<PAGE>
RULE NO. 424(b)(4)
REGISTRATION NO. 333-67407
PROSPECTUS
NEWS COMMUNICATIONS, INC.
3,833,333 shares of common stock
_________________
We are granting at no cost to you, as a holder of our common stock or $10
convertible preferred stock, a non-transferable right to purchase shares our
common stock. You will be entitled to purchase a minimum of one share of common
stock and a maximum of two shares of common stock, based on availability, for
every share owned as of December 18, 1998 at a price of $1.50 per share. We
are selling up to 3,833,333 shares of our common stock in this rights offering.
If shares remain unsold after the rights offering, Wilbur L. Ross, Jr., Melvyn
I. Weiss and J. Morton Davis, or their designees, will purchase any remaining
unsold shares pursuant to a standby agreement.
The principal market for trading of our common stock is the Nasdaq SmallCap
Stock Market. Due to a temporary exception to certain requirements of Nasdaq
for continued listing that was granted by Nasdaq, our trading symbol will be
"NCOMC" until February 22, 1998. After such date, the shares will be listed
under our normal trading symbol "NCOM." The last reported sale price of our
common stock on the Nasdaq SmallCap Stock Market on January 12, 1999 was $1.31
per share.
_________________
Investment in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
_________________
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Proceeds to News Communications............. $1.50 $5,750,000
</TABLE>
The expenses of the offering that we will pay, estimated at $141,500, have
not been deducted from the proceeds to News Communications above.
_________________
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is January 19, 1999
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........................................... 1
RISK FACTORS................................................. 5
THE OFFERING................................................. 11
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................... 14
USE OF PROCEEDS.............................................. 15
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY.............. 16
CAPITALIZATION............................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION............................................. 19
BUSINESS..................................................... 25
MANAGEMENT................................................... 33
SUMMARY COMPENSATION TABLE................................... 37
AGGREGATE YEAR-END OPTION VALUES............................. 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT........................................... 42
DESCRIPTION OF SECURITIES.................................... 45
INDEMNIFICATION AND INDEMNITY................................ 47
SHARES ELIGIBLE FOR FUTURE SALE.............................. 48
LEGAL MATTERS................................................ 49
EXPERTS...................................................... 49
CHANGE IN ACCOUNTANTS........................................ 49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................... F-1
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It may not contain all of the information that you should consider before
investing in the common stock. You should read the entire prospectus carefully,
including the "Risk Factors" section and the financial statements and the notes
to those statements. Unless we say otherwise, the statements in this prospectus
assume an exercise price of $1.50 per share, and give effect to a one-for-three
reverse split of the common stock that became effective on January 19,
1999.
Some of the statements contained in this prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis or Plan of
Operations" and "Business" are forward-looking. They include statements
concerning strategy, liquidity and capital expenditures, debt levels and the
ability to obtain financing, service debt, competitive pressures in the
newspaper business, legal proceedings and regulatory matters and general
economic conditions. Actual results may differ materially from those suggested
by the forward-looking statements for various reasons, including those discussed
under "Risk Factors."
Our Business
News Communications, Inc. publishes and distributes community oriented
newspapers and targeted audience publications. The publications serve specific
geographic communities and, in most instances, are distributed free of charge to
selected residences and businesses in those communities. Each publication
focuses on the lifestyle, culture, arts, entertainment, politics and social
issues of particular interest to the communities it serves. The principal
source of our revenues is the sale of advertising space in our publications. It
accounted for 92% of our revenues for the fiscal year ended November 30, 1997,
89% of our revenues for the fiscal year ended November 30, 1996 and 92% of our
revenues for the nine months ended August 31, 1998.
The following table sets forth selected information relating to our
portfolio of print publications as of November 13, 1998.
<TABLE>
<CAPTION>
Publication Community Served
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<S> <C>
Manhattan Spirit, The Blade,
Chelsea-Clinton News*, and Westsider*.... West Side of Manhattan, NYC
Our Town.................................... Upper East Side of Manhattan, NYC
Dan's Papers and Montauk Pioneer............ Eastern Long Island, New York
Queens Tribune, Western Queens Tribune,
and Bayside Trib at Home................. Borough of Queens, NYC
Riverdale Review and Bronx Press Review*.... Riverdale section of the Bronx, NYC
</TABLE>
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<TABLE>
<S> <C>
Long Island Lifestyles, Long Island Market, The South
Shore Record* (Five Towns), Lynbrook USA*,
Malvern Community Times*, Rockville Centre News
& Owl*, Oceanside Beacon*, Baldwin Citizens*, East
Rockaway Observer*, Valley Stream MAILleader*,
The Independent Voice of Long Beach*, Oceanside
and Island Park*, Elmont Life, Franklin Square
Life and West Hempstead Life.... Nassau County, New York
The Hill........................... Weekly paper devoted to coverage of US
Congress
Brooklyn Skyline................... Borough of Brooklyn, NYC
</TABLE>
* Paid circulation newspapers
News Communications has developed a regional group of publications in the
greater New York City metropolitan area. We believe this strategy has been
attractive to advertisers seeking a broad New York metropolitan area audience.
We also believe that we can take advantage of economies of scale, combination of
operations and other synergies not available to individual publications. We
intend to purchase more publications and seek other growth opportunities in the
New York region. We also plan to expand to other areas as resources permit such
as New Jersey, Connecticut, Massachusetts and resort communities throughout the
United States. Our executive offices are located at 174-15 Horace Harding
Expressway, Fresh Meadows, New York 11365, and our telephone number is (718)
357-3380.
The Offering
<TABLE>
<S> <C>
Description of the rights
offered All holders of common stock or convertible
preferred stock on December 18, 1998 will receive
a right to purchase a minimum of 1 share and a
maximum of 2 shares, based on availability, of
common stock for every share owned. This means
that, after each holder who exercised his right to
purchase any shares in this offering has received
one share, each holder who exercised his right to
receive 2 shares shall receive one additional
share for each share owned, provided that the
number of shares remaining in the offering is
sufficient. If the number of shares remaining is
insufficient, each holder shall receive a pro rata
portion of the remaining shares based upon the
number of shares owned by such holder, subject to
upward adjustment to avoid the issuance of
fractional shares.
The exercise price of the
rights The exercise and purchase price will be $1.50 per
share.
</TABLE>
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<TABLE>
<S> <C>
When you can exercise your rights The rights will only exercisable from the
period beginning on January 19, 1999 and
ending on February 16, 1999 at 5:00 p.m.,
New York City time.
How your rights will be evidenced Each shareholder will receive a
certificate representing the non-
transferable right. Shares should be ready
for delivery on or about February 22,
1999, against payment in immediately
available funds.
Obligations of Wilbur L. Ross, Jr.
Melvyn I. Weiss and J. Morton Davis Messrs. Ross, Weiss and Davis, or their
designees, will purchase, at the exercise
price, any shares offered in the rights
offering that have not been purchased
through the exercise of the rights, in the
following percentages:
Mr. Ross 15%
Mr. Weiss 35%
Mr. Davis 50%
As a result, they may be deemed
underwriters for purposes of the
Securities Act.
Number of shares of common stock
offered in the rights offering 3,833,333 shares.
Common stock to be outstanding
after the rights offering 6,569,125 shares. For an explanation of
certain shares not included in this
amount, see "Capitalization."
Use of proceeds Repayment of a $1,200,000 loan from
Messrs. Wilbur, Weiss and Davis, working
capital and other general corporate
purposes, including possible acquisitions
and investments in other businesses.
</TABLE>
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Summary Financial Information
The following summary financial information is taken from our Consolidated
Financial Statements included elsewhere in this prospectus and should be read
along with the Consolidated Financial Statements and the related Notes.
In the table titled Balance Sheet Data, the information contained in the
(a) "Pro Forma" column includes refinancing of our long-term
debt,
(b) "Pro Forma As Adjusted" column includes the sale of 3,833,333
shares of common stock at a price of $1.50 per share as a result of this
offering and our receipt of the proceeds and
(c) "Total Assets" includes goodwill of $3,271,629.
Income Statement Data:
<TABLE>
<CAPTION>
Year ended November 30, Nine Months Ended August 31,
----------------------- ---------------------------
1996 1997 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenue................................ $16,614,501 $17,523,952 $13,051,666 $13,654,111
Operating Expenses......................... $19,123,415 $19,832,177 $13,433,226 $13,996,299
Interest Expense........................... $ (177,471) $ (200,948) $ (143,101) $ (240,173)
Net Income (Loss) Available to Common
Stockholders.............................. $(3,881,428) $(2,954,215) $ (872,829) $ (742,361)
Net Income (Loss) per Share of Common Stock
$(1.47) $(1.08) $(.33) $(.27)
Average Number of shares................... 2,663,999 2,710,918 2,650,884 2,730,378
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
August 31, 1998
---------------
Pro Forma
---------
Actual Pro Forma As Adjusted
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<S> <C> <C> <C>
Total Assets $ 7,988,416 $7,988,416 $13,453,166
Long-Term Debt $ 0 $2,500,000 $ 2,500,00
Working Capital $(1,913,553) $ 586,447 $ 6,051,197
Stockholders' Equity $ 1,766,646 $1,766,646 $ 7,231,396
</TABLE>
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RISK FACTORS
The securities we are offering involve a high degree of risk, including the
risks described below. You should carefully consider the following risk factors
which affect our business and this offering before investing in the
securities.
We Have Had Insufficient Revenues to Satisfy Our Ongoing Expenses of
Operation
Due to our history of losses, we cannot assure you that we will ever be
profitable. Our revenues have not been sufficient to satisfy our ongoing
expenses of operation. We had net losses of $2,954,215 and $3,881,428 for the
fiscal years ended November 30, 1997 and 1996, respectively, and $742,361 for
the nine months ended August 31, 1998. As of August 31, 1998, our accumulated
deficit was $14,816,018. See "Management's Discussion and Analysis or Plan of
Operations" for a more detailed discussion of our losses, sources of funds for
operations and other financial information.
We are Dependent on Advertising Revenues Which Account for Almost All of our
Revenues
A change in the overall economy or economic conditions affecting our
advertisers in our publishing schedules and discount programs would have a
significant negative impact on advertising revenues, particularly if any lost
advertisers could not be replaced. This is due to the fact that advertising
revenues made up nearly 92% of our revenues in fiscal 1997, and we do not have
long-term contracts with our advertisers, so any advertiser can terminate at any
time. In addition, our publishing schedules and advertising discount programs
affect the amount of advertising revenues.
If we do not compete successfully for advertisers and readers, if our
advertising revenues are negatively impacted by the overall economy or economic
conditions affecting our advertisers, then our financial condition will be
negatively affected as well. Competition for advertising dollars is primarily
based on advertising rates, the nature and scope of readership, reader response
to advertisers' products and services and the effectiveness of sales efforts.
Our Success is Dependent on Readership Interest Necessary to Attract and Hold
Advertisers
We cannot be sure that our existing publications will keep or increase
their present level of acceptance to advertisers. Our likelihood of success
must be considered in light of the difficulties in growing and maintaining the
readership interest necessary to attract and hold advertisers, our principal
source of revenue. Even if they attain greater acceptance, that does not mean
we will be able to recover our development and acquisition costs or become
profitable on an ongoing basis.
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Because Our Publications are Made from Paper, Increases in Paper Costs May Cause
Further Losses
Paper is the principal raw material for our publishing operations. Paper
is provided by our contract printers. We utilize three different printers in
the New York metropolitan area and monitor the paper markets with them. Even
though we believe that we purchase paper and printing very effectively and that
our long-term relationships in the industry should allow us to continue to do
so, we cannot be sure the price of paper will not increase, or that we will be
able to recover any paper cost increases by increasing advertising or
subscription rates. Any substantial cost increase in paper will have a
significant negative affect on the results of operations. See "Management's
Discussion and Analysis or Plan of Operations" for additional discussion
regarding costs of operations.
Holders of Our $10 Convertible Preferred Stock Have the Right to Nominate Half
of Our Board of Directors and to Approve Mergers
So long as at least 100,000 shares of $10 convertible preferred stock are
outstanding, the holders of this class of stock have the right to nominate and
elect half of the directors that make up our Board of Directors. They also have
the right to approve any sale of all or substantially all of our assets or a
merger or other similar transaction which we propose to undertake. As a result
of these rights, the holders of the $10 convertible preferred stock and the
directors they elect are able to prevent us from undertaking any action or
entering into any agreement with which they do not agree even if such action or
agreement may be beneficial to our business or to the holders of other classes
of our securities.
Three Stockholders Own or Control a Substantial Amount of Our Stock and May,
Therefore, Influence our Affairs
Wilbur L. Ross, Melvyn I. Weiss and J. Morton Davis beneficially own more
than 50% of our outstanding common stock on a fully-diluted basis. Their
percentage ownership will increase if all of the rights are not exercised by our
current shareholders by virtue of their commitment to purchase any unsubscribed
rights. Accordingly, even after the number of shares of $10 convertible
preferred stock fall below 100,000, Messrs. Ross, Weiss and Davis, if they were
to act together, will be able to control our business and affairs.
The Disproportionate Voting Rights of Our $10 Convertible Preferred Stock May
Discourage Beneficial Transactions
The disproportionate voting rights between the $10 convertible preferred
stock and the common stock could have an adverse effect on the market price of
the common stock. Such disproportionate voting rights may make News
Communications a less attractive target for a takeover than it otherwise might
be, or render more difficult or discourage a merger proposal, a tender offer or
a proxy contest, even if such actions were favored by holders of our common
stock. Such disproportionate voting rights may also deprive holders of the
common stock of an opportunity to sell their shares at a premium over then
prevailing market prices for the common stock.
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We Face Strong Competition for Advertisers in the Newspaper Business
Many of our competitors have a competitive advantage over us by virtue of
their longer standing market positions and better name recognition, as well as
greater marketing and financial resources. The newspaper business is extremely
competitive, and our publications compete for advertising dollars directly with
other newspapers and magazines which are distributed without charge in the areas
in which we distribute our publications. Our publications also compete with
paid circulation newspapers and magazines which are sold in the areas in which
our publications are distributed, as well as with other advertising media such
as radio and television.
We May Not Be Able to Retain The Key Personnel We Need to Succeed
If any officers or the following key personnel cease employment with us
before we find qualified replacements, it might have a significant negative
impact on our publications and overall business. Our success is dependent upon
the personal efforts and abilities of our executive officers, including Jerry
Finkelstein, Chairman of the Board, Wilbur L. Ross, Chief Executive Officer, and
Michael Schenkler, President. We are also dependent upon certain key personnel
who are publishers and/or editors of our publications. These key personnel
include Dan Rattiner, the publisher and editor of Dan's Papers, Thomas Allon,
the publisher and editor-in-chief of Manhattan Spirit and Our Town and Marty
Tolchin, the publisher and editor-in-chief of The Hill. We do not maintain key-
man life insurance on any of our employees.
We are currently searching for a new Chief Executive Officer to replace
Wilbur L. Ross, who has decided to relinquish that position as soon as a
replacement is found. Qualified persons for such a position are scarce, and the
competition for them is great. As a result, we cannot be certain that we will
be able to hire someone as knowledgeable as Mr. Ross.
The Offering Price of the Common Stock is Higher Than its Current Market
Price
The offering price of the shares was based upon factors including the
market price of our common stock at the time the Board of Directors authorized
this rights offering and the decision by the Board of Directors that such price
represents the market value of our common stock regardless of the lower current
market price. As a result, the offering price does not necessarily reflect the
price at which our shares may be sold in the public market during or after the
offering. See "Price Range of Common Stock and Dividend Policy" for the current
market price of our common stock.
Our Common Stock May be Subject to Great Price Volatility
The public markets, in general, have from time to time experienced extreme
price and volume fluctuations, which have in many cases been unrelated to the
operating performance of particular companies, and the market for stocks of
companies with smaller amounts of capital like ours can be subject to greater
price volatility than the stock market in general. In addition, factors such as
new products by our competitors or other companies, potential litigation, and
strategic alliances may have a significant impact on the market price of the
common stock. See
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"Price Range of Common Stock and Dividend Policy" for a summary of the high and
low closing bid prices of the common stock for each fiscal quarter in the past
three years.
We Have Received a Temporary Exception from The Nasdaq SmallCap Market Listing
Maintenance Requirements and May Be Delisted After this Offering if Our Plan to
Regain and Maintain Compliance Does Not Succeed
Our common stock may be delisted from The Nasdaq SmallCap Market if we are
unable to continue to satisfy the requirements for maintaining such Nasdaq
listing after this offering.
On July 29, 1998, following an expedited written hearing before a Nasdaq
Listing Qualifications Panel, a determination was made that News Communications
had failed to meet The Nasdaq SmallCap Stock Market minimum net tangible asset
requirement and the minimum market capitalization requirement. As a result,
Nasdaq decided that our shares would be delisted from The Nasdaq SmallCap Stock
Market. After a hearing was held before Nasdaq staff on October 1, 1998, we were
subsequently advised by Nasdaq that we may continue to list our common stock on
The Nasdaq SmallCap Stock Market despite our failure to meet Nasdaq's minimum
net tangible asset requirement and minimum market capitalization requirement,
provided that we follow through with our plan to regain compliance with these
requirements on or before February 15, 1999, which date was then extended by
Nasdaq until February 22, 1999. This plan includes:
. effecting a 1-for-3 reverse stock split to raise the closing bid price
of our common stock above $1.00 per share. This occurred on January
19, 1999; and
. raising capital through this offering.
Immediately after the reverse split, the closing bid price must meet or
exceed $1.00 per share for a minimum of ten consecutive trading days. In
addition, we must make a public filing with the SEC and Nasdaq evidencing the
completion of this offering and achieving net tangible assets of $3,000,000.
Although we are in the process of completing the proposed plan to regain
compliance with the requirements for continued listing, we cannot be sure that
the closing bid price of the shares will meet or exceed $1.00 per share for ten
days after the reverse split and, therefore, that the shares will remain listed
on The Nasdaq SmallCap Stock Market. If our securities are excluded from The
Nasdaq SmallCap Stock Market, it may negatively affect the prices of the
securities and your ability to sell them.
If We are Delisted from the Nasdaq SmallCap Market, Our Investors May Find it
More Difficult to Trade Our Common Stock Due to the "Penny Stock" Rules
In the event that our shares are delisted, we anticipate that they will
continue to be traded on the Nasdaq's Electronic Bulletin Board. In that event,
trading in our shares would be covered by "penny stock" rules promulgated for
non-Nasdaq and non-exchange listed securities. Under these rules, any
broker/dealer who recommends our shares to persons other than prior customers
and investors meeting certain financial requirements, must, prior to sale, make
a special written suitability determination for the purchaser and receive the
purchaser's
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<PAGE>
written agreement to a transaction. Securities are exempt from these rules if
the market price is at least $5.00 per share.
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market.
If our shares become subject to the regulations on penny stocks, the price
and ability to sell our shares would be severely affected because the shares
could only be sold in compliance with the penny stock rules. We cannot be sure
that our securities will not be subject to the penny stock regulations or other
regulations that would negatively affect the market for our securities.
The Issuance of Shares of Common Stock Upon the Exercise of Options and
Warrants, Upon the Conversion of Our Classes of Convertible Preferred Stock and
Upon the Sale of Shares By Persons Exercising Registration Rights Will Cause
Dilution to Our Current Stockholders
As of the date of this prospectus, there were outstanding various options,
warrants and shares of preferred stock which, if exercised or converted by the
holders, entitle them to purchase up to 1,579,926 shares of common stock at
exercise or conversion prices ranging from $3.75 to $9.38 per share.
The exercise or conversion of any of such securities will most likely occur
at a time when our stock price exceeds the conversion or exercise price. This
would decrease the value of our common stock. The existence of these securities
could have a negative impact on the terms we could negotiate for additional
financing. In addition, some holders of common stock, preferred stock, options
and warrants have registration rights with respect to the securities.
Registration rights enable these securityholders to register for sale their
shares of common stock and the shares of common stock underlying their preferred
stock, options and warrants. As a result, these shares of common stock become
freely tradable. These registration rights could be a substantial future
expense and could negatively affect any future equity or debt financing, because
such rights often deter underwriters from agreeing to perform an offering due to
decreased compensation for the underwriters. Also, the sale of these shares
held by or issuable to persons holding registration rights could have a negative
effect on the market price, of our shares as a result of their dilutive
effect.
The Sale of Shares of Common Stock Pursuant to Rule 144 May Decrease the Stock
Price
Approximately 50,000 shares of our common stock, upon conversion of the $10
convertible preferred stock series 2, are "restricted" securities as that term
is defined in Rule 144 under the Securities Act. Of the restricted shares, none
have been held for over one year. Possible or actual sales of restricted common
stock by our current stockholders under Rule 144 or otherwise may in the future
decrease the price of our shares in any market which exists or
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which may develop. See "Shares Eligible for Future Sale" for information on
additional shares eligible and an explanation of Rule 144.
The Issuance of Any of Our Authorized and Unissued Shares of Common Stock and
Preferred Stock May Cause Dilution to Our Current Stockholders.
We are authorized to issue 100,000,000 shares of common stock, of which
. 2,735,791 shares are presently outstanding,
. 447,259 are reserved for issuance upon conversion of outstanding
preferred stock, and
. 1,132,667 shares are reserved for issuance upon exercise of currently
outstanding options and warrants.
The balance of the authorized common stock will be issuable in the
discretion of the Board, and will not require stockholder approval. Although
the Board currently has no plans to issue any unissued shares except in payment
of dividends on the 10% preferred stock, the issuance of any new shares would
have the effect of diluting the interests of our existing stockholders.
We are also authorized to issue 500,000 shares of "blank check" preferred
stock. Blank check preferred stock is preferred stock that may be issued from
time to time in such classes or series and with such terms, rights and
preferences as the Board of Directors may choose. 26 shares designated 10% non-
voting convertible preferred stock, 114 shares designated 8% convertible
preferred stock, 200 shares designated 12% convertible preferred stock, 220,000
shares designated $10 convertible preferred stock are issued and outstanding.
The balance of the authorized preferred stock may be issued in the discretion of
the Board, without stockholder approval, with dividend, liquidation, conversion,
voting or other rights which could negatively affect the voting power or other
rights of owners of our common stock or other series of preferred stock. In the
event of issuance, the preferred stock could be used, under certain
circumstances, as a way to discourage, delay or prevent a change in control of
News Communications, Inc. which in turn could discourage bids for us and prevent
stockholders from receiving the maximum value for their shares. See
"Description of Securities" for a discussion of the terms, rights and
preferences of our currently outstanding securities.
Our Management has Broad Discretion in the Application of Proceeds Which May
Increase the Risk that the Proceeds will not be Applied Effectively
Except for $1,200,000 to be used to repay a loan by Messrs. Ross, Weiss and
Davis, proceeds of this offering will not be allocated for specific purposes but
will be used for working capital and general corporate purposes. With such broad
discretion in how to use the money, there is increased risk that the Board of
Directors will fail to apply it effectively. In addition, although we have no
agreement, arrangement or understanding with respect to the purchase of any
other business, should an opportunity arise, the Board of Directors will have
the power to approve such acquisition without the consent of our stockholders.
This means
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that stockholders will have no voice with regard to our future operations and
are subject solely to the business judgment of management.
We Have Limitations on How and When We Can Pay Dividends
We have never paid any dividends on our common stock and do not believe we
will pay any dividends on the common stock in the near future. Provisions of
the outstanding series of preferred stock also restrict our ability to pay
dividends on the common stock. Applicable provisions of Nevada corporate law
affect our ability to declare and pay dividends and could significantly limit,
or even prohibit, our ability to pay dividends in the future. Specifically,
Nevada corporate law prohibits us to pay dividends if it would prevent us from
paying our customary debts in running our Business as they become due. Also,
payment of dividends would be prohibited if it would cause the total of our
assets to be less than the amount required, to pay, upon dissolution of News
Communications, all amounts owed to stockholders with superior rights to those
stockholders receiving the dividend.
The Failure of Our Advertisers to be Year 2000 Compliant Could Negatively Impact
Our Business
The Year 2000 issue arose from 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 in our systems and/or in the
systems of our suppliers including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
We have determined that our accounting system is the only operating program
that is not Year 2000 compliant. Management believes that the estimated costs
to modify or replace this system before the Year 2000 are not significant. In
addition, certain of our advertisers have informed us that they do not
anticipate problems in their business operations due to Year 2000 compliance
issues. However, we are currently unable to determine the extent to which Year
2000 issues will affect our other advertisers, or the extent to which we would
be vulnerable to their failure to fix any of their Year 2000 problems. See
"Management's Discussion and Analysis or Plan of Operation Impact of Year 2000
Compliance" for detailed information on our risks regarding and contingency
plans for year 2000 issues.
THE OFFERING
Why We are Selling Shares Through a Rights Offering
Although the rights offering is essentially a public offering directed to
our stockholders, we believe that the rights offering provides several
advantages over a traditional public offering. The offering gives us the
opportunity to offer our common stock to investors who, as our current
stockholders, already have some knowledge of our business, and to distribute the
securities to a more stable stockholder base.
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We determined the exercise price based upon our current market price.
What You Can Do with Your Rights
You may purchase a minimum of 1 share for every share owned and up to 2
shares, if available, for every share owned on the basis of each right you
receive. If more than 3,833,333 shares are subscribed for, stockholders who
have exercised their right to purchase more than one share will have their
subscription reduced proportionately. You may not exercise rights for fewer
than 10 shares in an account. If you hold shares in multiple accounts, you must
meet the minimum purchase requirement for each account. You may, however,
consolidate your rights into one account. You should consult with your regular
investment advisor and carefully consider your alternatives. See "Prospectus
Summary - The Offering Description of the Rights Offered" for further
explanation on purchasing 1 or 2 shares.
When You Can Exercise Your Rights
You can exercise your rights at any time during the period beginning on
January 19, 1999 and ending at 5:00 p.m., New York City time, on February 16,
1999. After that date, you will not be able to exercise your right, and it will
be worthless, regardless of when you sent your right to the transfer agent for
exercise.
The Shares May Not Be Registered in the State Where You Live
You may reside in a jurisdiction in which the shares offered are not
registered or may not be qualified for issuance or sale under the state
securities laws. In that case, we cannot issue shares of common stock to you
unless the shares could be registered or otherwise qualified for sale in the
jurisdiction to which you move, unless an exemption from such registration or
qualification exists in such jurisdiction. We cannot be sure you will be able
to legally exercise your right to purchase the shares.
How You Can Exercise Your Rights
You may exercise your rights by completing and signing the election to
purchase form that appears at the end of each rights certificate. You must send
the completed and signed form, along with payment in full of the exercise price
for all shares that you wish to purchase to Continental Stock Transfer & Trust
Company. We will not honor any exercise of rights received by Continental Stock
Transfer & Trust Company after February 16, 1999.
We will, however, accept your exercise if Continental Stock Transfer &
Trust Company has received full payment of the exercise price for shares, and
has received a letter or telegraphic notice from a bank, trust company or member
firm of the New York Stock Exchange or the American Stock Exchange setting forth
your name, address and taxpayer identification number or Social Security Number,
the number of shares you wish to purchase, and guaranteeing that a properly
completed and signed election to purchase form will be delivered to Continental
Stock Transfer & Trust Company by the date stated above.
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We suggest, for your protection, that you deliver your election to purchase
form and payment to Continental Stock Transfer & Trust Company by overnight or
express mail courier or by hand delivery. If you mail your rights, we suggest
that you use registered mail. If you wish to exercise your rights, you should
deliver them and payment for the exercise price as follows:
Continental Stock Transfer & Trust
Company
2 Broadway
New York, New York 10004
You must pay the exercise price in U.S. dollars by check or money order
payable to the "Continental Stock Transfer & Trust Company, Agent, News
Communications, Inc." Continental Stock Transfer & Trust Company will issue
certificates to you representing the common stock purchased through the exercise
of rights on or about February 22, 1999. Until that date, Continental Stock
Transfer & Trust Company will act as escrow agent and, therefore, will hold all
funds received in payment of the exercise price in escrow and will not deliver
any funds to us until the shares have been issued.
If you are a broker or depository who holds our shares for the account of
others and you receive rights certificates for the account of more than one
beneficial owner, you should provide copies of this prospectus to the beneficial
owners. You should also carry out their intentions as to the exercise or
transfer of their rights.
We will decide all questions as to the validity, form, eligibility and
acceptance of subscription forms, including questions as to times of receipt,
beneficial ownership, compliance with minimum exercise provisions and
calculation of the total exercise price. We will not accept any alternative,
conditional or contingent subscriptions. We reserve the absolute right to
reject any subscriptions not properly submitted. In addition, we may reject any
subscription if the acceptance of the subscription would be unlawful. We also
may waive any irregularities or conditions in the subscription of shares of
common stock, and our interpretations of the terms and conditions of the rights
offering shall be final and binding.
If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than February 22, 1999. We are not
obligated to give you notification of defects in your subscription. We will not
consider an exercise to be made until all defects have been cured or waived. If
your exercise is rejected, your payment of the exercise price will be promptly
returned by March 8, 1999.
What Happens to the Unsubscribed Shares
Wilbur L. Ross, Jr., Melvyn I. Weiss and J. Morton Davis, or their
designees, will purchase any unsubscribed shares remaining unsold after the
rights offering. See "The
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Offering - Obligations of Wilbur L. Ross, Jr. Melvyn I. Weiss and J. Morton
Davis" for the specific percentage of unsold shares that each such person has
agreed to purchase.
Messrs. Ross, Weiss and Davis must purchase these shares no later than
February 22, 1999. We intend to supplement the prospectus after the rights
exercise period is over to set forth the results of the rights offering, and the
number of unsubscribed shares purchased, if any.
What Happens if the Rights Offering is Canceled
Messrs. Ross, Weiss and Davis have the right to cancel the rights offering
if certain conditions are not satisfied or if certain circumstances exist prior
to the closing date of the offering. If you exercise rights and the rights
offering is canceled, Continental Stock Transfer & Trust Company will promptly
return to you, without interest, any payment received in respect of the exercise
price, and you will not receive any of our shares. Trades in the when-issued
shares of common stock in the market would be canceled if the offering is not
consummated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general summary of the material federal income tax
consequences of the rights offering is based upon the advice of Piper & Marbury
L.L.P., counsel to News Communications, Inc. It does not discuss all of the
federal income tax consequences which may affect a particular investor, nor does
it describe state, local, foreign or other tax consequences. Holders of common
-----------------
stock should consult their own tax advisors concerning the tax treatment to them
- --------------------------------------------------------------------------------
of the rights offering.
- ----------------------
Receipt of rights. In general, a distribution of rights to acquire common
stock, pro rata with respect to common stock, does not result in taxable income
to holders of the common stock. However, where a distribution results in the
receipt of property, including cash, by some shareholders, and an increase in
the proportionate interest of other shareholders in the corporation, the fair
market value of the rights is treated as a taxable distribution, as described
below. Since News Communications, Inc. has paid cash dividends with respect to
the 8% preferred stock and the 12% preferred stock, and the receipt of the
rights will result in an increased proportionate interest by the holders of
common stock, the receipt of rights will be treated as a taxable
distribution.
The amount of the taxable distribution will be equal to the fair market
value of the rights at the time they are distributed. Since the rights will not
be transferable, it may be difficult to establish such fair market value. Such
distribution will be treated as a dividend to the extent News Communications,
Inc. has either accumulated earnings and profits on the date the rights are
distributed or current earnings and profits for the year which includes such
date. To the extent the fair market value of the rights exceeds such earnings
and profits, it will be treated, first, as reducing a holder's basis in the
common stock, but not below zero, with
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respect to which such right was distributed. Any additional amount in excess of
such basis will be treated as having been received in exchange for the common
stock, and, assuming such common stock is held as a capital asset, will give
rise to capital gain.
A holder's basis in a right will be equal to its fair market value on the
date of distribution. A holder's holding period in rights received with respect
to common stock will not include his holding period for the common stock with
respect to which such rights were distributed.
News Communications, Inc. believes that the rights are not likely to have
significant value, and it will not have accumulated earnings and profits as of
the date of the rights distribution or current earnings and profits for the year
which includes such date. Therefore, it is not anticipated that the
distribution of rights will have significant tax consequences to a holder of
common stock.
Exercise of rights. No taxable income will be recognized upon the purchase
of common stock pursuant to the exercise of a right. A holder who acquires
common stock upon such exercise will have a basis in the common stock equal to
the sum of his basis, if any, in the rights which are exercised, determined as
discussed above, plus the exercise price paid. The holder's holding period for
the common stock acquired upon exercise of a right will begin on the date of
exercise, and will not include his holding period for the right.
Lapse of rights. If a right lapses without having been exercised, the
holder will recognize a loss equal to his basis, if any, in the right. Such
loss will be capital loss, assuming the common stock would have been a capital
asset in the holder's hands, and will be long-term or short-term depending upon
whether the holder's holding period in the lapsed rights, which, as discussed
above, will not include his holding period for the common stock with respect to
which the rights were received, is more than one year.
USE OF PROCEEDS
The net proceeds to be received by News Communications upon consummation of
the offering are estimated to be approximately $5,750,000. Such amounts will be
used to repay the December 1998 loan made by Messrs. Wilbur, Weiss and Davis,
for working capital and other general corporate purposes as and when received. A
portion of such proceeds may be used in the future for additional acquisitions
of or investments in other businesses, both related or non-related to our
newspaper business. Such investments could include controlling or non-
controlling or minority interests. We are in the process of identifying
appropriate candidates for acquisitions. Until utilized, the net proceeds of
this offering will be invested in short-term United States Government
securities, certificates of deposit, money market funds and other short-term or
long-term interest-bearing investments and investment grade common equities.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our shares trade on The Nasdaq SmallCap Stock Market under the temporary
trading symbol "NCOMC". Assuming that we are in compliance with the
requirements for continued listing at consummation, our trading symbol will be
NCOME. The following table sets forth, for the periods indicated, the range of
high and low closing bid quotations as reported by Nasdaq. The bid quotations
set forth above reflect inter-dealer prices, without retail markup, mark-down or
commission and may not necessarily represent actual transactions.
High Low
---- ---
Fiscal Year Ended November 30, 1996
First Quarter..................... $9.75 $7.14
Second Quarter.................... 8.43 6.39
Third Quarter..................... 7.50 4.89
Fourth Quarter.................... 7.68 3.00
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
On January 12, 1999, the last reported sales price for the common stock on
The Nasdaq SmallCap Stock Market was $1.31 per share. At January 12, 1999, we
had 936 stockholders of record. We estimates 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
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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
"Description of Securities" and "Consolidated Financial Statements" for more
information regarding our securities and any dividends we have paid.
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CAPITALIZATION
The following table sets forth the capitalization of News Communications at
August 31, 1998 adjusted for the one for three reverse stock split and as
adjusted to give effect to the issuance of 3,833,333 shares of common stock upon
completion of the offering, if required, and the application of the estimated
net proceeds therefrom.
The information contained in the "As Adjusted" column assumes that no
proceeds of offering will be used to retire debt.
The 6,619,458 shares of common stock outstanding as adjusted excludes up to
. 122,223 shares issuable upon the exercise of stock options
granted and that may be granted under our 1987 Stock Option Plan,
. 500,000 shares issuable upon the exercise of options granted and
that may be granted under our Discretionary Directors and
Officers Stock Option Plan,
. 166,667 shares issuable upon the exercise of options granted
under our Non-discretionary Directors Stock Option Plan,
. 437,296 shares issuable upon conversion of outstanding shares of
various series of preferred stock, and
. 54,048 shares issuable upon the exercise of other outstanding
warrants and options.
Not included in the following table is the $1,200,000 loan made by Messrs.
Ross, Weiss and Davis to us on December 31, 1998. In consideration for the loan,
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%.
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
<S> <C> <C>
Long-term Debt $ 0 $ 0
Stockholders' Equity:
Preferred Stock, $1.00 par value, 500,000 shares authorized
10% Convertible Preferred Stock, 1,250 shares
authorized, 26 outstanding and as adjusted $ 26 $ 26
8% Convertible Preferred Stock, 500 shares authorized,
114 outstanding and as adjusted 114 114
12% Convertible Preferred Stock, 200 shares authorized
and outstanding and as adjusted 200 200
$10 Convertible Preferred Stock, 220,000 shares authorized,
and outstanding and as adjusted 220,000 220,000
Paid-in Capital Preferred Stock 2,257,025 2,257,025
Common Stock, $.01 par value, 100,000,000 shares
authorized, 2,786,124 issued, 6,619,458 as adjusted 27,861 66,194
Paid-in Capital Common Stock 14,486,167 19,912,584
(Deficit) (14,816,018) (14,816,018)
----------- -----------
Totals $ 2,175,375 $ 7,640,125
Less: Treasury Stock, 50,333 shares actual and as
adjusted (408,729) (408,729)
-------- --------
Total Stockholders' equity $ 1,699,898 $ 7,164,648
========= =========
</TABLE>
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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
Nine Months Ended August 31, 1997 Compared to Nine Months Ended August 31, 1998
We reduced our net loss for the nine months by $130,000 (15%) from
($872,000) in 1997 to ($742,000) in 1998. Operating loss before interest
expense and equity in loss of unconsolidated subsidiary decreased by $40,000
(10%) from ($382,000) in 1997 to ($342,000) in 1998. This decrease is primarily
from increased profit at The Hill, which was a result of its strong increase in
revenues, offset by an increased loss at Nassau Newspapers. Nassau Newspapers
is in a transitional year due to management change and has included 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, and management expects profitability in fiscal 1999. The
increase in interest expense of $97,000 (68%) from $143,000 in 1997 to $240,000
in 1998 was a result of the loan from an affiliate of a principal stockholder
and officer being outstanding in 1998.
Our total revenues were $13,654,000 for the nine months of 1998, an
increase of almost $602,000 (5%) from $13,052,000 in 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 $866,000 (64%), and 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 $148,000 (5%). These increases were offset by
decreases at the Manhattan newspapers, which in Our Town, Manhattan Spirit and
Chelsea Clinton/Westsider, of $521,000 (16%). 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 substantially 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 $541,000 (8%) primarily as a
result of commissions on increased revenues and additional salaries incurred
with the acquisition of the South Shore Record.
Management has undertaken a number of steps to reverse the losses incurred
over the past years. In February 1998 we disposed of our Manhattan File
subsidiary, which had been
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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 a turn to profitability at that
subsidiary. We have has also installed new management at Nassau Newspapers
where, along the synergies from the acquisition of the South Shore Record, it is
expected that there will be a turn towards profitability.
Fiscal Year Ended November 30, 1997 Compared To Fiscal Year Ended November 30,
1996
1997 was a transitional year for News Communications. New management,
which came to us during the last quarter of fiscal 1996, completed its first
full year of operation. Its objectives included increasing revenues,
implementing cost cutting measures and focusing on the publications which have
impacted the bottom line most negatively. New sales management and a new sales
team have resulted in a turnaround to profitability at The Hill. We decided to
discontinue the money losing operations at Manhattan File and have sold all but
a 10% interest in that subsidiary. Completing the transition of Brooklyn
Skyline to a newspaper from a shopper, which is a publication with advertising
but little editorial content, the introduction of four-color printing and
bolstering the sales force has resulted in increasing revenues. A new publisher
was installed at the Nassau Newspapers and the South Shore Record was acquired
to provide Nassau with access to the high income demographic market of the "Five
Towns." The potential additional revenues expected from the acquisition of the
South Shore Record have not yet been realized during the current period, and the
additional costs, primarily salaries, have not felt the effects of any
synergies, thus resulting in a negative impact on the bottom line.
We increased our revenues 5% ($909,000) from $16,615,000 in fiscal 1996 to
$17,524,000 in fiscal 1997 while advertising rates remained level, and loss from
continuing operations decreased by 43% ($1,494,000) from a loss of $3,462,000 in
fiscal 1996 to $1,968,000 in fiscal 1997.
The increase in revenues was attributable primarily to:
. The Hill, where the effect of its high quality editorial content
combined with a circulation audit and a change in sales
management and staff resulted in an increase of revenues of
$936,000 (71%);
. 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 increase revenues $221,000
(18%); and
. Dan's Papers where its continuing capitalization on an ever
increasing market in the Long Island affluent resort area, the
Hamptons, and an increased sales effort combined to increase
revenues $374,000 (10%).
These revenue gains were offset in part by Queens Tribune's decrease of
$531,000 (16%), of which $200,000 related to a softening of the advertising
market in Queens and $331,000 related to the discontinuance of various low
profit margin print and distribution jobs; and the Bronx Newspapers decrease of
$124,000 (14%), which was a result of changes in sales management.
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Salaries and outside labor costs increased $79,000 (1%), even as revenues
increased by 5%, as budget cuts phased in the beginning of 1996 took their full
effect.
Direct mechanical costs decreased $492,000 (8%) primarily as a result of
the decrease and stabilization of newsprint prices, coupled with the
renegotiation of printing contracts. In addition, the reduction in outside
printing and distribution jobs, which had high direct mechanical costs
associated with them, were offset by lower cost advertising sales helping to
keep direct mechanical costs down. We believe that the changes made during
1996-97 will be more fully reflected in improved operating results during fiscal
1997-98.
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.
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.
Liquidity and Capital Resources
At August 31, 1998, we had a shortage of current assets over current
liabilities in the amount of approximately $1,914,000. During the quarter ended
February 28, 1998, we repaid $100,000 of loans from Chase Manhattan Bank N.A.
from cash on hand at the beginning of the year. We repaid $50,000 of the bank
loans in October 1998, and repaid the balance of $750,000 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. We intend to repay such loans with proceeds of
this offering. Current obligations will be met from operating cash flow and/or
the balance of the December 1998 loans. During the nine months ended August 31,
1998, we paid $337,000 of expenses on behalf of our unconsolidated subsidiaries.
This was recorded as an additional investment and was reduced by losses of
$160,000. 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 are currently contributing 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.
At November 30, 1997, we had an excess of current assets over current
liabilities of approximately $49,000. Net cash used by continuing operations
was $1,318,000. During the year ended November 30, 1997, we repaid $275,000 of
the bank loans; $421,000 was used to purchase The South Shore Record; and
$101,000 was invested in or advanced to the Blade. An additional $100,000 of
the bank loans was repaid in December 1997. The funds were provided from cash
on hand at the beginning of the year and from a $1,500,000 one-year loan in
November 1997 from an affiliate of an officer and stockholder.
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For the year ended November 30, 1997, net cash used by operations was
$1,318,184 and cash used for investing activities was $596,400. These funds
were provided by $141,421 from the exercise of warrants, $1,500,000 from loans
and $1,494,887 from cash on hand at the beginning of the year.
At November 30, 1996, we had an excess of current assets over current
liabilities in the amount of approximately $2,146,000. Net cash used by
operations was $2,133,000. The funds were provided from a $1,000,000 two-year
loan from our largest stockholder in May 1996, a $675,000 increase in a bank
loan and from the issuance of $2,000,000 in $10 convertible preferred stock in
October 1996. Approximately $500,000 of the proceeds was used to reduce our
accounts payable through November 30, 1996. In February 1997, we repaid
$275,000 of the bank loans. We presently have no material commitment for
capital expenditures.
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), News Communications is offering its existing stockholders the right
to purchase additional shares of its common stock. The gross proceeds of the
offering would be approximately $5,750,000.
Management believes that News Communications will generate positive cash
flow for the fiscal year ending November 30, 1998. Although there can be no
assurances to this effect, management is confident that it has available a
variety of funding sources, such as the private placement of preferred stock and
third party loans, 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.
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. 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 less than $1,000 to render our
payroll system compliant, and estimates that it will spend a maximum of $5,000
to modify our accounting system. Should our accounting system prove not to be
Year 2000 compliant, the
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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.
NEW ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", ("SFAS No. 128")
which provides for the calculation of "basic" and "diluted" earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of shares of common stock outstanding for the period. Diluted
earnings per share reflects, in periods in which they have a dilutive effect,
the effect of shares of common stock issuable upon exercise of stock options.
The assumed exercise of various warrants and options would have been anti-
dilutive and therefore, was not considered in the computation of diluted
earnings per share for November 30, 1997 and August 31, 1998. As required by
this Statement, all periods presented have been restated to comply with the
provisions of SFAS No. 128.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") 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
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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. We do not
anticipate that SFAS Nos. 130 will have a material effect on our financial
position, results of operations or financial statement disclosures.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", ("SFAS
No. 131") which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 establishes standards for the way public
companies 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 a company about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. We do not
anticipate that SFAS No. 131 will have a material effect on our financial
position, results of operations or financial statement disclosures.
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BUSINESS
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.
As used herein, unless the context requires otherwise, the term "we" refers
to News Communications, Inc. together with its subsidiaries:
Publisher Publication
--------- -----------
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.
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
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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 twelve 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, plus the Bayside Trib at Home, which
covers the news, events and lifestyles in the community of Bayside, Queens.
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 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 12% of its revenues in the fiscal year ended November
30, 1997.
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
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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.
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
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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 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
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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.
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.
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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 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.
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
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increased rental amount if the owner expands the building. News Communications
has an 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.
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.
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
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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.
MANAGEMENT
Directors and Executive Officers
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) 82 Chairman of the Board and Director of News Communications
Wilbur L. Ross, Jr. (3) 60 Director and Chief Executive Officer of News Communications
Michael Schenkler (3) 53 Director and President of News Communications and director and
officer of subsidiaries
Gary Ackerman 55 Director of News Communications
Carl Bernstein 53 Director of News Communications
John Catsimatidis (1) 49 Director of News Communications
Mark Dickstein 39 Director of News Communications
Andrew J. Maloney 66 Director of News Communications
Robert E. Nederlander (2) 64 Director of News Communications
Andrew J. Stein 52 Director of News Communications
Sy Syms 71 Director of News Communications
Arthur Tarlow (1)(2) 68 Director of News Communications
Hillel Weinberger 44 Director of News Communications
Thomas Allon 34 Executive Vice President of News Communications
Robert Berkowitz 49 Chief Financial Officer and Controller of News
Communications
Daniel Rattiner 58 President, Publisher, Editor and Director of Dan's Papers Inc.
Marty Tolchin 70 President, Publisher, and Editor of The Hill.
</TABLE>
_____________________________
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Executive Committee
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.
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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 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.
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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.
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
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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 Communicationws 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.
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.
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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.
Executive Compensation
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 1997, 1996 and 1995 concerning compensation of all
individuals serving as executive officers of News Communications during the
fiscal year ended November 30, 1997 and each other executive officer or key
employee of the company whose total annual salary and bonus exceeded $100,000 in
fiscal 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Annual Long-Term
Annual Compensation Compensation Compensation Awards
--------------------------------------------------------------------------------------
Salary Bonus Options
Name and Principal Position Year ($) ($) ($) (#)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerry Finkelstein, Chairman of the Board 1997 195,000 --- --- ---
of News Communications 1996 195,000 --- --- 3,334
1995 195,000 --- --- 120,000
Wilbur L. Ross, Jr., Chief Executive 1997 $ 1 --- --- ---
Officer of News Communications 1996 $ 1 --- --- 66,667
Michael Schenkler, President of News 1997 158,197 --- --- ---
Communications and officer of 1996 154,621 30,000 --- 3,334
subsidiaries 1995 150,000 --- --- 3,334
Thomas Allon, Executive Vice President 1997 84,141 45,000 --- ---
of News Communications 1996 82,341 45,000 --- ---
1995 80,885 45,000 --- ---
Daniel Rattiner, Publisher, Editor and 1997 133,770 81,000 --- ---
President of Dan's Papers, Inc. 1996 130,869 110,235 15,000 (1) ---
1995 127,813 61,169 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
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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 $4,000.
AGGREGATE YEAR-END OPTION VALUES
(November 30, 1997)
<TABLE>
<CAPTION>
Number of unexercised options at Value of unexercised in-the-money
fiscal year-end (#) options at fiscal year-end ($)
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
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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.
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, 1997.
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 a 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.
On 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
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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.
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.
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
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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 of our printing services. Such
advertising and printing services are charged at our standard rates and totaled
approximately $25,300 during the fiscal year ended November 30, 1997.
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.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
News Communications' common stock, as of January 12, 1999, and as adjusted to
reflect the sale of the shares offered hereby 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 before
the offering are based on 2,786,125 shares of common stock outstanding on
January 12, 1999. The calculations of the percent of shares beneficially owned
after the offering and after the offering if all shares offered are purchased by
Messrs. Davis, Ross and Weiss are based on 6,569,125 shares of common stock
anticipated to be outstanding after the offering.
<TABLE>
<CAPTION>
Percent of Shares Beneficially Owned
------------------------------------------------------
After Offering if all
Shares Offered are
Number of Shares Before After Purchased by Messrs.
Name and Address Beneficially Owned Offering Offering Davis, Ross and Weiss
- ---------------- ------------------ -------- -------- ---------------------
<S> <C> <C> <C> <C>
Gary Ackerman 128,881 (1) 4.6% 2.6% 1.9%
218-14 Northern Boulevard
Bayside, NY 11432
Thomas Allon 61,666 (2) 2.2% 1.1% *
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 61,666 (2)(3) 2.2% 1.1% *
120 East End Avenue
New York, NY 10028
Jerry Finkelstein 496,501 (2)(4) 16.4% 8.6% 7.3%
150 East 58th Street
33rd Floor
New York, NY 10158
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percent of Shares Beneficially Owned
------------------------------------------------------
After Offering if all
Shares Offered are
Number of Shares Before After Purchased by Messrs.
Name and Address Beneficially Owned Offering Offering Davis, Ross and Weiss
- ---------------- ------------------ -------- -------- ---------------------
<S> <C> <C> <C> <C>
Andrew J. Maloney 17,667 (2) * * *
1 World Trade Center
New York, NY 10001
Robert E. Nederlander 39,333 (2)(3) 1.4% * *
810 7th Avenue, 21st Floor
New York, NY 10019
Daniel Rattiner 56,103 (2)(5) 2.0% 1.1% *
26 Three Mile Harbor
Hog Creek Road
East Hampton, NY 11932
Wilbur L. Ross, Jr. 190,000 (2)(3)(6) 6.4% 3.2% 11.4%
1251 Avenue of the Americas
New York, NY 10020
Michael Schenkler 151,756 (2)(7) 5.3% 2.8% 2.3%
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Andrew J. Stein 60,000 (2) 2.1% 1.0% *
625 Madison Avenue
New York, NY 10022
Sy Syms 61,667 (2)(3) 2.2% 1.1% *
Syms Way
Secaucus, NJ 07094
Arthur Tarlow 26,572 (2) * * *
1505 Kellum Place
Mineola, NY 11501
Hillel Weinberger 73,667 (2)(3) 2.6% 1.3% 1.1%
667 Madison Avenue
New York, NY 10021
Melvyn I. Weiss 222,814 (2)(3)(8) 7.9% 4.4% 23.7%
One Pennsylvania Plaza
New York, NY 10119
J. Morton Davis 890,743 (9) 29.7% 16.5% 41.4%
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005
All Directors and Executive Officers 1,389,376 (2)(10) 40.7% 22.8% 27.3%
as a Group (15 persons)
</TABLE>
____________________
* Less than one percent.
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<PAGE>
(1) Includes 1,778 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--20,555; 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--11,114
(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"),
(c) 13,333 shares issuable upon exercise of warrants owned by
RNA, and
(d) 100,000 shares issuable upon exercise of warrants owned by
the Rothschild Recovery Fund L.P. Mr. Ross disclaims
beneficial ownership of all of such shares.
(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 53,567 shares owned by the M&B Weiss Family Partnership.
(9) Includes
(a) 622,538 shares of common stock and warrants to purchase
207,867 shares owned by D.H. Blair Investment Banking Corp.,
of which J. Morton Davis is a director and the sole
stockholder,
(b) 20,638 shares owned by Rivkalex Corporation ("Rivkalex"), a
private corporation owned by Rosalind Davidowitz, Mr. Davis's
wife,
(c) 29,867 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, 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.
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<PAGE>
DESCRIPTION OF SECURITIES
News Communications is presently authorized to issue 100,000,000 shares of
common stock and 500,000 shares of preferred stock.
Common Stock
The holders of shares of common stock have equal, ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board, and are entitled to share ratably in all of the assets of News
Communications available for distribution to holders of common stock upon the
liquidation, dissolution or winding up of the affairs of News Communications.
Holders of common stock do not have preemptive, subscription or conversion
rights to purchase or subscribe to any of our securities. Holders of common
stock are entitled to one vote per share on all matters which stockholders are
entitled to vote upon at all meetings of stockholders. There is no cumulative
voting. Thus, the holders of more than 50% of the shares voting for election of
directors can elect all the members of the Board of Directors who are elected by
the holders of common stock and can decide any question brought before the
stockholders requiring approval by a simple majority of the holders of common
stock. In such event, the holders of the remaining shares of common stock will
not be able to elect any directors or carry out any other matter brought before
the stockholders.
Preferred Stock
The Articles of Incorporation of News Communications authorize the issuance
of 500,000 shares of preferred stock. The Board of Directors is authorized to
issue shares of preferred stock from time to time in one or more series and,
subject to the limitations contained in the Articles of Incorporation and any
limitations prescribed by law, to establish and designate any such series and to
fix the number of shares and the relative rights, conversion rights, voting
rights and terms of redemption, including sinking fund provisions, and
liquidation preferences. Issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change in control of
News Communications and may adversely affect the rights of holders of common
stock such as by placing restrictions upon payments of dividends to holders of
common stock or by diluting the voting power of such holders. We have no
present plans to issue any additional shares of preferred stock other than the
four series of convertible preferred stock presently authorized. Reference is
made to the resolutions of the Board of Directors fixing the terms of the
convertible preferred stock, copies of which have been filed as exhibits to our
prior Registration Statements.
8%, 10% and 12% Convertible Preferred Stock. The Board of Directors has
authorized four series of preferred stock: 10% convertible preferred stock, of
which 26 shares remain outstanding; 8% convertible preferred stock, of which 114
shares are outstanding; 12% convertible preferred stock, of which 200 shares are
outstanding; and the $10 convertible preferred stock discussed below. For
purposes of paying interest and liquidation preference,
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<PAGE>
the shares of 10% convertible preferred stock have a stated value of $5,000 per
share, the shares of 8% convertible preferred stock and 12% convertible
preferred stock have stated values of $1,000 per share. At our option, interest
on the 10% convertible preferred stock may be paid in an equivalent value of
shares of common stock. Presently, the 10% convertible preferred stock, 8%
convertible preferred stock and 12% convertible preferred stock are convertible
into shares of common stock at the rates of 6,000 shares of common stock per
share of 10% convertible preferred stock, 158.73 shares of common stock per
share of 8% convertible preferred stock and 158.73 shares of common stock per
share of 12% convertible preferred stock. In addition, upon conversion of the 8%
convertible preferred stock, the holder is entitled to receive 5-year warrants
to purchase an equivalent number of shares of common stock at an exercise price
equal to the per share conversion price.
$10 Convertible Preferred Stock. We have 220,000 shares of $10 convertible
preferred stock outstanding. Dividends on the $10 convertible preferred stock
are payable at a rate equal to five times the amount of dividends, if any, per
share declared and paid by us on the common stock. The holders of the $10
convertible preferred stock are entitled to a liquidation preference of $10 per
share.
Except as hereinafter described, each share of $10 preferred stock is
entitled to such number of votes such share would have had if it had been
converted into shares of common stock on all matters presented for a vote to
holders of common stock. Each share of $10 preferred stock is currently
convertible into one and sixth sevenths of a share of common stock. So long as
at least 100,000 shares of $10 convertible preferred stock are outstanding, the
holders of the $10 convertible preferred stock are entitled to nominate and
elect one-half of the Board. Any director elected by the holders of the $10
convertible preferred stock may only be removed with cause by the holders of a
majority of the $10 convertible preferred stock. During the period that the
preceding provisions regarding election of directors are in effect, the holders
of the $10 convertible preferred stock shall not be entitled to vote for the
election of any other directors.
The vote of all of the holders of the $10 convertible preferred stock is
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of News Communications' Articles of
Incorporation so as to affect adversely the $10 convertible preferred stock. So
long as at least 100,000 shares of $10 convertible preferred stock are
outstanding, the vote of a majority of the holders thereof, or such greater
amount as may be required by law, shall be necessary for authorizing
. the merger or consolidation of News Communications into or with any
other corporation,
. the sale of all or substantially all of the assets of News
Communications,
or
. the issuance of any other class of stock having parity with the $10
convertible preferred stock.
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<PAGE>
The shares of $10 convertible preferred stock are convertible at any time
into shares of common stock, initially at the rate of 1.667 shares of common
stock per share of $10 convertible preferred stock, subject to adjustment in the
event of subdivisions or splits of the common stock or recapitalization or
reclassification thereof or upon the sale of common stock at a price less than
the then current conversion price. The holders of the $10 convertible preferred
stock have no preemptive rights. Upon the request of holders of at least 40% of
the outstanding shares of $10 convertible preferred stock made on or prior to
October 27, 2001, we are required to register the common stock issuable upon
conversion of $10 convertible preferred stock. During such period, the holders
of the $10 convertible preferred stock also have the right to have such shares
of common stock included in any registration statement filed by News
Communications under that Act, subject to certain restrictions. These rights
have been waived in connection with the registration statement of which this
prospectus is a part.
Transfer and Warrant Agent
News Communications' Transfer Agent is Continental Stock Transfer & Trust
company, 2 Broadway, New York, New York 10004.
INDEMNIFICATION AND INDEMNITY
Under the Nevada General Corporation Law, as amended, a director, officer,
employee or agent of a Nevada corporation may be entitled to indemnification by
the corporation under certain circumstances against expenses, judgments, fines
and amounts paid in settlement of claims brought against them by a third person
or by or in right of the corporation.
We are obligated under our Articles of Incorporation to indemnify any of
our present or former directors who served at our request as a director, officer
or member of another organization against expenses, judgments, fines and amounts
paid in settlement of claims brought against them by a third person or by or in
right of the corporation if such director acted in good faith or in a manner
such director reasonably believed to be in, or not opposed to, our best
interests and, with respect to any criminal action or proceeding, if such
director had no reason to believe his or her conduct was unlawful. However with
respect to any action by or in the right of News Communications, our Articles of
Incorporation prohibit indemnification in respect of any claim, issue or matter
as to which such director is adjudged liable for negligence or misconduct in the
performance of his or her duties to News Communications, unless otherwise
ordered by the relevant court. Our Articles of Incorporation also permit it to
indemnify other persons except against gross negligence or willful misconduct.
We are obligated under our bylaws to indemnify our directors, officers and
other persons who have acted as our representatives at our request to the
fullest extent permitted by applicable law as in effect from time to time,
except for costs, expenses or payments in relation to any matter as to which
such officer, director or representative is finally adjudged derelict in
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<PAGE>
the performance of his or her duties, unless News Communications has received an
opinion from independent counsel that such person was not so derelict.
The Nevada General Corporation Law, as amended, also permits a corporation
to limit the personal liability of its officers and directors for monetary
damages resulting from a breach of their fiduciary duty to the corporation and
its stockholders. Our Articles of Incorporation limit director liability to the
maximum extent permitted by the Nevada General Corporation Law, which presently
permits limitation of director liability except for a director's acts or
omissions that involve intentional misconduct, fraud or a knowing violation of
law and for a director's willful or grossly negligent violation of a Nevada
statutory provision that imposes personal liability on directors for improper
distributions to stockholders. As a result of the inclusion in our Articles of
Incorporation of this provision, our stockholders may be unable to recover
monetary damages against directors as a result of their breach of their
fiduciary duty to us and our stockholders. This provision does not, however,
affect the availability of equitable remedies, such as injunctions or rescission
based upon a breach of fiduciary duty by a director.
News Communications currently maintains director and officer liability
insurance in the amount of $1,000,000 for the benefit of its officers and
directors.
The foregoing indemnification obligations are broad enough to permit
indemnification with respect to liabilities arising under the Securities Act.
Insofar as we may otherwise be permitted to indemnify its directors, officers
and controlling persons against liabilities arising under the Securities Act or
otherwise, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
News Communications currently has 2,735,791 shares of common stock
outstanding. In addition, 447,259 shares of common stock are currently issuable
upon conversion of outstanding shares of preferred stock. Of this amount,
approximately 50,000 shares are "restricted" securities as that term is defined
under Rule 144 promulgated under the Securities Act of 1933. Of the restricted
shares none have been held for at least two years.
Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of News
Communications or persons whose shares are aggregated, who has owned restricted
shares of common stock beneficially for at least one year, is entitled to sell,
within any three month period, a number of shares that do not exceed the greater
of 1% of the total number of outstanding shares of the same class or the average
weekly trading volume during a specified four-week period preceding the sale. A
person who has not been an affiliate of News Communications for at least 3
months and who has beneficially owned shares of common stock for at least two
years is entitled to sell such shares under Rule 144 without regard to such
volume limitations.
-48-
<PAGE>
We are unable to predict the effect that sales made under Rule 144, or
pursuant to other exemptions under the Securities Act of 1933, may have on the
then prevailing market price of the common stock.
As of the date of this prospectus, without taking into effect the
securities offered hereby, there were immediately exercisable options and
warrants which, upon exercise, would enable their holders to purchase up to
1,132,667 of common stock at prices ranging from $3.75 to $9.38 per share and
exercisable over periods of up to ten years.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon for
News Communications by Piper & Marbury L.L.P., New York, New York.
EXPERTS
The consolidated balance sheet as of November 30, 1997 and the consolidated
statements of income, stockholders' equity, and cash flows for the years ended
November 30, 1997 and 1996, included in this prospectus have been included
herein in reliance on the report of PricewaterhouseCoopers LLP, formerly Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
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 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
-49-
<PAGE>
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.
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 the BDO Seidman 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.
-50-
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Reports of Independent Accountants F-2
Consolidated Balance Sheets as of November 30, 1997
and August 31, 1998 (unaudited)................................ F-3
Consolidated Statements of Operations for the years ended
November 30, 1997 and 1996 and for the nine months
ended August 31, 1997 and 1998 (unaudited)..................... F-4
Consolidated Statements of Cash Flows for the years ended
November 30, 1996 and 1997 and for the nine months
ended August 31, 1997 and 1998 (unaudited)..................... F-5
Consolidated Statements of Stockholder's Equity for the years
ended November 30, 1995, 1996 and 1997 and for
the nine months ended August 31, 1998 (unaudited).............. F-6
Notes to Consolidated Financial Statements........................ F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
News Communications, Inc.
Fresh Meadows, New York
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and Subsidiaries as of November 30, 1997, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the years ended November 30, 1997 and 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits 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 audits
provide 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, 1997, and the
consolidated results of their operations and their cash flows for the years
ended November 30, 1996 and 1997, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
New York, New York
May 15, 1998
F-2
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, August 31,
1997 1998
------------------- -------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents......................................... $ 424,620 $ 199,634
Accounts receivable, less allowances for doubtful accounts of
$849,530 in November 1997 and $1,050,304 in August 1998...........
3,479,269 3,574,031
Due from related parties.......................................... 27,613 38,610
Other............................................................. 176,738 214,468
------------------- -------------------
Total current assets............................................. 4,108,240 4,026,743
INVESTMENT IN UNCONSOLIDATED ENTITIES 72,242 249,729
PROPERTY AND EQUIPMENT (at Cost), Net............................... 399,364 382,209
OTHER ASSETS:
Goodwill, Net..................................................... 3,481,766 3,271,629
Other, Net........................................................ 81,267 58,106
------------------- -------------------
TOTAL ASSETS........................................................ 8,142,879 7,988,416
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. 626,610 1,091,040
Accrued expenses.................................................. 1,166,573 1,315,855
Accrued payroll and payroll taxes................................. 92,516
Note payable...................................................... 900,000 800,000
Unearned revenue.................................................. 137,652 151,129
Related Party-Short-Term Debt..................................... 985,333 2,478,834
Due to related party.............................................. 150,688 103,438
------------------- -------------------
Total current liabilities........................................ 4,059,372 5,940,296
NET LIABILITIES OF DISCONTINUED OPERATIONS 53,908
RELATED PARTY LONG-TERM DEBT....................................... 1,415,338
COMMITMENTS AND CONTINGENCIES.......................................
MINORITY INTEREST................................................... 281,474 281,474
STOCKHOLDER'S EQUITY:
Preferred Stock, $1.00 Par Value; 500,000
shares authorized; $2,444,000 aggregate
liquidation value................................................... 200,340 220,340
Common Stock, $.01 Par Value; 100,000,000
shares authorized; 2,737,410 and 2,786,124 shares issued
and outstanding as of November 30, 1997 and August 31, 1998
respectively....................................................... 27,374 27,861
PAID-IN-CAPITAL, PREFERRED STOCK.................................... 2,077,025 2,257,025
PAID-IN-CAPITAL, COMMON STOCK....................................... 14,377,157 14,456,167
RETAINED EARNINGS (Accumulated deficit)............................. (14,049,876) (14,816,018)
LESS: TREASURY STOCK (at Cost)..................................... (408,729) (408,729)
------------------- -------------------
Total Stockholder's Equity........................................ 2,332,787 1,766,646
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 8,142,879 $ 7,988,416
=================== ===================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended Nine Months Ended
November 30, 1996 November 30, 1997 August 31, 1997 August 31, 1998
------------------- ------------------- ------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES................................... $16,614,501 $17,523,952 $13,051,666 $13,654,111
OPERATING EXPENSES:
Direct Mechanical Costs................... 6,175,727 5,683,638 4,504,294 4,458,967
Salaries, Benefits and
Outside Labor Costs................... 8,801,931 8,880,694 6,212,264 6,753,411
Rent, Occupancy & Utilities............... 820,299 842,735 658,144 658,691
Provisions for Doubtful Accounts.......... 1,360,057 1,013,904 301,250 332,200
General and Administrative................ 2,674,163 2,672,444 1,757,274 1,793,030
Total Operating Expenses........... 19,123,415 19,802,177 13,433,226 13,996,299
------------------- ------------------- ------------------- -------------------
OPERATING INCOME (LOSS) Before Interest
Expense and Equity in Loss From
Unconsolidated Entities................... (3,217,676) (1,599,463) (381,560) (342,188)
INTEREST EXPENSE............................... (177,471) (200,948) (143,101) (240,173)
------------------- ------------------- ------------------- -------------------
INCOME (LOSS) BEFORE
INCOME TAXES.............................. (3,395,147) (1,770,411) (524,661) (582,361)
INCOME TAX PROVISION
(BENEFIT)................................. --- --- --- ---
MINORITY INTEREST IN INCOME OF SUBSIDIARY...... (66,440) (167,246) --- ---
------------------- ------------------- ------------------- -------------------
EQUITY IN LOSS FROM UNCONSOLIDATED ENTITIES.... --- (30,000) --- (160,000)
------------------- ------------------- ------------------- -------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS... (3,461,587) (1,967,657) (524,661) (742,361)
LOSS FROM DISCONTINUED
OPERATIONS................................ (419,841) (730,585) (348,168) ---
GAIN (LOSS) ON DISPOSAL........................ (255,973)
------------------- ------------------- ------------------- -------------------
NET INCOME (LOSS) (3,881,428) (2,954,215) (872,829) (742,361)
=================== =================== =================== ===================
LOSS PER COMMON SHARE:
Continuing Operations..................... $ (1.30) $ (.73) $ (.20) $(.27)
Discontinued Operations................... $ (.16) $ (.36) $ (.13) $ ----
Total Loss Per Common Share........ $ (1.46) $ (1.09) $ (.33) $(.27)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 2,663,999 2,710,918 2,650,885 2,730,379
=================== =================== =================== ===================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Nine Months
November 30, November 30, Ended August Ended August
1996 1997 31, 1997 31, 1998
----------------- ---------------- ---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss).................... (3,881,428) (2,954,215) (872,829) (742,361)
Adjustments to reconcile net loss to
net cash (used for) Loss from
discontinued operations.............. 419,841 986,558
Depreciation and Amortization.... 497,774 447,462 374,470 428,700
Provision for doubtful accounts...... 1,370,224 1,013,904 301,256 332,200
Compensation recognized related to
Warrants issued...................... 128,000 --- --- ---
Amortization of debt discount........ 17,333 39,138
Minority interest.................... 66,440 167,246
Change in Assets and Liabilities:
(Increase) decrease in:
Accounts receivable............... (345,658) (1,227,954) (1,465,061) (426,962)
Other current assets.............. (63,424) (26,614) (7,679) (37,729)
Other assets...................... 2,929 64,471 (28,869) 7,705
Related party receivable.......... 105,233 (13,613) 1,109 (10,977)
Increase (decrease) in:...........
Accounts payable and accrued (181,351) 395,509 355,829 265,221
expenses
Accrued payroll and payroll taxes. 83,591 (316,076)
Other current liabilities......... 122,653 15,000 4,222 13,477
Related party payable............. 30,506 91,000 25,017 (47,250)
Total adjustments.................... 2,254,091 1,636,031 (439,712) 524,365
----------------- ---------------- ---------------- -----------------
Net cash - operating activities of
Continuing operations............ (1,627,337) (1,318,184) (1,312,541) (217,996)
----------------- ---------------- ---------------- -----------------
INVESTING ACTIVITIES OF CONTINUING
OPERATIONS:
Purchase of South Shore Publishers, - (421,500)
Inc.
Capital expenditures................. (47,626) (102,658) (85,090) (109,289)
Investment in unconsolidated entities - (72,242) (175,986)
----------------- ---------------- ---------------- -----------------
Net cash - investing activities - (47,626) (596,400) (85,090) (285,275)
forward..............................
----------------- ---------------- ---------------- -----------------
FINANCING ACTIVITIES OF CONTINUING
OPERATIONS:
Proceeds from preferred stock........ 2,000,000 - 200,000
Proceeds from exercise of stock options 12,500 181,090 131,935
Costs of raising capital............. (18,183) (39,670)
Proceeds from exercise of warrants and
underwriter options.................. 19,500
Principal payments on notes payable.. (24,000) (275,000) (275,000) (100,000)
Dividend on preferred stock.......... (41,360) (35,426) (17,620) (23,780)
Proceeds from notes payable.......... 1,675,000 1,500,000
----------------- ---------------- ---------------- -----------------
Net cash provided by (used) -
financing activities of continuing 3,623,457 1,330,994 (160,685) 76,220
operations...........................
----------------- ---------------- ---------------- -----------------
Net cash (used in) provided by (508,081) (486,677) 88,632 202,065
discontinued operations
----------------- ---------------- ---------------- -----------------
Net increase (decrease) in cash... 1,440,413 (1,070,267) (1,469,684) (224,986)
Cash - beginning of year............ 54,474 1,494,887 1,546,704 424,620
Cash - end of year................... 1,494,887 424,620 77,020 199,634
================= ================ ================ =================
Supplemental disclosure of cash flow
information:.........................
Cash paid during the year for
interest 130,969 189,572 75,674 94,730
</TABLE>
See notes to Consolidated Financial Statements
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Paid-in
Preferred Capital Common Paid-in
Stock Preferred Preferred Stock Common Capital
(shares) Stock Stock (shares) Stock Common Stock
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1995 449 $ 449 $ 519,873 2,652,555 $26,526 $13,776,506
Stock issued in connection with --- --- --- 3,250 33 19,468
exercise of C warrants
Stock issued in connection with --- --- --- 3,333 33 12,467
exercise of options
Issuance of $10 Convertible 20,000 200,000 1,800,000 --- --- ---
Preferred Stock
Costs of raising capital --- --- (118,183) 16,667 167 94,833
Warrants issued in connection with --- --- --- --- --- 64,000
long term debt
Warrants issued in connection with --- --- --- --- --- 128,000
consulting services
Stock issued as preferred dividends --- --- --- 3,541 35 15,965
Dividend on preferred stock --- --- --- --- --- ---
Net loss --- --- --- --- --- ---
...............................................................................
BALANCE, NOVEMBER 30, 1996................. 20,449 $ 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................ --- --- --- 5,333 53 (53)
Conversion of 8% Convertible
Preferred (103) (103) (102,897) 16,349 163 102,837
Stock.............................
Warrants issued in connection with
long term debt.................... --- --- --- --- --- 91,800
Conversion of 10% Convertible
Preferred (6) (6) (21,768) 3,600 36 21,738
Stock.............................
Stock issued as preferred dividends... --- --- --- 2,600 26 12,974
Dividend on preferred stock........... --- --- --- --- --- ---
Net loss.............................. --- --- --- --- --- ---
-------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 20,340 $ 200,340 $ 2,077,025 2,737,410 $ 27,374 $14,486,653
===============================================================================
Stock issued in connection with
purchase of Nassau................ --- --- --- 48,714 487 (486)
Issuance of $10 Convertible Preferred
Stock............................. 2,000 20,000 180,000
Dividends on preferred stock.......... --- --- --- --- --- ---
Net loss.............................. --- --- --- --- --- ---
-------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1998 (unaudited) 22,340 $220,340 $2,257,025 2,786,125 $27,861 $14,486,167
===============================================================================
<CAPTION>
Total
Stock-
Retained Treasury holders'
Deficit Stock Equity
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, November 30, 1995 $(7,108,447) $408,729 $6,806,178
Stock issued in connection with --- --- 19,500
exercise of C warrants
Stock issued in connection with --- --- 12,500
exercise of options
Issuance of $10 Convertible --- --- 2,000,000
Preferred Stock
Costs of raising capital --- --- (18,183)
Warrants issued in connection with --- --- 64,000
long term debt
Warrants issued in connection with --- --- 128,000
consulting services
Stock issued as preferred dividends (16,000) --- ---
Dividend on preferred stock (41,360) --- (41,360)
Net loss (3,881,428) --- (3,881,428)
.........................................
BALANCE, NOVEMBER 30, 1996................. ($11,047,235) $408,729 $5,089,207
Stock issued in connection with 141,421
exercise of C warrants............ --- ---
Stock issued in connection with
purchase of Nassau................ --- --- ---
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) --- ---
Dividend 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
=========================================
Stock issued in connection with (1)
purchase of Nassau................ --- ---
Issuance of $10 Convertible Preferred
Stock............................. 200,000
Dividends on preferred stock.......... (23,780) (23,780)
Net loss.............................. (742,361) (742,361)
-----------------------------------------
BALANCE, AUGUST 31, 1998 (unaudited) ($14,816,018) $(408,729) $1,766,646
=========================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements at August 31, 1998
and Audited Consolidated Financial Statements at November 30, 1997
1. Organization and Industry Segment:
News Communications, Inc., a Nevada corporation, is primarily engaged,
through various wholly-owned and majority-owned subsidiaries in the publication
and distribution of advertiser supported, community oriented newspapers. 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, that is the news publication business.
As discussed in Note 20, Manhattan File Publishing, Inc., ("Manhattan
File"), the company's only magazine publishing subsidiary, is presented as a
discontinued operation
2. Summary of Significant Accounting Policies:
Consolidation - The consolidated financial statements of the company
include the accounts of the parent company and its wholly-owned and majority-
owned subsidiaries. All material intercompany transactions have been
eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that 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, depreciation and amortization in connection with property
and equipment, and the possible outcome of outstanding litigation among other
items. Actual results could differ from those estimates.
Property and Equipment - All expenditures for betterments and additions are
capitalized. Expenditures for normal repairs and maintenance are charged
against income as incurred. Depreciation and amortization are provided for
financial reporting purposes on the basis of the various estimated useful lives
of the assets, using the straight-line method as follows:
F-7
<PAGE>
Years
-----
Furniture, fixtures and office
equipment 5-10
Leasehold improvements Shorter of useful life of asset
or length of lease
Goodwill - Goodwill represents the excess of the cost of acquired assets
over their fair values at dates of acquisition and is being amortized over ten
to twenty years on a straight-line basis. The company's policy is to record an
impairment loss against the net unamortized cost of goodwill in the period when
it is determined that the carrying amount of the asset may not be recoverable.
At each balance sheet date, the company evaluates the realizability of goodwill
for each subsidiary having a material goodwill balance. This determination is
based on an evaluation of such factors as the occurrence of a significant event,
a significant change in the environment in which the business operates or if the
expected future non-discounted net income of the subsidiary would become less
than the carrying amount of the goodwill asset. An impairment loss would be
recognized if the unamortized goodwill balance exceeds the non-discounted cash
flows of the subsidiaries. Based upon its most recent analysis, the company
believes that no impairment of goodwill exists at November 30, 1997. This
analysis is based on future estimates that project cash flow from operations.
However, based on the company's historical information which reflects negative
cash flow for many subsidiaries, it is possible that such cash flow projections
may not be realized in the near future which could result in a write-down of
goodwill.
Revenue Recognition - Advertising revenues are earned when advertisements
appear in the various publications.
Direct Mechanical Costs - Production- and distribution-related expenses are
classified as direct mechanical costs.
Seasonality - One of the company's publications (which generated
approximately 22% and 21% of revenues in fiscal 1997 and 1996 respectively) is a
resort-area newspaper, that earns a significant portion of its revenue during
the summer months.
Concentration of Customers - The majority of the company's customers are
located in four of the boroughs of New York City, in Nassau County and Eastern
Long Island.
Concentrations of Credit Risk - Financial instruments that potentially
subject the company to concentrations of credit risk are cash and accounts
receivable arising from its normal business activities. The company routinely
assesses the financial strength of its customers and, based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowance is limited. The company
places its cash with high credit quality financial institutions. The company
has not experienced any losses with financial institutions. The amount on
deposit in any one institution that exceeds federally insured limits is subject
to credit risk. As of November 30, 1997, the company had
F-8
<PAGE>
approximately $425,000 with financial institutions subject to a credit risk
beyond the insured amount.
Reclassifications -Certain prior year amounts have been reclassified to
conform to the current year's presentation.
3. Property and Equipment and Depreciation and Amortization:
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
November 30, August 31,
1997 1998
------------------------------------------
<S> <C> <C>
Leasehold improvements $281,122 $297,815
Computer equipment and software 390,327 464,518
Machinery and equipment 114,637 117,972
Furniture and fixtures and office equipment 125,135 141,393
Distribution boxes 42,634 41,435
------------------------------------------
Total - at cost 953,845 106,313
Less: Accumulated depreciation and amortization 554,481 680,924
------------------------------------------
Property and equipment net $399,364 $382,209
------------------------------------------
</TABLE>
Depreciation and amortization expense for the years ended November 30, 1997 and
1996 amounted to $172,593 and $170,740, respectively.
4. Intangible Assets:
A breakdown of intangible assets is as follows:
<TABLE>
<CAPTION>
Amortization
Period
Years Cost Amortization Net
--------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
August 31, 1998 Goodwill 10-20 $5,474,720 $2,203,091 $3,271,629
(unaudited) ====================================================
Organization costs 5 $ 30,184 $ 22,891 $ 7,293
====================================================
November 30, 1997 Goodwill 10-20 $5,474,720 $1,992,954 $3,481,766
====================================================
Organization costs 5 $ 30,184 $ 17,860 $ 12,324
====================================================
</TABLE>
F-9
<PAGE>
The components of goodwill by acquired entity (unaudited) is as follows:
<TABLE>
<S> <C>
Queens Tribune $1,144,843
Our Town 687,972
Bronx Press Review 208,467
Nassau Newspapers/South Shore Record 945,950
Westsider/Chelsea Clinton 197,380
Brooklyn Skyline 87,017
----------
Total $3,271,629
==========
</TABLE>
Organization costs are included in the caption "Other Assets" on the balance
sheet.
Amortization expense of $289,467 and $314,397 was recognized for the years ended
November 30, 1997 and 1996, respectively.
5. Notes Payable
Short-term payable at November 30, 1997 consisted of a $900,000 loan due on
January 5, 1998 at the Bank's prime rate plus 3 percent. The prime rate at
November 30, 1997 was 8.5 percent. The Bank has not called the loan subsequent
to its due date, and, at its sole option, can continue to extend the due date of
the loan. $100,000 of the note was paid in January 1998. All of the Company's
accounts receivable are pledged as collateral for the loan.
Short-term note payable in the amount of $985,333 (net of unamortized
discount of $14,667) at November 30, 1997 consisted of a promissory note due to
a principal shareholder of the Company. The note is due on May 21, 1998, and
has as a stated interest rate of 8.5 percent per annum. Interest is payable
quarterly commencing July 1, 1996. As additional consideration for the
promissory note, detachable warrants to purchase 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.
Long term note payable in the amount of $1,415,338 (net of unamortized
discount of $84,662) at November 30, 1997 consisted of a promissory note due to
an affiliate of a principal shareholder and officer of the Company. The note is
due on December 31, 1998, and 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
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.
F-10
<PAGE>
The company anticipates using $1,200,000 of the proceeds of this offering
for the payment of debts to Messrs. Wilbur, Weiss and Davis. The company
currently intends to obtain loans to pay any other related-party debts.
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards ["SFAS"] No. 107, "Disclosures
about Fair Value of Financial Instruments," and SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
require the disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the consolidated balance sheet,
for which it is practicable to estimate fair value. The Company's financial
instruments include cash and cash equivalents, trade receivables, trade
payables, and current and long-term debt. The carrying value of the Company's
financial instruments approximates fair value. The fair values of cash and cash
equivalents, net accounts receivable, trade payables and short-term debt
approximate cost because of the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt is estimated based on
discounting expected cash flows at rates currently available to the Company with
similar risks and maturities.
7. Related Parties:
Certain company office facilities are leased from an officer of a
subsidiary of the company. Rental expense amounted to approximately $58,000 and
$49,000 for the years ended November 30, 1997 and 1996, respectively. The lease
commitment is adjusted annually based on the consumer price index as of
November. The lease term is for ten years with a renewal option of five years.
The original lease term expires on November 1, 2008.
At November 30, 1997, amounts owed to an officer of a subsidiary of the
company for a bonus and expenses amounted to approximately $150,000.
As discussed in Note 5, at November 30, 1997, the company has a short - and
long - term note payable due to affiliates of principal stockholders of the
company.
Revenues from related parties amounted to $25,300 and $354,125 during the
years ended November 30, 1997 and 1996, respectively.
8. Leases:
The company leases all operating facilities under operating leases expiring
through January 2003. Rent expense under operating leases was approximately
$541,000 and $512,000 for years ended November 30, 1997 and 1996, respectively.
The future minimum payments under non-cancelable operating leases consisted
of the following at November 30, 1997:
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<PAGE>
Fiscal Year Ending Operating
November 30, Leases
------------------ ----------
1998 $487,229
1999 375,923
2000 243,911
2001 58,842
2002 46,675
----------
$1,212,580
==========
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 Contingencies:
A subsidiary of the company has indemnified two former employees and a
director from adverse judgments and legal fees arising in connection with
certain legal actions, except such adverse judgments as may be based on claims
that allege or involve wrongful conduct by said former employees and director.
The company has paid no such indemnification amounts to date.
The company has an employment agreement expiring in 2007 with the
President of DPI. The agreement stipulates an annual salary of $10,000 greater
than his base salary for the fiscal year beginning December 1, 1997 (base salary
at December 1, 1997 was $134,000), 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 $37,000 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, 1997, the value of the put option based
on the aforementioned formula was approximately $1 million. The option is
related to the 1988 acquisition of DPI by the company.
The company has an employment contract, through October 14, 1999, with its
President. The contract stipulates an annual base salary of $150,000 plus
bonuses as determined by the board of directors.
In August 1993, the Chairman of the Board entered into a five-year
employment agreement with the company. In October 1996, the agreement was
amended to extend the employment period through August 2003. The agreement
calls for an annual salary of $195,000 and certain other benefits. Stock
options for 100,000 shares of the company's common stock at an exercise price of
approximately $7.13 per share expiring on August 31,
F-12
<PAGE>
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.
10. Legal Proceedings:
An action entitled Tracey Robinson v. The Hill, News Communications, Inc.,
and Media Venture Group, Inc., was initiated in September 1996 in the United
States District Court for the District of Columbia in which the Plaintiff, a
former national advertising executive for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million. The case was tried to a jury
and resulted in an adverse determination of liability to the company in the
amount of $100,000, which has been recorded in the period ended November 30,
1997. No appeal has been taken from that finding. The plaintiff has requested an
award of fees and costs in the approximate amount of $150,000, which the company
is vigorously opposing.
Management of the company is unable to predict or determine the final
outcome of the aforementioned proceeding or whether the resolution of the
matters could materially affect the company's financial position, results of
operations, or liquidity.
11. Common Stock:
At November 30, 1997, the company has approximately 2,764,333 shares of
common stock reserved for issuance upon conversion of outstanding preferred
stock and exercise of options and warrants. In addition, the company had
reserved for issuance 48,714 shares of common stock (valued by the company at
approximately $320,000) in connection with the company's 1993 acquisition of the
Nassau Newspapers. In March 1998 the shares were issued; however, 12,191 have
been placed in escrow for delivery in December 1998.
12. Preferred Stock:
Preferred stock at November 30, 1997 consisted of the following:
F-13
<PAGE>
10% non-voting convertible preferred stock, 1,250 shares $ 26
authorized; 26 issued and outstanding, $500 per share per
annum cumulative dividends, $130,000 liquidation value
8% convertible preferred stock, 500 shares authorized, 114
114 issued and outstanding, $80 per share per annum
cumulative dividends, $114,000 liquidation value
12% convertible preferred stock, 200 shares authorized, 200
200 shares issued and outstanding, $120 per share per
annum cumulative dividends, $200,000 liquidation value
$10 convertible preferred stock, 200,000 shares 200,000
authorized, issued and outstanding, $2,000,000
liquidation value
(a) The 10% non-voting convertible preferred stock is redeemable at the option
of the company, under certain circumstances. The holders can convert their
shares of preferred stock into shares of common stock at the rate of 2,000
shares of common stock for each share of preferred stock, subject to
standard anti-dilution provisions.
In October 1996, the company distributed 3,541 shares of its common stock
in payment of a $500 dividend per share due holders as of September 19,
1996 on each of the 32 shares of 10% non-voting convertible preferred
stock. As a result, common stock at par increased by $35, additional paid-
in-capital - common stock was increased by $15,965 and retained earnings
decreased by $16,000.
(b) The 8% convertible preferred stock and the 12% convertible preferred stock
may be redeemed, in whole or in part, at the option of the company for a
redemption price equal to the liquidation preference of $1,000 per share
plus accrued and unpaid dividends. The holders of the 8% and 12%
convertible preferred stock may convert each share, at any time, into
shares of common stock. The number of shares of common stock into which
each share of preferred stock may be converted shall be obtained by
dividing $1,000 by a conversion price of $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.
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, 1997 and 1996, cash dividends totaling
$35,426 and $41,360, respectively were paid to the holders of the 8%
convertible preferred stock and the 12% convertible preferred stock.
(c) In October 1996, the company entered into an agreement with a group of
investors to which the company issued 200,000 shares of a newly designated
$10.00 convertible preferred stock and warrants to purchase 266,000 shares
of common stock at $6.00 per
F-14
<PAGE>
share (See Note 15) for an aggregate consideration of $2,000,000. The
holders of $10 convertible preferred stock, acting as a single class, are
entitled to nominate and elect, at all times, one-half of the total number
of directors of the company.
Dividends on the $10 convertible preferred stock are noncumulative and are
payable at a rate of five times the amount of dividends, if any, per share
declared and paid by the company on its common stock. During 1996, no
dividends were declared and paid on the $10 convertible preferred stock.
The holders of the $10 convertible preferred stock may convert each share,
at any time, into shares of common stock. The number of shares of common
stock into which each share of the $10 convertible preferred stock may be
converted 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 stockholder 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.
13. Treasury Stock:
Treasury stock is shown at cost and consists of 50,333 shares of common
stock.
14. Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ["FASB"] issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
establishes financial accounting and reporting standards for employee
stock-based compensation plans and to transactions in which an entity
issues its equity instruments to acquire goods or services from non-
employees. SFAS No. 123 encourages, but does not require, companies to
record compensation cost for employee stock-based compensation plans at
fair value. 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 proforma disclosures has
been estimated using a Black-Scholes option pricing model. No options were
granted by the company during 1997. Based on Black-Scholes values, the
weighted average fair value of options granted during 1996 was $0.75. The
fair value is estimated on the date of grant with the following weighted
average assumptions used for options granted in 1996; expected volatility
of 72 percent; risk free interest rate of 6.27 percent; and expected lives
of approximately one year. As of November 30, 1997, the weighted average
remaining contractual life was approximately two years. Pro forma net loss
from continuing operations and pro forma net loss for 1996 would be
approximately $3,733,000 and $4,153,000, respectively. Pro forma loss per
share from continuing
F-15
<PAGE>
operations and proforma loss per share for 1996 would be approximately $.47
and $.52, respectively.
Information regarding the company's stock option plans is as follows:
(a) Stock Option Plan - The company has a Stock Option Plan (the Plan) pursuant
to which it has reserved authorized, but unissued, shares of common stock
for issuance of both Qualified Incentive Stock Options and Non-Qualified
Stock Options to employees, officers and directors of the company. Under
the Plan, a maximum of 122,222 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,
1997 and 1996, approximately 12,222 and 40,400 options were exercisable,
respectively. The following is a summary of transactions:
1997 1996
------------------------------
Outstanding Beginning of year 59,722 59,722
Granted during the year - -
Terminated during the year (14,167) -
------- ________
Outstanding End of year (1) 45,555 59,722
==============================
(1) With an exercise price per share ranging from $6.00 to $27.00, 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, 1997 was
$6.72 per share.
At November 30, 1997 and 1996, there were 76,667 and 62,500 shares (after
giving effect to the December 15, 1995 amendment to the Stock Option Plan
to increase the number of shares of common stock available for issuance
pursuant to the Plan) available for future grants.
(b) Directors and Officers Stock Option Plan - On August 17, 1993, the Board of
Directors adopted a Discretionary Directors and Officers Stock Option Plan
as amended (the "Discretionary Option Plan") pursuant to which the Board
may award options to purchase an aggregate of 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 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, 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
F-16
<PAGE>
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 3,333 shares of
common stock at the market price on the date of the grant. The Non-
Discretionary Plan also provides that any person becoming a director within
the six months after any August 17 will be granted options. The maximum
number of options authorized pursuant to the plan amounts to 166,666 which
were granted as of November 30, 1996.
The following is a summary of transactions relating the Directors and
Officers Stock Option Plans:
1997 1996
------------------------------------
Outstanding Beginning of year 706,833 586,833
Granted during the year - 120,000
______________ ______________
Outstanding - End of the year (1) 706,833 706,833
====================================
(1) With an exercise price per share ranging from $3.75 to $8.07. The weighted
average exercise price at November 30, 1997 was $6.63 share.
15. Stock Warrants
At November 30, 1997, the company has 812,376 shares of common stock
reserved for issuance upon exercise of warrants. Information regarding the
company's warrants outstanding is as follows:
Redeemable Class C Warrants - Each Class C Warrant, which entitles the
holder to purchase one share of the company's common stock at $6.00 per share,
became exercisable October 9, 1993 and expired October 9, 1996. During the year
ended November 30, 1996, 35,982 Redeemable Class C Warrants were exercised for
proceeds of $215,890. The common stock in connection with the October 1996
exercise of 30,182 of the Redeemable Class C Warrants was issued in March and
May 1997.
Redeemable Class D-9 Warrants - Each Class D Warrant, which entitles the
holder to purchase one share of the company's common stock at $9.00 per share,
became exercisable October 9, 1993 and expire October 9, 1998. The Class D
Warrants are redeemable by the company under certain conditions. At November
30, 1997 and 1996, the company had outstanding 284,645 Redeemable Class D
Warrants.
Non-Redeemable Warrants - At November 30, 1997 and 1996, the company had
outstanding 628,333 and 528,333 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:
F-17
<PAGE>
Number of Warrants Expiration Date
28,333 October 1998
33,333 May 1999
200,000 May 2001
266,667 October 2001
100,000 November 2002
There were no exercises of non-redeemable warrants during the years ended
November 30, 1997 and 1996. All of the warrants that expire May 2001 were
issued to a principal stockholder 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 12). All of
the warrants that expire November 2002 were issued to an affiliate of principal
stockholder of the company in connection with a promissory note (See Note 5).
16. Income Taxes
The company has a deferred tax asset amounting to $3,854,612 at November
30, 1997, principally relating to net operating loss carryforwards of $9,560,829
and a basis difference in the carrying amount of trade accounts receivable for
financial reporting purposes and the amount used for income tax purposes. The
company recorded a valuation allowance amounting to the entire deferred tax
asset balance because the company's financial condition, its lack of a history
of consistent earnings, and possible limitations on the use of carryforwards
give rise to uncertainty as to whether the deferred tax asset is realizable. No
amount of current or deferred federal or state income tax is presented.
As of November 30, 1997, the approximate amount of the net operating loss
income tax carryforwards of continuing operations and their expiration dates are
as follows:
Expiring in Years
Ending November 30, Carryforwards
------------------- -------------
2004 202,301
2005 937,798
2006 144,487
2007 701,056
2008 0
2009 0
2010 538,204
2011 3,687,409
2012 3,349,574
Total 9,560,829
F-18
<PAGE>
17. Loss Per Share
Loss per share amounts are computed by dividing the net loss after
deduction of preferred stock dividends by the weighted average number of shares
outstanding. Options, warrants and convertible preferred stock are assumed
converted if dilutive.
18. New Authoritative Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share", which
will require companies to present basic earnings per share (EPS) and diluted
earnings per share, instead of the primary and fully diluted EPS that is
currently required. The new standard requires additional informational
disclosures, and also makes certain modifications to the currently applicable
EPS calculations defined in APB Opinion No. 15. The new standard is required to
be adopted by all public companies for reporting periods ending after December
31, 1997, and will require restatement of EPS for all prior periods reported.
Early adoption of the standard is prohibited. However, the company's loss per
share for the years ended November 30, 1997 and 1996 would not have been
materially different had the company applied the provisions of SFAS No. 128.
The FASB also issued the following additional standards. These standards
principally relate to presentation and disclosure items. While not required to
be adopted by the company until 1999, the company does not anticipate that the
standards will have a material impact on the company's financial statement
presentation or footnote disclosures:
- SFAS No. 130, "Reporting Comprehensive Income"
- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information"
- SFAS No. 132, "Employers' Disclosure about Pensions and other
Postretirement Benefits"
19. 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. The company has not
yet completed its allocation to identifiable intangible assets, and the
amortizable lives may be subject to change. Any such change is not expected to
have a material effect on the financial statements.
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.
Unaudited financial data is as follows:
F-19
<PAGE>
Year ended November 30, 9 months ended August 31,
----------------------- -------------------------
1997 1996 1998 1997
---- ---- ---- ----
Unaudited
---------
Net Sales $ 66,523 --- $ 517,568 ---
Operating Loss (60,098) --- (320,282) ---
Net Loss (60,098) --- (320,282)
---
In April 1997, the company entered into an agreement, subject to certain
conditions, to acquire the business of a radio station in Annapolis, Maryland
for a purchase price of $268,000. As of November 30, 1997, the purchase had not
yet been consummated; however, a deposit of $25,000 was made during 1997.
20. Discontinued Operations
In August 1997, the company adopted a plan to 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. 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 and $1,720,000 for the years ended November 30, 1997
and 1996, respectively.
21. Subsequent Events (unaudited)
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% non-voting convertible preferred stock. As a
result, common stock at par increased by $26, additional paid-in-capital -
common stock increased by $12,974 and retained earnings decreased by $13,000.
In April 1998, the company entered into an agreement pursuant to which the
company issued 20,000 shares of $10 convertible preferred stock for an aggregate
consideration of $200,000.
F-20
<PAGE>
The company's common stock is listed on the Nasdaq Stock Market, Inc.
("Nasdaq"). The company has been advised by Nasdaq that the company is not in
compliance with Nasdaq's new net tangible assets/market capitalization/net
income requirements for companies listed on the Nasdaq SmallCap Stock Market
became effective on February 23, 1998, and that Nasdaq intended to delist the
company's securities from the Nasdaq SmallCap Stock Market as of the close of
business on March 16, 1998. On July 29, 1998, following an expedited written
hearing before Nasdaq Listing Qualifications Panel, a determination was made
that News Communications had failed to meet the minimum net tangible asset
requirement and the minimum market capitalization requirement. As a result,
Nasdaq decided that our shares would be delisted from the Nasdaq SmallCap Stock
Market effective as of the close of business on August 6, 1998. The delisting
process was temporarily delayed because we requested an oral review/hearing by
the Nasdaq staff. The hearing was held in October 1, 1998 and we are awaiting a
response from NASDAQ. Although we are challenging the delisting and have
proposed a plan to regain compliance with the requirements for continued listing
(of which this offering is a part), we cannot be sure that the shares will
remain listed on The Nasdaq SmallCap Stock Market after completion of the review
process. If the plan of compliance is rejected, the company's securities are
subsequently delisted from the Nasdaq SmallCap Stock Market, trading, if any, in
the company's securities would thereafter be conducted on the OTC Bulletin
Board.
On October 19, 1998, the short-term note payable by Tribco and Access to
Blair was extended to June 21, 1999.
On October 6, 1998, the long-term note payable to RRF by the company was
extended to January 31, 2000.
The proposed acquisition of the radio station in Annapolis, Maryland
referred to in Note 19 above was abandoned in the fourth quarter of 1998.
22. Basis of Presentation
The Consolidated Balance Sheet as of August 31, 1998 and the Consolidated
Statements of Operations for the nine-month periods ended August 31, 1998 and
August 31, 1997, and the Consolidated Statements of Cash Flows have been
prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
23. Restatement (unaudited)
The financial statements and related notes have been restated to give
retroactive effective to a one-for-three reverse stock split on January 19,
1999.
F-21
