.6%
One Pennsylvania Plaza
New York, NY 10119
J. Morton Davis 2,439,909 (9) 35.6%
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005
All Directors and Executive Officers as a Group 2,175,317 (10) 29.2%
(15 persons)
</TABLE>
- -----------------------
* Less than one percent.
(1) Includes 1,779 shares owned by Mr. Ackerman's children for whom Mr.
Ackerman is custodian.
(2) Includes the following numbers of shares purchasable upon the exercise of
presently exercisable options and warrants: Mr. Bernstein--1,667; Mr.
Allon--20,000; Mr. Catsimatidis--18,333; Mr. Dickstein--28,333; Mr.
Finkelstein--232,500; Mr. Maloney--17,667; Mr. Nederlander--15,000; Mr.
Rattiner--11,667; Mr. Ross--121,667; Mr. Schenkler--47,500; Mr.
Stein--43,333; Mr. Syms--28,333; Mr. Tarlow--22,500; Mr.
Weinberger--33,667; Weiss--26,667.
(3) Includes the following numbers of shares issuable upon conversion of shares
of $10 convertible preferred stock: Mr. Dickstein--33,333;
Mr. Nederlander--16,667; Mr. Ross--66,667; Mr. Syms--33,333; Mr.
Weinberger--40,000; Weiss--33,334
(4) Includes
(a) 9,945 shares owned by The Jerry Finkelstein Foundation, Inc., of
which Mr. Finkelstein is President, and
(b) 66,667 shares owned by Mr. Finkelstein's wife.
(5) Includes
(a) 167 shares owned by Mr. Rattiner's wife and
(b) 600 shares issuable upon conversion of our 10% preferred stock.
(6) Does not include
(a) 16,667 shares owned by Rothschild Inc.
(b) 16,667 shares issuable upon conversion of shares of $10 convertible
preferred stock owned by Rothschild North America Inc. ("RNA"), and
(c) 13,333 shares issuable upon exercise of warrants owned by RNA.
Mr. Ross disclaims beneficial ownership of all of such shares.
Includes 100,000 shares issuable upon exercise of warrants owned by
the Rothschild Recovery Fund L.P.
27
<PAGE>
(7) Includes
(a) 3,000 shares that are issuable upon conversion of our 10% preferred
stock and
(b) 13,678 owned by Mr. Schenkler's wife as custodian for two
minor children of which Mr. Schenkler disclaims beneficial ownership.
(8) Includes 160,071 shares owned by the M&B Weiss Family Partnership.
(9) Includes
(a) 1,372,303 shares of common stock and warrants to purchase 207,867
hares owned by D.H. Blair Investment Banking Corp., of which
J. Morton Davis is a director and the sole stockholder,
(b) 41,276 shares owned by Rivkalex Corporation ("Rivkalex"), a
private corporation owned by Rosalind Davidowitz, Mr. Davis's
wife,
(c) 808,900 shares of common stock owned by Rosalind Davidowitz and
(d) 9,833 shares of common stock issuable upon exercise of 1,967 shares
of $10 convertible preferred stock. Mr. Davis and D.H. Blair
Investment Banking Corp. expressly disclaim beneficial ownership of
all securities held by Rivkalex and Rosalind Davidowitz.
(10) Includes shares issuable upon exercise of the options referenced in
(2) above, conversion of the $10 convertible preferred stock referenced in
(3) above, conversion of the 10% preferred stock referenced in (7) above,
as well as 7,500 shares issuable to Mr. Robert Berkowitz, Chief Financial
Officer and Controller of News Communications, upon exercise of presently
exercisable stock options.
Item 12. Certain Relationships and Related Transactions.
January 12, 1999, Messrs. Ross, Weiss and Davis entered into a Standby
Agreement with News Communications in which they agreed to purchase any shares
remaining unsold in the rights offering. The Standby Agreement grants each such
person certain registration rights that will allow them to register for sale the
unsold shares that they purchase during the three-year period following the
closing of the rights offering.
On December 31, 1998, Messrs. Ross, Weiss and Davis each loaned News
Communications $400,000, for a total of $1,200,000. In consideration for the
loans, each such person received a promissory note from News Communications in
the principal amount of $400,000, payable on February 28, 1999, at an interest
rate equal to the prime lending rate then in effect, plus 1%. We used $750,000
of the loans to repay the line of credit from Chase Manhattan Bank, N.A. and
intend to use the remainder for working capital.
News Communications has the option, in certain circumstances, to acquire
Mr. Rattiner's shares in DPI. In addition, Mr. Rattiner can require News
Communications to purchase his 20% interest in DPI at any time 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.
28
<PAGE>
DPI leases from Mr. Rattiner 1,910 square feet of office space at an
annual rate of $38,200, plus cost-of-living adjustments, in a building on
Montauk Highway, Bridgehampton, New York, for a term of ten years terminating in
October 2008. Pursuant to the lease, News Communications has agreed to an
increased rental amount if Mr. Rattiner expands the building. DPI has the option
to renew the lease for one additional 5 year term.
Rothschild Inc., of which Wilbur L. Ross, Jr. is Senior Managing
Director, and of which Sydney Gruson, a deceased former director of News
Communications, was Senior Advisor, furnished investment banking services to
News Communications in connection with the issuance and sale of our $10
convertible preferred stock and associated warrants. In consideration for such
services, we issued Rothschild Inc. 16,668 shares of common stock, valued at
$6.00 per share.
On November 5, 1997, DPI and News Communications entered into the
Rothschild Recovery Fund Loan Agreement with Rothschild Recovery Fund L.P.
pursuant to which DPI borrowed $1,500,000 from Rothschild Recovery Fund pursuant
to a promissory note bearing interest payable monthly at the rate of 9.75% per
annum and with a maturity date of December 31, 1998. The maturity date of the
loan has been extended to January 31, 2000. The note is secured by a lien on all
of DPI's assets and is guaranteed by News Communications. In addition, in
connection with the execution of the Rothschild Recovery Fund Loan Agreement, we
issued to Rothschild Recovery Fund a five-year warrant to purchase 100,000
shares of our common stock at an initial exercise price of $6.75 per share,
subject to adjustment. Wilbur L. Ross, Jr. is Chairman of Rothschild Recovery
Fund.
In May 1996, News Communications, Tribco and Access obtained a
$1,000,000 loan from D. H. Blair Investment Banking Corp., one of our principal
stockholders. The loan is repayable on June 21, 1999 and bears interest at the
rate of 8.5% per annum payable quarterly. The loan is secured by a security
interest granted by the borrowers to D.H. Blair Investment Banking Corp. on all
of their personal property and fixtures and by a pledge made by News
Communications to D.H. Blair Investment Banking Corp. of all of the outstanding
common stock of Tribco and Access. As additional consideration for the loan, we
issued D.H. Blair Investment Banking Corp. a five-year warrant to purchase
66,667 shares of our common stock at an initial exercise price of $7.50 per
share, subject to adjustment.
Effective May 17, 1996, News Communications entered into an agreement
with D.H. Blair Investment Banking Corp. pursuant to which D.H. Blair Investment
Banking Corp. was engaged as a non-exclusive financial advisor and investment
banker to News Communications. As an inducement to D.H. Blair Investment Banking
Corp.'s providing such services, we issued D.H. Blair Investment Banking Corp. a
five-year warrant to purchase 133,000 shares of our common stock at an initial
exercise price of $7.50 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 our publications and also utilize various
29
<PAGE>
of our printing services. Such advertising and printing services are charged at
our standard rates and totaled approximately $44,750 during the fiscal year
ended November 30, 1998.
The transactions described above are on terms as favorable to News
Communications as those that could have been obtained from independent third
parties and arms-length negotiations.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Incorporated by Exhibit No. in
Exhibit Reference from Referenced
Number Description Document (1) Document
<S> <C> <C> <C>
3.1 Articles of Incorporation of the company (formerly A 3.1
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 Articles of A 3.1.1
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 C 3.1.3
Incorporation of the company, filed with the
Secretary of the State of Nevada on July 26, 1994.
3.2 By-Laws of the company (as amended and restated). C 3.2.1
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Preferred Stock Certificate. B 4.2
4.2.1 Resolution of Board of Directors fixing the terms B 4.2.1
of the 10% Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the terms C 4.2.2
of the 8% Convertible Preferred Stock.
4.2.3 Certificate of Amendment of Certificate of C 4.2.4
Designation of 8% Convertible Preferred Stock.
4.2.4 Resolution of Board of Directors fixing the terms C 4.2.3
of the 12% Convertible Preferred Stock.
4.2.5 Certificate of Designation of 12% Convertible L 4.2.5
Preferred Stock
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.2.6 Certificate of Designation of $10 Convertible H 10.33
Preferred Stock (included as part of Exhibit
10.21).
4.3 Form of Rights Certificate L 4.3
4.4 Form of Promissory Note, dated as of December 31, L 4.4
1998, between the company and each of Messrs.
Ross, Weiss and Davis.
10.1 1987 Stock Option Plan of the company, as amended. G 10.1.1
10.2 Discretionary Directors and Officers Stock Option C 10.2.1
Plan.
10.3 Non-discretionary Directors Stock Option Plan. C 10.2.2
10.4 Stockholders' Agreement, dated as of October 13, D 2.1
1988, between Daniel Rattiner and the company.
10.5 Agreement of Lease, dated October 31, 1988, D 2.4
between Daniel Rattiner and DP Acquisition Corp.,
as to building known as Dan's Papers, Ltd. Located
on Montauk Highway, Bridgehampton, New York.
10.6 Amendment of Lease, dated October 31, 1998, L 10.6
between Dan's Paper's Inc. (f/k/a D.P. Aquisition,
Inc.) and Daniel Rattiner.
10.7 Letter dated November 22, 1996 from the company to J 10.4.4
Daniel Rattiner regarding exercise of option to
purchase stock of Dan's Papers, Ltd.
10.8 Employment and Stockholders' Agreement dated as of K 10.4.5
November 25, 1997 by and between the company and
Daniel Rattiner
10.9 Employment Agreement, dated as of October 15, F 10.7.3.1
1994, between Michael Schenkler and the company.
10.10 Amended and Restated Employment Agreement, dated J 10.7.4.1
October 28, 1996, between Jerry Finkelstein and
the company.
10.11 Stock Option Agreement dated September 1, 1993, C 10.11
between Jerry Finkelstein and the company.
10.12 Letter Agreement, dated June 15, 1990, between B 10.21
Dan's Papers, Inc. and Dan's Papers, Ltd.
10.13 Lease for space at 174-15 Horace Harding B 10.25
Expressway, Fresh Meadows, New York.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.14 Agreement of Lease dated January 28, 1993, between E 10.24
Furcraft Associates, Inc. and the company.
10.15 Agreement dated May 17, 1996 between D.H. Blair H 10.28
Investment Banking Corp.("Blair") and the company.
10.16 Loan Agreement dated May 21, 1995 among Blair, the H 10.29
company, Tribco Incorporated ("Tribco") and Access
Network Corp. ("Access").
10.17 Waiver Agreement dated October 19, 1998, between L 10.17
Blair, the company, Tribro and Access regarding
Loan Agreement dated May 21, 1996.
10.18 $1,000,000 Promissory Note dated May 21, 1996 H 10.30
issued by the company, Tribco and Access to the
order of Blair.
10.19 Warrant dated May 17, 1996, to purchase 400,000 H 10.31
shares of the company's common stock issued by the
company to Blair.
10.20 Warrant dated May 21, 1996, to purchase 200,000 H 10.32
shares of the company's common stock issued by the
company to Blair.
10.21 Form of Subscription Agreement made as of October H 10.33
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.
10.22 Loan Agreement dated as of November 5, 1997 by and K 10.34
between Rothschild Recovery Fund L.P. and Dan's
Papers, Inc. and the company.
10.23 Waiver Agreement dated October 6, 1998, between L 10.23
Rothschild Recovery Fund L.P., Dan's Papers, Inc.
and the company regarding Loan Agreement dated
November 5, 1997.
10.24 Program Services Agreement dated as of April 11, K 10.36
1997, between M.B.C. Incorporated and the company.
10.25 Form of Standby Agreement dated January 12, 1998 L 10.25
among the company, Wilbur L. Ross, Jr., Melvyn I.
Weiss and J. Morton Davis, as amended.
11 Statement re: Computation of Per Share Earnings * *
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C>
16.1 Letter from Moore Stephens, P.C., dated March 4, I 16.2
1997.
21 Subsidiaries of the company. K 22
24 Power of Attorney (included on signature page) * *
27 Financial Data Schedule * *
</TABLE>
Notes:
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.
C Registration Statement of the company on Form S-1, No. 33-46467.
D Current Report of the company on Form 8-K relating to events occurring on
October 31, 1988.
E Annual Report of the company on Form 10-KSB for the year ended November 30,
1992.
F Annual Report of the company on Form 10-KSB for the year ended November
30, 1994.
G Annual Report of the company on Form 10-KSB for the year ended
November 30, 1995.
H Quarterly Report of the company on Form 10-QSB for the quarter ended August
31, 1996.
I Current Report of the company on Form 8-K/A relating to event occurring on
February 3, 1997.
J Annual Report of the company on Form 10-KSB/A for the year ended November
30, 1996.
K Annual Report of the company on Form 10-KSB for the year ended November
30, 1997.
L Registration Statement on Form SB-2 (Registration No. 333-67407), declared
effective by the SEC on January 14, 1999.
* Filed herewith.
(b) Reports on Form 8-K.
One Report on Form 8-K, and amendments to such 8-K, was filed by News
Communications during the quarter ended November 30, 1998. The Form 8-K was for
an October 9, 1998 date of event and reported the change in News Communications'
accountants. See "Item 8 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure" for detailed information about this change
in accountants.
33
<PAGE>
News Communications,
Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended November 30, 1998 and 1997
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Accountants........................................ F-2-3
Consolidated Balance Sheet as of November 30, 1998........................ F-4
Consolidated Statements of Operations for the years ended
November 30, 1998 and 1997........................................ F-5
Consolidated Statements of Stockholder's Equity for the years
ended November 30, 1998, 1997 and 1996............................ F-6-7
Consolidated Statements of Cash Flows for the years ended
November 30, 1998 and 1997........................................ F-8
Notes to Consolidated Financial Statements................................ F-9-30
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders of
News Communications, Inc.
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and Subsidiaries as of November 30, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. 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, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 12, 1999, except for the
rights offering discussed in Note 18,
which is as of February 22, 1999
F-2
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders of
News Communications, Inc.
We have audited the balance sheet and the accompanying consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year ended
November 30, 1997 of News Communications, Inc. and Subsidiaries. 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 balance sheet, results of
operations and cash flows of News Communications, Inc. and Subsidiaries for the
year ended November 30, 1997, in conformity with generally accepted accounting
principles.
PricewaterhouseCoopers, LLP
New York, New York
May 15, 1998
F-3
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
November 30, 1998
------------------------------------------------------------------------------------------------
<S> <C>
Assets
Current:
Cash $ 123,621
Accounts receivable, net of allowance for doubtful accounts of $1,690,502 3,255,936
Due from related parties 26,417
Other 276,932
------------------------------------------------------------------------------------------------
Total current assets 3,682,906
Investment in unconsolidated entities 167,606
Property and equipment, net 364,972
Intangible assets, net 3,176,262
Other, net 44,478
------------------------------------------------------------------------------------------------
$ 7,436,224
================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,659,960
Accrued expenses 1,681,034
Note payable 750,000
Due to related party 1,402,438
Unearned revenue 194,787
------------------------------------------------------------------------------------------------
Total current liabilities 5,688,219
Related party - long-term debt 1,500,000
------------------------------------------------------------------------------------------------
Total liabilities 7,188,219
------------------------------------------------------------------------------------------------
Minority interest 460,074
------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $1.00 par value; 500,000 shares authorized; 220,340 shares 220,340
issued and outstanding; $2,444,000 aggregated liquidation value
Common stock, $.01 par value; authorized 100,000,000 shares; 2,792,000 27,919
shares issued and outstanding
Paid-in capital - preferred stock 2,257,025
Paid-in capital - common stock 14,499,108
Deficit (16,807,732)
------------------------------------------------------------------------------------------------
196,660
Less: Treasury stock (50,333 common shares) - at cost 408,729
------------------------------------------------------------------------------------------------
Total stockholders' deficit (212,069)
------------------------------------------------------------------------------------------------
$ 7,436,224
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended November 30, 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 17,822,070 $ 17,523,952
------------------------------------------------------------------------------------------------
Operating expenses:
Salaries, benefits and outside labor costs 9,787,867 8,880,694
Direct mechanical costs 5,658,234 5,683,638
General and administrative 2,788,938 2,672,444
Provision for doubtful accounts 699,269 1,013,904
Rent, occupancy and utilities 881,291 842,735
------------------------------------------------------------------------------------------------
Total operating expenses 19,815,599 19,093,415
------------------------------------------------------------------------------------------------
Loss from operations (1,993,529) (1,569,463)
Interest expense (322,970) (200,948)
------------------------------------------------------------------------------------------------
Loss before minority interest and equity in loss of
Unconsolidated entities (2,316,499) (1,770,411)
Less: Minority interest in income of subsidiary 178,600 167,246
Less: Equity in loss from unconsolidated entities 216,636 30,000
------------------------------------------------------------------------------------------------
Loss from continuing operations (2,711,735) (1,967,657)
Loss from discontinued operations -- (730,585)
Loss on disposal from discontinued operations -- (255,973)
------------------------------------------------------------------------------------------------
Net loss $ (2,711,735) $ (2,954,215)
================================================================================================
Loss per common share:
Basic and diluted:
Continuing operations $ (1.01) $ (.72)
Discontinued operations -- (.36)
------------------------------------------------------------------------------------------------
$ (1.01) $ (1.08)
================================================================================================
Weighted average number of common shares
Outstanding 2,721,670 2,710,918
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Years ended November 30, 1997 and 1996
--------------------------------------------------------------------------------------------------
Paid-in Paid-in
capital- capital-
preferred common
Preferred stock stock Common stock stock
------------------- -----------------
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1996 200,449 $200,449 $2,201,690 2,679,346 $26,793 $14,116,239
Stock issued in connection
with exercise of C warrants - - - 30,182 302 141,119
Stock issued in connection
with purchase of Nassau
Newspapers - - - 5,333 53 (53)
Conversion of 8%
convertible preferred stock (103) (103) (102,897) 16,349 163 102,837
Warrants issued in
connection with long-term
debt - - - - - 91,800
Conversion of 10%
convertible preferred stock (6) (6) (21,768) 3,600 36 21,738
Stock issued as preferred
dividends - - - 2,600 26 12,974
Dividends on preferred stock - - - - - -
Net loss - - - - - -
---------------------------------------------------------------------------------------------------
Balance, November 30, 1997 200,340 $200,340 $2,077,025 2,737,410 $27,373 $14,486,654
---------------------------------------------------------------------------------------------------
<CAPTION>
Years ended November 30, 1997 and 1996
------------------------------------------------------------------------------
Total
Treasury stockholders'
Deficit stock equity
(deficit)
----------------------------- -----------------------------------------
<S> <C> <C> <C>
Balance, November 30, 1996 $(11,047,235) $(408,729) $ 5,089,207
Stock issued in connection
with exercise of C warrants - - 141,421
Stock issued in connection
with purchase of Nassau
Newspapers - - -
Conversion of 8%
convertible preferred stock - - -
Warrants issued in
connection with long-term
debt - - 91,800
Conversion of 10%
convertible preferred stock - - -
Stock issued as preferred
dividends (13,000) - -
Dividends on preferred stock (35,426) - (35,426)
Net loss (2,954,215) - (2,954,215)
----------------------------- -----------------------------------------
Balance, November 30, 1997 $(14,049,876) $(408,729) $ 2,332,787
----------------------------- -----------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Years ended November 30, 1997 and 1997
--------------------------------------------------------------------------------------------------
Paid-in Paid-in
capital- capital-
preferred common
Preferred stock stock Common stock stock
---------------- -----------------
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1997 200,340 $200,340 $2,077,025 2,737,410 $27,373 $14,486,654
Stock issued in connection
with purchase of Nassau
Newspapers - - - 48,714 487 (487)
Issuance of 10% convertible
preferred stock 20,000 20,000 180,000 - - -
Stock issued as preferred
dividends - - - 5,876 59 12,941
Dividends on preferred stock - - - - - -
Net loss - - - - - -
- ---------------------------------------------------------------------------------------------------
Balance, November 30, 1998 220,340 $220,340 $2,257,025 2,792,000 $27,919 $14,499,108
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Years ended November 30, 1998 and 1997
- --------------------------------------------------------------------------
Total
stockholders'
Treasury equity
Deficit stock (deficit)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, November 30, 1997 $(14,049,876) $(408,729) $ 2,332,787
Stock issued in connection
with purchase of Nassau
Newspapers - - -
Issuance of 10% convertible
preferred stock - - 200,000
Stock issued as preferred
dividends (13,000) - -
Dividends on preferred stock (33,121) - (33,121)
Net loss (2,711,735) - (2,711,735)
--------------------------------------------------------------------------
Balance, November 30, 1998 $(16,807,732) $(408,729) $ (212,069)
--------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended November 30, 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities of continuing
operations:
Net loss $(2,711,735) $(2,954,215)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss from discontinued operations -- 986,558
Depreciation and amortization 485,978 447,462
Provision for doubtful accounts 699,269 1,013,904
Amortization of debt discount 99,329 39,138
Minority interest 178,600 167,246
Loss from unconsolidated entities 216,636 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (475,936) (1,227,954)
Other current assets (100,194) (26,614)
Other assets 30,656 64,471
Related party receivable 1,196 (13,613)
Increase (decrease) in:
Accounts payable 1,033,350 395,509
Accrued expenses 421,945 (316,076)
Other current liabilities 57,135 15,000
Related party payable 251,750 91,000
------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities of
continuing operations 187,979 (1,318,184)
------------------------------------------------------------------------------------------------
Cash flows from investing activities of continuing operations:
Purchase of South Shore Publishers, Inc. -- (421,500)
Capital expenditures (139,949) (102,658)
Investment in unconsolidated entities (312,000) (72,242)
------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing operations (451,949) (596,400)
------------------------------------------------------------------------------------------------
Cash flows from financing activities of continuing operations:
Proceeds from preferred stock 200,000 --
Proceeds from exercise of stock options -- 181,090
Cost of raising capital -- (39,670)
Principal payments on notes payable (150,000) (275,000)
Dividend on preferred stock (33,121) (35,426)
Proceeds from notes payable -- 1,500,000
------------------------------------------------------------------------------------------------
Net cash provided by financing activities of continuing
operations
------------------------------------------------------------------------------------------------
Net cash used in discontinued operations (53,908) (486,677)
------------------------------------------------------------------------------------------------
Net decrease in cash (300,999) (1,070,267)
Cash, beginning of year 424,620 1,494,887
------------------------------------------------------------------------------------------------
Cash, end of year $ 123,621 $ 424,620
================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 171,249 $ 189,572
Stock issued as preferred dividend 13,000 --
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
1. Organization and News Communications, Inc., a Nevada corporation, is
Industry Segment primarily engaged, through various wholly-owned and
majority-owned subsidiaries, in the publication and
distribution of advertiser-supported,
community-oriented newspapers. 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"), Capitol Hill Publishing,
Inc. ("Capitol Hill"), Brooklyn Newspaper Publishing,
Inc. ("Brooklyn"), West Side Newspaper Corp. ("West
Side") and South Shore Publishers, Inc. ("South
Shore"). News Communications, Inc. and Subsidiaries
(the "Company") function in one industry segment,
which is the news publication business. As discussed
in Note 17, Manhattan File Publishing, Inc.
("Manhattan File"), the Company's only magazine
publishing subsidiary, is presented as a discontinued
operation.
2. Summary of Principles of Consolidation - The consolidated
Significant financial statements of the Company include the
Accounting accounts of the parent company and its wholly-owned
Policies and majority-owned subsidiaries. Investments in
unconsolidated affiliates which are 50% or less owned
are accounted for under the equity method. All
intercompany accounts and 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 affect 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 and
tradenames, among other items. Actual results could
differ from those estimates.
</TABLE>
F-9
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
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:
</TABLE>
<TABLE>
<CAPTION>
Years
------------------------------------------------------------------
<S> <C>
Furniture, fixtures and office equipment 5-10
Leasehold improvements Shorter of useful
life of asset or
length of lease
Computer equipment 5
Distribution boxes 5
------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Tradenames - Tradenames are amortized over ten to
twenty years on a straight-line basis.
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.
Revenue Recognition - Advertising revenues are earned
when advertisements appear in the various
publications. Unearned revenues of $194,787 at
November 30, 1998 represent future advertisements
that have been paid for by customers in advance.
Direct Mechanical Costs - Production and
distribution-related expenses are classified as
direct mechanical costs.
Seasonality - One of the Company's publications
(which generated approximately 24% and 22% of
revenues in fiscal 1998 and 1997, respectively) is a
resort-area newspaper, that earns a significant
portion of its revenue during the summer months.
F-10
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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, 1998, the
Company had no funds with financial institutions
subject to a credit risk beyond the insured amount.
Earnings Per Common Share - In February 1997, the
Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted"
earnings per share. Basic earnings per share includes
no dilution and is computed by dividing net income
less preferred stock dividends by the weighted
average number of common shares outstanding for the
period. Diluted earnings per share reflects the
potential dilution from the assumed exercise of stock
options. This statement, effective for financial
statements issued for periods ended after December
15, 1997, requires restatement of all prior earnings
per share data presented. All periods presented have
been restated to comply with the provisions of SFAS
No. 128. The exercise of options and warrants were
not reflected in diluted earnings per share, since it
would be anti-dilutive. Adoption of this statement
did not have a material impact on earnings per share.
F-11
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Income Taxes - Income taxes are calculated using the
liability method specified by SFAS No. 109
"Accounting for Income Taxes." SFAS 109 requires a
company to recognize deferred tax liabilities and
assets for the expected future tax consequences of
events that have been recognized in a company's
financial statements or tax returns. Under this
method, deferred tax liabilities and assets are
determined based on the difference between the
financial statement carrying amounts and tax basis of
assets and liabilities using enacted tax rates in
effect in the years in which the differences are
expected to reverse. Deferred tax assets are reduced
by a valuation allowance to the extent realization is
uncertain.
Stock-Based Compensation - The Company has adopted
the disclosure-only option under SFAS No. 123,
"Accounting for Stock-Based Compensation". Pro forma
information regarding net income and earnings per
share using the fair value method is required by SFAS
No. 123; however, application of SFAS No. 123 would
not result in a significant difference from reported
net income and earnings per share for the years ended
November 30, 1998 and 1997.
Long-Lived Assets - Long-lived assets, such as
intangibles and property and equipment, are evaluated
for impairment when events or changes in
circumstances indicate that the carrying amount of
the assets may not be recoverable through the
estimated undiscounted future cash flows from the use
of these assets. When any such impairment exists, the
related assets will be written down to fair value. No
impairment losses have been necessary through
November 30, 1998.
Restatement - The financial statements and related
notes have been restated to give retroactive effect
to a one-for-three reverse stock split on January 19,
1999.
</TABLE>
F-12
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
3. Property and Major classes of property and equipment as of November 30, 1998
Equipment and are as follows:
Depreciation and
Amortization
</TABLE>
<TABLE>
<S> <C>
-------------------------------------------------------------------
Leasehold improvements $310,637
Computer equipment and software 480,690
Machinery and equipment 72,807
Furniture, fixtures and office equipment 144,401
Distribution boxes 39,645
------------------------------------------------------------------
1,048,180
Less: Accumulated depreciation and 683,208
Amortization
------------------------------------------------------------------
Property and equipment, net $364,972
------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Depreciation and amortization expense for the years
ended November 30, 1998 and 1997 amounted to $166,337
and $172,593, respectively.
4. Intangible Assets A breakdown of intangible assets at November 30, 1998
is as follows
</TABLE>
<TABLE>
<CAPTION>
Amortization Cost Amortization Net
period
(years)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill 10-20 $2,624,720 $1,251,334 $1,373,386
Tradenames 10-20 2,850,000 1,047,124 1,802,876
------------------------------------------------------------------
$5,474,720 $2,298,458 $3,176,262
------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Amortization expense of $297,483 and $289,467 was
recognized for the years ended November 30, 1998
and 1997, respectively.
</TABLE>
F-13
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
5. Notes Payable Short-term note payable at November 30, 1998
consisted of a $750,000 loan originally due on
January 5, 1998 at the bank's prime rate plus 2
percent. The prime rate at November 30, 1998 was 8.5
percent. The bank called the loan in a letter dated
October 6, 1998 but agreed to forbear through
December 31, 1998 in consideration of a $50,000
payment and on the condition that the Company
continue to keep the interest current. Interest
continued to accrue on the loan at the past due rate
of 3 percent in excess of the prime rate. The loan
was subsequently paid in full in January 1999 from a
$1,200,000 loan, payable February 28, 1999, that the
Company received from certain stockholders. (See note
18.) All of the Company's accounts receivable were
pledged as collateral for the loan.
Short-term note payable in the amount of $1,000,000
at November 30, 1998 consisted of a promissory note
due to a principal shareholder of the Company, which
is included in due to related party. The note was
originally due on May 21, 1998, but was extended
until June 21, 1999. The note 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, in 1996
detachable warrants to purchase 66,667 shares of the
Company's common stock at $7.50 per share were issued
to the lender and, accordingly, $64,000 of the
proceeds of the promissory note were allocated to the
detachable warrants and included in additional
paid-in capital - common stock. All 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.
</TABLE>
F-14
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Long-term note payable in the amount of $1,500,000 at
November 30, 1998 consisted of a promissory note due
to an affiliate of a principal shareholder and
officer of the Company. The note was originally due
on December 31, 1998, but was extended until January
31, 2000. The note has a stated interest rate of 9.75
percent per annum. Interest is payable monthly
commencing December 1, 1997. As additional
consideration for the note payable, warrants to
purchase 100,000 shares of the Company's common stock
at $6.75 per share were issued to the lender and,
accordingly, $91,800 of the proceeds of the note were
allocated to the warrants in 1997 and included in
additional paid-in capital - common stock. The loan
was made to DPI, and all of the assets of DPI are
pledged as collateral for the note.
6. Fair Value of Statement of Financial Accounting Standards
Financial ("SFAS") No. 107, "Disclosures about Fair Value of
Instruments 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, 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, 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.
</TABLE>
F-15
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
7. Related Parties Certain Company office facilities are leased from an
officer of a subsidiary of the Company. Rental
expense amounted to approximately $52,000 and $58,000
for the years ended November 30, 1998 and 1997,
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
expired on October 31, 1998. A new lease was entered
into on October 31, 1998 with the same terms as the
original lease.
Amounts owed to an officer of a subsidiary of the
Company for a bonus and expenses amounted to
approximately $160,000 and $150,000 for the years
ended November 30, 1998 and 1997, respectively.
Amounts due to another officer of the Company for a
bonus and expenses amounted to approximately $224,000
and $-0- for the years ended November 30, 1998 and
1997, respectively.
As discussed in Note 5, at November 30, 1998, the
Company has a short - and long - term note payable
due to related parties. For the years ended November
30, 1998 and 1997, related interest expense was
approximately $231,000 and $85,000, respectively.
Revenues from related parties amounted to $44,750 and
$25,300 during the years ended November 30, 1998 and
1997, respectively.
8. Leases The Company leases all operating facilities under
operating leases expiring through January 2008.
Rent expense under operating leases was approximately
$513,000 and $541,000 for the years ended November
30, 1998 and 1997, respectively.
The future minimum payments under noncancelable
operating leases consisted of the following at
November 30, 1998:
</TABLE>
F-16
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Fiscal year ending November 30, Operating leases
------------------------------------------------------------------
<S> <C>
1999 $476,764
2000 333,271
2001 163,283
2002 172,189
2003 45,979
Thereafter 191,000
------------------------------------------------------------------
$1,382,486
------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
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.
9. Commitments and A subsidiary of the Company has indemnified two
Contingencies 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
2007 with the President of DPI. The agreement
stipulates an annual salary of $144,000, 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
$90,000 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. At November 30, 1998, the
value of the put option based on the aforementioned
formula was approximately $1.3 million. The option is
related to the 1988 acquisition of DPI by the
Company.
</TABLE>
F-17
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
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 100,000
shares of the Company's common stock at an exercise
price of approximately $7.14 per share expired 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. 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.
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.
</TABLE>
F-18
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
10. Common Stock At November 30, 1998, the Company has approximately
2,375,596 shares of common stock reserved for
issuance upon conversion of outstanding preferred
stock and exercise of options and warrants. In 1993,
the Company purchased a publisher of weekly
newspapers for $300,000 in cash and 162,143 shares of
stock. The acquisition agreement permitted the
issuance of the stock over a three year period ending
in 1998. At November 30, 1997 the Company had
reserved for the issuance of 48,714 shares of common
stock (valued at approximately $320,000) in
connection with the Company's 1993 acquisition of the
Nassau Newspapers. In March 1998, the shares were
issued.
In February 1998, the Company distributed 2,600
shares of its common stock in payment of a $500
dividend per share due holders as of September 19,
1997 on each of the 26 shares of 10% nonvoting
convertible preferred stock.
In November 1998, the Company distributed 5,876
shares of its common stock in payment of a $500
dividend per share due holders as of September 30,
1998 on each of the 26 shares of 10% nonvoting
convertible preferred stock.
11. Preferred Stock Preferred stock at November 30, 1998 consisted of the
following:
</TABLE>
<TABLE>
<S> <C>
------------------------------------------------------------------
10% nonvoting convertible preferred stock,
1,250 shares authorized; 26 shares issued and
outstanding, $500 per share per annum cumulative
dividends, $130,000 liquidation value. $ 26
8% convertible preferred stock, 500 shares
authorized, 114 shares issued and outstanding, $80
per share per annum cumulative dividends, $114,000
liquidation value. 114
</TABLE>
F-19
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
12% convertible preferred stock, 200 shares
authorized, 200 shares issued and outstanding, $120
per share per annum cumulative dividends, $200,000
liquidation value. 200
$10 convertible preferred stock, 220,000 shares
authorized, issued and outstanding, $2,200,000
liquidation value. 220,000
------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
The 10% nonvoting 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 600 shares of common stock for each
share of preferred stock, subject to standard
anti-dilution provisions.
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 $6.30, 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.
</TABLE>
F-20
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
During 1997, holders of the Company's 8% convertible
preferred stock converted 103 shares into 16,349
shares of common stock and 16,349 five-year warrants
to purchase common stock exercisable at $6.30 per
share. As a result, common stock at par increased by
$163, additional paid-in capital - common stock
increased by $102,837, preferred stock at par
decreased by $103 and additional paid-in capital -
preferred stock decreased by $102,897.
During the years ended November 30, 1998 and 1997,
cash dividends totaling $33,121 and $35,426,
respectively were paid to the holders of the 8%
convertible preferred stock and the 12% convertible
preferred stock.
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 266,667 shares of common stock at $6.00 per
share (see Note 14) for an aggregate consideration of
$2,000,000. In April 1998, the Company entered into
an agreement pursuant to which the Company issued
20,000 shares of $10.00 convertible preferred stock
for an aggregate consideration of $200,000. 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.
</TABLE>
F-21
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
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 is obtained by
dividing $10 by a conversion price. The conversion
price is initially set at $6.00, and is subject to
adjustments generally for dilution or decline in the
market price below $6.00.
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.
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.
12. Stock-Based SFAS No. 123, "Accounting for Stock-Based
Compensation Compensation." 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. The Company has
elected, as permitted by SFAS No. 123, to account for
its employee plans using the intrinsic value based
method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25. 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. The fair value of options
for purposes of the SFAS No. 123 pro forma
disclosures has been estimated using a Black-Scholes
option pricing model. No options were granted by the
Company during 1998 and 1997.
Information regarding the Company's stock option
plans is as follows:
</TABLE>
F-22
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
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, 1998 and 1997, 45,000 and 45,555 options
were exercisable, respectively. The following is a
summary of transactions:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year 45,555 59,722
Granted during the year - -
Terminated during the year (555) (14,167)
------------------------------------------------------------
Outstanding, end of year (1) 45,000 45,555
------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
------------
With an exercise price per share ranging from $6.00
to $9.38, giving effect to the one-for-ten reverse
stock split, which occurred on May 12, 1992, and the
one-for-three reverse stock split which occurred on
January 19, 1999. The weighted average exercise price
at November 30, 1998 was $7.20 share.
At November 30, 1998 and 1997, there were 77,222 and
76,667 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.
</TABLE>
F-23
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
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 666,667 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 certain conditions,
specified by the Board in such grants. Options under
the Discretionary Option Plan are nonqualified and
nonincentive options for purposes of income taxation
and are not intended to qualify under Section 422A of
the Internal Revenue Code of 1986. No grants were
made under the Discretionary Option Plan during the
fiscal years ended November 30, 1998 and 1997.
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 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 Option
Plan also provides that any person becoming a
director within the six months after any August 17
will be granted options. The maximum number of
options authorized pursuant to the Plan amounts to
166,667 which were granted as of November 30, 1996.
The following is a summary of transactions relating
to the Discretionary Option Plan:
</TABLE>
F-24
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year 706,833 706,833
Granted during the year - -
------------------------------------------------------------
Outstanding, end of year (1) 706,833 706,833
------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
------------
(1) With an exercise price per share ranging from
$3.75 to $8.07. The weighted average exercise price
at November 30, 1998 was $6.63 per share.
13. Stock Warrants At November 30, 1998, the Company has 494,667 of
common stock reserved for issuance upon exercise of
warrants. Information regarding the Company's
warrants outstanding is as follows:
Non-Redeemable Warrants - At November 30, 1998 and
1997, the Company had outstanding 600,000 and 628,333
non-redeemable warrants, respectively. Each warrant
entitles the holder to purchase one share of the
Company's common stock at an exercise price ranging
from $4.14 to $9.00 per share. The warrants are all
currently exercisable and expire on the following
dates:
</TABLE>
<TABLE>
<CAPTION>
Number of warrants Expiration date
------------------------------------------------------------------
<S> <C>
33,333 May 1999
200,000 May 2001
266,667 October 2001
100,000 November 2002
------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
There were no exercises of non-redeemable warrants
during the years ended November 30, 1998 and 1997.
All of the warrants that expire May 2001 were issued
to a principal shareholder of the Company, of which
66,667 were issued in connection with a promissory
note (see Note 5) and 133,333 were issued as
consideration for consulting services. The 266,667
warrants expiring in October 2001 were issued with
the $10 convertible preferred stock (see Note 11).
All of the warrants that expire November 2002 were
issued to an affiliate of the principal shareholder
of the Company in connection with a promissory note
(see Note 5).
14. Income Taxes The Company has a deferred tax asset amounting to
approximately $5,000,000 at November 30, 1998,
principally relating to net operating loss
carryforwards 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
due to the Company's financial condition, its lack of
a history of consistent earnings, and possible
limitations on the use of carryforwards giving 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.
As of November 30, 1998, the Company had net
operating loss income tax carryforwards of
approximately $8.7 million, which expire in the years
2004 through 2018.
15. Recent Accounting The FASB issued the following additional standards.
Standards These standards principally relate to presentation
and disclosure items. While not required to be
adopted by the Company until 1999 or later, the
Company does not anticipate that the standards will
have a material impact on the Company's financial
statement presentation or footnote disclosures:
</TABLE>
F-26
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
SFAS No. 130, "Reporting Comprehensive Income,"
established standards for reporting and display of
comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include
all changes in equity except those resulting from
investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under
current accounting standards as components of
comprehensive income be reported in a financial
statement that is displayed with the same prominence
as other financial statements.
SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which supersedes
SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," establishes standards for the
way that public enterprises report information about
operating segments in annual financial statements and
requires reporting of selected information about
operating segments in interim financial statements
issued to the public. It also establishes standards
for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131
defines operating segments as components of and
enterprises about which separate financial
information is available that is evaluated regularly
by management in deciding how to allocate resources
and in assessing performance.
Both SFAS Nos. 130 and 131 are effective for
financial statements for periods beginning after
December 15, 1997 and require comparative information
for earlier years to be restated.
</TABLE>
F-27
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires companies to
recognize all derivative contracts at their fair
values, as either assets or liabilities on the
balance sheet. If certain conditions are met, a
derivative may be specifically designated as a hedge,
the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with
the recognition of (1) the changes in the fair value
of the hedged asset or liability that are
attributable to the hedged risk, or (2) the earnings
effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the
period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June
15, 1999.
Historically, the Company has not entered into
derivative contracts either to hedge existing risks
or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to
affect its financial statements.
In March 1998, the Accounting Standards Executive
Committee issued SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for
Internal Use," which is effective for fiscal years
beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for costs of computer software
developed or obtained for internal use. The
pronouncement will not have a material impact on the
Company.
16. Acquisitions On November 26, 1997, the Company acquired all of
the outstanding stock of South Shore Publishers, Inc.
for approximately $421,500. In accordance with the
terms of the agreement, the Company is entitled to an
adjustment of purchase price if certain net working
capital requirements are not met as of the
acquisition date. The entire purchase price was
allocated to intangible assets and is being amortized
over an average period of 15 years.
</TABLE>
F-28
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
In 1997, the Company acquired 50 percent of the
outstanding stock of New York Blade News, Inc.
("NYBN") for approximately $100,000. The New York
Blade began publishing in October 1997 under the
terms of a letter agreement between the Company and
the owner of the remaining 50 percent interest in
NYBN.
17. Discontinued In August 1997, the Company adopted a plan to
Operations discontinue the Manhattan File glossy magazine
business. Accordingly, operating results have been
reclassified and reported in discontinued operations.
Net liabilities of Manhattan File consist mainly of
accounts receivable and accounts payable. On February
26, 1998, the Company entered into an agreement
whereby it sold 80 percent of the outstanding shares
of Manhattan File (retaining 10 percent) to the
holder of the remaining 10 percent of the shares. The
Company's remaining 10% interest was deemed to have
minimal value and was, therefore, written off as part
of this transaction. In accordance with the terms of
the agreement, the only consideration to be received
by the Company is any excess of accounts receivable,
at the closing date, collected in excess of payments
of accounts payable that existed at the closing date.
The estimated loss on the sale of Manhattan File,
which includes operating losses until disposal, is
approximately $256,000. Revenues from Manhattan File
amounted to approximately $1,582,000 for the year
ended November 30, 1997.
</TABLE>
F-29
<PAGE>
News Communications, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
18. Subsequent Events The Company's common stock is listed on the Nasdaq
SmallCap Market. The Company had been advised by The
Nasdaq Stock Market, Inc. ("Nasdaq") that the Company
was not in compliance with Nasdaq's new net tangible
assets/market capitalization/net income requirements
for companies listed on the Nasdaq Small Cap Market
which became effective on February 23, 1998, and that
Nasdaq intended to delist the Company's securities
from the Nasdaq Small Cap Market as of the close of
business on March 16, 1998. The Company had received
a temporary exception to the new requirements and a
temporary stay of delisting pending a hearing. The
Company submitted a written plan to Nasdaq describing
the Company's aims to achieve and maintain compliance
with the new requirements. Such plan contemplated
one-for-three reverse stock split of the Company's
Common Stock and a rights offering of approximately
3,833,333 shares at $1.50 per share for total
offering proceeds of approximately $5,750,000 which
was consummated on February 22, 1999. To the extent
all or a portion of the shares were not subscribed
to, certain principal shareholders of the Company
purchased any unsold shares. The Company intends to
use a portion of the proceeds to pay down a
$1,200,000 loan from stockholders received subsequent
to year end. (See note 5.)
</TABLE>
F-30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NEWS COMMUNICATIONS, INC.
By /s/ Wilbur L. Ross, Jr.
------------------------------
Wilbur L. Ross, Jr., Chief
Executive Officer
Each person whose signature appears below hereby constitutes and
appoints either Wilbur L. Ross or Michael Schenkler his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying all that said attorney-in-fact and agent or his
substitute or substitutes, or any of them, may lawfully do or cause to be done
by virtue hereof.
In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Wilbur L. Ross, Jr. Director and Chief Executive Officer February 26, 1999
- ------------------------------- (Principal Executive Officer)
Wilbur L. Ross, Jr.
Director February 26, 1999
- -------------------------------
Jerry Finkelstein
/s/ Michael Schenkler Director February 26, 1999
- -------------------------------
Michael Schenkler
/s/ Robert Berkowitz Controller (Principal Financial and February 26, 1999
- ------------------------------- Accounting Officer)
Robert Berkowitz
/s/ Gary Ackerman Director February 26, 1999
- -------------------------------
Gary Ackerman
Director February 26, 1999
- -------------------------------
Carl Bernstein
<PAGE>
Director February 26, 1999
- -------------------------------
John Catsimatidis
/s/ Mark Dickstein Director February 26, 1999
- -------------------------------
Mark Dickstein
/s/ Andrew J. Maloney Director February 26, 1999
- -------------------------------
Andrew J. Maloney
Director February 26, 1999
- -------------------------------
Robert E. Nederlander
Director February 26, 1999
- -------------------------------
Andrew J. Stein
Director February 26, 1999
- -------------------------------
Sy Syms
/s/ Arthur Tarlow Director February 26, 1999
- -------------------------------
Arthur Tarlow
/s/ Hillel Weinberger Director February 26, 1999
- -------------------------------
Hillel Weinberger
</TABLE>
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
November 30,
------------
1998 1997
---- ----
<S> <C> <C>
Diluted:
Average Shares Outstanding Disregarding
Dilutive Convertible Preferred Stock 2,721,670 2,710,918
Assuming Conversion at beginning of Year of:
$10 Convertible Preferred Stock 344,444 666,667
10% Convertible Preferred Stock 15,600 19,200
8% Convertible Preferred Stock 18,095 34,444
12% Convertible Preferred Stock 31,746 31,746
---------- -----------
Shares Outstanding 3,131,555 3,462,975
---------- -----------
Income [Loss] Available to Common
Stockholders Fully Diluted
Calculations $(2,744,856) $(2,954,215)
Per Share Amount:
Net Income [Loss] $(.87) $(.85)
----------- -----------
</TABLE>
This calculation is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although it is contrary to paragraph 48 of APB No. 15 because
it produces an antidilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of News Communications, Inc. as of November 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 123,621
<SECURITIES> 0
<RECEIVABLES> 4,946,438
<ALLOWANCES> 1,690,502
<INVENTORY> 0
<CURRENT-ASSETS> 3,682,906
<PP&E> 1,048,180
<DEPRECIATION> 683,208
<TOTAL-ASSETS> 7,436,224
<CURRENT-LIABILITIES> 5,688,219
<BONDS> 0
<COMMON> 27,919
0
220,340
<OTHER-SE> (460,328)
<TOTAL-LIABILITY-AND-EQUITY> 7,436,224
<SALES> 17,822,070
<TOTAL-REVENUES> 17,822,070
<CGS> 0
<TOTAL-COSTS> 19,815,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (322,970)
<INCOME-PRETAX> (2,316,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,711,735)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,711,735)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
