UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended - September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
---------------
Commission File Number 0-18299
NEWS COMMUNICATIONS, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
-------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2 Park Avenue, New York, New York 10016
----------------------------------------
(Address of principal executive offices)
(212) 689-2500
-------------
(Issuer's telephone number)
-------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of November 14, 2002 was
10,186,411.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at September 30, 2002........................................ 3
Unaudited Consolidated Statements of
Operations for the three and nine months ended
September 30, 2002 and 2001.................................. 4
Unaudited Consolidated Statements of Cash
Flows for the nine months ended
September 30, 2002 and 2001.................................. 5
Notes to Consolidated Financial Statements................... 7
Item 2. Management's Discussion and Analysis
or Plan of Operation.........................................11
Item 3. Controls and Procedures......................................17
PART II. Other Information
Item 5. Other Information............................................18
Item 6. Exhibits and Reports on Form 8-K.............................18
Signatures .............................................................19
Certifications .............................................................20
2
PART I
Financial Information
ITEM 1 - Financial Statements
News Communications, Inc. and Subsidiaries
Consolidated Balance Sheet as of September 30, 2002
(Unaudited)
Assets:
Current assets:
Cash $ 862,765
Accounts receivable - net of allowance
for doubtful accounts of $1,105,412 1,514,326
Other 185,033
------------
Total current assets 2,562,124
Restricted Cash 104,103
Notes Receivable 625,000
Property and equipment at cost- net 498,301
Intangible assets - net 1,570,775
Other - net 62,744
------------
Total assets $ 5,423,047
============
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $ 876,607
Accrued expenses -
Payroll 545,719
Other 576,785
Note payable, current portion 4,445
Income Taxes Payable 11,043
Unearned revenue 137,968
Due to related parties 625,139
Capital lease, current portion 16,102
------------
Total current liabilities 2,793,808
Due to related party, net of current portion 1,200,000
Note payable, net of current portion 17,781
Capital lease, net of current portion 21,469
------------
Total liabilities 4,033,058
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 shares authorized: 192,534 shares
issued and outstanding: $2,044,500 aggregate liquidation value 192,534
Common stock, $.01 par value; authorized 100,000,000 shares; 10,844,744 shares
issued and 10,686,411 shares outstanding 108,447
Paid-in-capital preferred stock 1,703,344
Paid-in-capital common stock 25,550,672
Accumulated deficit (25,673,279)
Less: Treasury stock, (158,333 common shares) - at cost (491,729)
------------
Total stockholders' equity 1,389,989
------------
Total liabilities and stockholders' equity $ 5,423,047
============
See accompanying notes to unaudited financial statements.
3
News Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------------------------------------------------
Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001
-------------- -------------- --------------- ----------------
Net revenues $3,518,929 $3,713,486 $9,648,231 $11,519,480
-------------- -------------- --------------- ----------------
Expenses:
Editorial 313,685 329,079 881,963 1,156,475
Production and distribution 1,062,461 1,286,211 2,726,308 3,962,630
Selling 760,321 746,112 2,131,546 2,578,981
General and administrative 1,206,932 1,197,461 3,714,654 4,537,038
Depreciation and amortization 63,092 79,476 184,842 302,962
-------------- -------------- --------------- ----------------
Total expenses 3,406,491 3,638,339 9,639,313 12,538,086
-------------- -------------- --------------- ----------------
Income (loss) before interest, minority
interest in income of subsidiary and taxes 112,438 75,147 8,918 (1,018,606)
Loss on sale of subsidiary 0 (96,621) 0 (892,555)
-------------- -------------- --------------- ----------------
Income (loss) before interest, minority
interest in income of subsidiary and taxes 112,438 (21,474) 8,918 (1,911,161)
Interest income (expense), net 4,829 5,002 13,602 (37,676)
Minority interest in income of subsidiary (40,500) (32,499) (121,500) (97,497)
-------------- -------------- --------------- ----------------
Net income (loss) before taxes 76,767 (48,971) (98,980) (2,046,334)
Provision for income taxes 2,082 38,240 71,082 43,190
-------------- -------------- --------------- ----------------
Net income (loss) $74,685 ($87,211) ($170,062) ($2,089,524)
============== ============== =============== ================
Net income (loss) per share - basic and diluted $0.01 ($0.01) ($0.02) ($0.22)
============== ============== =============== ================
Weighted average number of common shares
outstanding - basic and diluted 10,686,411 10,666,705 10,686,411 9,427,840
============== ============== =============== ================
See accompanying notes to unaudited financial statements.
4
News Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
-------------------------------------------
September 30, 2002 September 30, 2001
-------------------------------------------
Unaudited
-------------------------------------------
Cash flows from operating activities:
Net Loss ($170,062) ($2,089,524)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 184,843 302,962
Provision for doubtful accounts 321,700 412,244
Minority interest 121,500 97,497
Loss on sale of subsidiary 0 892,555
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (312,204) (897,624)
Other current assets 5,704 16,038
Restricted cash (1,798) 0
Other assets 60,702 32,266
Increase (decrease) in:
Accounts payable and accrued expenses 342,998 51,890
Other liabilities 6,210 155,945
Related party payable 11,967 0
-----------------------------------
Net cash provided by (used in) operating activities 571,560 (1,025,751)
-----------------------------------
Cash flows from investing activities:
Capital expenditures (41,036) (378,386)
Proceeds from sale of subsidiary 0 635,000
-----------------------------------
Net cash provided by (used in) investing activities (41,036) 256,614
-----------------------------------
Cash flows from financing activities:
Payment of capital lease obligations (13,418) (12,077)
Payment of other current liabilities (300,000) 0
Net proceeds from the issuance of common stock and warrants 0 750,000
Issuance of related party notes payable 0 509,139
Payment of related party notes payable 0 (304,011)
Collection of note receivable 50,000 0
Dividend on preferred stock (846) (846)
-----------------------------------
Net cash provided by (used in) financing activities (264,264) 942,205
-----------------------------------
Net increase in cash 266,260 173,068
Cash, beginning of period 596,505 694,390
-----------------------------------
Cash, end of period $862,765 $867,458
===================================
See accompanying notes to unaudited financial statements.
5
News Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
--------------------------------------------
September 30, 2002 September 30, 2001
--------------------------------------------
Unaudited
--------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $3,894 $55,892
Cash paid during the year for income taxes 92,095 0
Non-cash activities:
Purchases of equipment under capital leases 0 44,888
Purchase of automobile - debt incurred 22,226 0
Purchase of minority interest - debt incurred 1,600,000 0
Conversion of related party notes payable and accrued
interest to common stock 0 (1,196,169)
Disposal of assets - notes receivable 0 725,000
See accompanying notes to unaudited financial statements.
6
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Basis of Presentation:
In the opinion of News Communications, Inc.'s ("NCI" or "the Company")
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information set forth therein. These consolidated financial
statements are condensed and, therefore, do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The results for the interim periods are not necessarily
indicative of the results for a full year.
These consolidated financial statements should be read in conjunction with NCI's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 and the
related audited financial statements included therein.
B. Income (Loss) per Share:
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. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of shares of
common stock outstanding for the period. Diluted earnings per share reflect, in
periods in which they have a dilutive effect, the effect of shares of common
stock issuable upon exercise of common stock equivalents. The assumed conversion
of the options and warrants would have been anti-dilutive and, therefore, were
not considered in the computation of diluted earnings per share for the three
and nine months ended September 30, 2002 and September 30, 2001.
For the three months ended September 30, 2002, options to purchase 752,325
shares of common stock, warrants to purchase 3,415,873 shares of common stock,
convertible preferred shares convertible into 752,645 shares of common stock,
and convertible notes convertible into 221,107 shares of common stock were not
included in the computation of diluted earnings per share as the exercise prices
of the options and warrants were greater than the average market price of the
common shares. These options and warrants, which, expire from November 11, 2002
through November 28, 2015, were all outstanding at September 30, 2002.
C. Recently Issued Accounting Standards:
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company
7
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141. The Company adopted SFAS
141 on July 1, 2001.
As of January 1, 2002, the Company adopted SFAS 142 that requires, among other
things, that companies no longer amortize goodwill, but instead test goodwill
for impairment at least annually. In addition, SFAS 142 requires that the
Company identify reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing recognized
intangible assets, and cease amortization of intangible assets with an
indefinite useful life.
The Company's previous business combinations were accounted for using the
purchase method. As of September 30, 2002, the net carrying amount of goodwill
is $1,098,744 and other intangible assets is $472,031. Amortization expense
relating to goodwill during the year ended December 31, 2001 was approximately
$59,000. The Company completed its first fair value-based goodwill impairment
test, which resulted in no impairment losses being recorded.
The impact of goodwill amortization on third quarter of 2001 and year to date
September 30, 2001 net loss and loss per common share was ($10,275) and ($0.001)
and ($50,899) and ($0.005), respectively. Had the Company adopted SFAS 142 on
January 1, 2001, third quarter 2001 net loss would have been ($76,936), and the
loss per common share would have been unchanged ($0.01), year to date September
30, 2001 net loss would have been ($2,038,625) and the loss per common share
would have been unchanged ($0.22). The Company continues to amortize intangible
assets that have finite lives (see Note D).
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121 and the accounting and reporting
provisions of APB Opinion No. 30 for a disposal of a segment of a business. SFAS
144 is effective for fiscal years beginning after December 15, 2001, with
earlier application encouraged. The Company adopted SFAS 144 as of January 1,
2002, and the adoption of the Statement has had no impact on the Company's
financial position and results of operations.
In July 2002, FASB issued Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146").
SFAS 146 address financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a company recognize a liability for a
cost associated with an exit or disposal activity only when it meets the
definition of liability (i.e., when the liability is incurred). SFAS 146 also
requires that the initial measurement of the liability be at its fair value.
This
8
statement is effective on a prospective basis for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The Company is currently evaluating the provisions of this statement.
D. Intangible Assets:
A breakdown of Intangible Assets is as follows:
Cost Amortization Net
---- ------------ ---
Goodwill $1,548,421 $ 449,677 $1,098,744
Trade names 1,425,000 952,969 472,031
--------- ---------- -----------
$2,973,421 $1,402,646 $1,570,775
========= ========= =========
The trade names are attributed to Tribco, Inc. and will be written off to the
gain on the sale of the business when recorded in the fourth quarter of 2002
(see Note G).
F. Acquisition of Minority Interest:
On September 23, 2002 the minority shareholder, a related party, of Dan's Papers
Inc. ("Dan's") exercised an option to sell to NCI the 20% stock ownership that
the party holds in Dan's at a purchase price of $1,600,000. Although the Company
is finalizing the terms of the agreement, it is expected that $400,000 will be
due and payable by NCI to the related party on November 25, 2002 and it is
anticipated that the balance of $1,200,000 will be payable in equal installments
of $600,000 plus interest at prime plus 1% on the first and second anniversaries
of the put notice. The following unaudited pro forma information presents a
summary of the results of operations of the Company assuming the acquisition of
the minority interest occurred on January 1, 2001 and includes the add back of
goodwill amortization for 2001 (see Note C):
Three Months Ended Nine Months Ended
-------------------------------- ---------------------------------
Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001
------------- ------------- ------------- -------------
Net income (loss) $115,185 $(44,437) $(48,562) $(1,941,128)
The acquisition of the minority interest is being accounted for under the
purchase method of accounting, applying the provisions of Statements of
Financial Accounting Standards No. 141 and, as a result, the Company recorded
the acquisition of the minority interest in the assets and liabilities of Dan's
at their estimated fair values with the excess of the purchase price over these
amounts being recorded as goodwill. Actual allocation of goodwill and other
identifiable assets will be based on further studies and may change during the
allocation period, generally one year following the date of the acquisition.
G. Subsequent Event:
On November 11, 2002, NCI completed the sale of substantially all of the assets
and
9
liabilities of Tribco Incorporated ("Queens") to Queens Tribune LLC for
$1,115,000 resulting in a net gain of approximately $126,000. As part of the
proceeds, the buyer paid cash of $318,333, surrendered 500,000 shares of common
stock having a value of $410,000 based upon a price of $0.82 per share, and
issued to NCI a note in the principal amount of $386,667 with interest of 5% per
annum. The note is payable in installments of $135,000 plus accrued interest,
$135,000 plus accrued interest, and $116,667 plus accrued interest on the first,
second and third anniversary dates, respectively. The note is secured by all of
the assets of Queens Tribune LLC.
10
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in this Item 2, Management's Discussion and Analysis
or Plan of Operation, contains "forward looking statements" within the meaning
of Section 27A of the Securities Act 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may materially
differ from those projected in the forward-looking statements as a result of
certain risks and uncertainties set forth in this report. Although management
believes that the assumptions made and expectations reflected in the forward
looking statements are reasonable, there is no assurance that the underlying
assumptions will, in fact, prove to be correct or that actual future results
will not be different from the expectations expressed in this report.
News Communications, Inc. is an established publisher of various
advertiser-supported newspapers. As of September 30, 2002, we published 6
newspapers (The Hill, Dan's Papers, Montauk Pioneer, Queens Tribune, Western
Queens Tribune, Press of Southeast Queens).
NCI Critical Accounting Policies
The following discussion and analysis of the financial condition and
operating results are based upon the consolidated financial statements of the
Company, which have been prepared in accordance with generally accepted
accounting principles.
Revenue Recognition. We believe our most critical accounting policies
include revenue recognition. Display advertising revenues are earned when the
advertisements appear in our publications. Unearned revenues of approximately
$138,000 at September 30, 2002 represent future classified advertisement for
which customers have paid in advance.
Allowance for Uncollectible Accounts Receivable. The preparation of
financial statements requires management to make estimates of the collectability
of our accounts receivable. Management specifically analyzes accounts receivable
and historical bad debts, customer credit-worthiness and current economic trends
when evaluating the adequacy of the allowance for doubtful accounts. Our
accounts receivable balance was approximately $1.5 million, net of allowance for
doubtful accounts at September 30, 2002.
Long-Lived Assets. Long-lived assets such as intangibles and property
and equipment are amortized over their useful lives. Useful lives are based on
management's estimates of the period that the assets will generate revenue.
Intangible assets are reviewed for impairment annually and whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Other than the loss on sale of subsidiaries, no impairment
losses have been necessary through September 30, 2002.
11
Income Taxes. We have a history of operating losses. These losses
generated a sizeable federal tax net operating loss, or NOL, carry forward of
approximately $15.6 million as of September 30, 2002. Generally accepted
accounting principles require that we record a valuation allowance against the
deferred tax asset associated with this NOL if it is "more likely than not" that
we will not be able to utilize it to offset future taxes. We have provided a
100% valuation allowance on deferred tax assets resulting from the NOL. We
currently provide for income taxes only to the extent that we expect to pay cash
taxes (primarily state and local taxes and the federal alternative minimum tax)
for current income. It is possible that the Company could become profitable and
that a portion or all of the NOL carry forward would be realized. Upon reaching
that conclusion, the estimated net realizable value of the deferred tax asset
would be recorded and a provision for income taxes would be established at the
combined federal and state effective rates.
Results of Operations:
Three Months Ended September 30, 2002 Compared With Three Months Ended September
30, 2001
Revenues
Primarily due to the sale of a business, revenues for the third quarter of 2002
decreased 5% or $194,557 to $3,518,929 compared with $3,713,486 in the third
quarter of 2001. Excluding revenues from the sold business (Manhattan newspapers
that were sold in August 2001), overall revenue was essentially flat, a decrease
of $24,503 compared with the three months ended September 30, 2001. Variances in
specific revenue categories for the three month period are as follows: display
advertising, which represented 85% of total revenues, increased 1% to $2,999,337
in the third quarter 2002 compared with $2,961,879 in the third quarter of 2001
and classified advertising increased 23% to $391,814 compared to $319,617 in
2001. Commercial printing decreased 78% to $40,268 in the third quarter of 2002
compared to $185,996 in the third quarter of 2001. The dollar variance in other
revenue was relatively small with a 15% increase to $87,511.
Among our individual operating units, total revenues for Dan's Papers increased
5% with strong performance in classified and modest growth in display
advertising. Dan's Papers introduced a new magazine for specific events such as
The International Hamptons Film Festival in the third quarter of 2002. Revenues
for The Hill increased 2% reflecting gains in display and classified advertising
and in subscription revenues for the third quarter of 2002 compared to the third
quarter of 2001, and revenues for the Queens Tribune declined 18% in the third
quarter of 2002 largely due to the decline in commercial printing which offset
gains in display and classified advertising of 5% and 20%, respectively.
Operating Expenses
Operating expenses for the third quarter of 2002 were $3,406,491, a decrease of
6%, compared with operating expenses of $3,638,339 during the third quarter of
2001.
12
Excluding expenses from a sold business (Manhattan newspapers that were sold in
August 2001), operating expenses for the third quarter of 2002 increased $43,530
or 1% from $3,362,961 during the three months ended September 30, 2001 to
$3,406,491 for the three months ended September 30, 2002.
Variances in specific expense categories excluding the sold business, were as
follows: editorial, production and distribution expenses were 9% lower for the
three months ended September 30, 2002 compared to the three months ended
September 30, 2001 because of the cost savings from a change in the production
schedule for glossy inserts at Dan's Papers and the lower commercial print costs
at the Queens Tribune due to the decline in commercial print revenues. Selling
expenses were 13% higher for the three months ended September 30, 2002 compared
to the same quarter in the previous year because of commissions related to the
advertising sales growth at Dan's Papers and marketing costs at Dan's Papers and
The Hill. General and administrative expenses increased 9% for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001
due to an increase in bad debt expense and higher legal and professional fees.
Provision for Income Taxes
The Company recorded a $2,082 provision for state and local income taxes for the
third quarter of 2002.
Income
EBITDA (earnings before interest, taxes, depreciation and amortization) for the
third quarter of 2002, improved by $12,906 from a profit of $122,124 in the
third quarter of 2001 to a profit of $135,030 in the third quarter of 2002. This
variance was due in part to losses generated in the third quarter of 2001 by the
businesses that were sold and growth in display and classified advertising
sales, which was offset by a decline in commercial printing. The variance was
also favorably affected by lower production and distribution costs. Selling and
general and administrative costs increased. The Company completed the sale of
businesses, one in April and one in August of 2001, that have historically lost
money. EBITDA, a measure widely used among media related businesses, is used in
this report because management believes that it is an effective way of
monitoring the operating performance of our company. EBITDA does not include
gains or losses from the sale of subsidiaries.
EBITDA, excluding the operating loss of the sold business, for the third quarter
of 2002 declined $82,170 to a profit of $135,030 compared to a profit of
$217,200 for the same period in 2001. This is primarily attributed to a decrease
in revenue of $24,503, an increase in selling expenses of $87,283, an increase
in minority interest of $8,001, an increase in general and administrative costs
of approximately $97,990. These were partially offset by a decrease in editorial
and manufacturing and distribution costs of $135,615.
The net income improved $161,896 in the third quarter to a net profit of $74,685
compared with net loss of $87,211 in the third quarter of 2001. This is due in
part to the net loss of $101,977 generated in the third quarter of 2001 by a
subsidiary that was sold.
13
Excluding the net loss of the sold company, the improvement was $59,919. This
was attributed to a decrease in production and distribution costs of $135,615,
the loss of $96,621 on sale of the Manhattan newspapers in the third quarter of
2001, reduced depreciation and amortization expense of $9,134, and lower state
and local income taxes on profitable operations of $36,674. These favorable
variances were partially offset by a revenue decline of $24,503 in the third
quarter of 2002, selling expense increases of $87,283, general and
administrative increases of $97,990, as well as additional minority interest
recognition of $8,001 in the third quarter of 2002.
On a per share basis, the net income was $0.01 for the third quarter of 2002
compared with net loss of $0.01 for the third quarter of 2001.
Nine Months Ended September 30, 2002 Compared With Nine Months Ended September
30, 2001
Revenues
Due to the sale of business units, revenues for the first nine months of 2002
decreased $1,871,249 or 16% to $9,648,231 from $11,519,480 in the first nine
months of 2001. Excluding revenues from sold businesses (Nassau and Manhattan
newspapers that were sold in April and August 2001), overall revenue increased
$337,851 or 4% from the first nine months of 2001 due to strong display
advertising sales in the first and third quarters. Strong performance in
classified advertising sales continued in the second and third quarters.
Variances in specific revenue categories excluding the revenues from sold
businesses are as follows: display advertising increased 2% to $7,793,249 in
2002 from $7,630,547 in 2001, and classified advertising increased 24% to
$1,394,664 in 2002 compared to $1,124,463 in 2001, and commercial printing
revenue decreased 35% to $207,259 from $318,876 in 2001. The dollar variance in
legal notice advertising and other revenues was relatively small with an
increase of 7%.
Among the individual operating units, classified revenue at Dan's Papers
increased 37% for the first nine months of 2002 compared with the first nine
months of 2001 and display advertising revenue was flat. Total revenues for The
Hill were 8% higher in the nine months of 2002 compared to 2001 primarily
because of display advertising performance. Revenues for the Queens Tribune
declined 6% (see Footnote G to the Financial Statement for Subsequent Event).
Operating Expenses
Primarily due to the sale of several business units, operating expenses during
the first nine months of 2002 were $9,639,313 a decrease of 23%, compared with
$12,538,086 during the first nine months of 2001. Excluding expenses from sold
businesses (Nassau and Manhattan newspapers that were sold in April and August
2001), operating expenses decreased $198,158 or 2% to $9,639,313 in 2002 from
$9,837,471 in 2001.
Variances in specific expense categories excluding sold businesses are as
follows: editorial, production and distribution expenses declined 8% largely due
to the reduced
14
production schedule at Dan's Papers for glossy inserts in the second quarter;
selling expenses increased 10% reflecting higher advertising sales commissions
at Dan's Papers and The Hill and new development costs at The Hill; general and
administrative expenses were virtually flat, and depreciation and amortization
decreased by $78,529 or 30% primarily due to the adoption of SFAS 142.
Provision for Income Taxes
The Company recorded a provision of $71,082 for state and local income taxes for
the nine months of 2002.
Income
EBITDA (earnings before interest, taxes, depreciation and amortization) for the
first nine months of 2002 improved by $885,401 from a loss of $813,141 in the
first nine months of 2001 to a profit of $72,260 in the first nine months of
2002. This favorable variance was due in part to growth in advertising sales,
production and distribution cost efficiencies, the completion in August 2001 of
the sale of subsidiaries that have historically lost money, and a concentration
on core products. EBITDA, a measure widely used among media related businesses,
is used in this report because management believes that it is an effective way
of monitoring the operating performance of our company. EBITDA does not include
gains or losses from the sale of subsidiaries.
EBITDA, excluding the operating losses of the sold businesses, for the first
nine months of 2002 improved by $ $429,445 to a profit of $72,260 compared to
loss of $357,185 for the same period in 2001. This is primarily attributed to
the revenue gains of $337,851, a decrease in editorial, production and
distribution costs of $327,063, an increase in selling expenses of $196,742 due
to higher commissions driven by display and classified revenue growth and
marketing, and general and administrative costs increased approximately $15,000.
Minority interest expense increased approximately $24,000.
Net loss for the first nine months of 2002 decreased $1,919,462 to $170,062 from
a net loss of $2,089,524 for the first nine months of 2001. This is due in part
to the net losses of approximately $504,021 generated in the first nine months
of 2001 by subsidiaries that were sold. Additionally, the improvement is due to
revenue gains of approximately $337,851 in the first nine months of 2002, a
decrease in editorial, production and distribution of $327,063, an increase in
selling expenses of $196,742, an increase in general and administrative costs of
approximately $15,000, an increase in minority interest of approximately
$24,000, losses on the sale of the Nassau and Manhattan newspapers in the second
and third quarter of 2001 of $884,442, a decrease in depreciation and
amortization expenses of approximately $78,529, and a decrease in interest
expense of approximately $50,764. Additionally, state and local income taxes on
profitable operations in 2002 increased approximately $28,000 in the first nine
months of 2002.
The $0.02 loss per share in the first nine months of 2002 improved from a $0.22
loss per share in the first nine months of 2001.
15
Liquidity and Capital Resources
Cash as of September 30, 2002 was $862,765, excluding restricted cash of
$104,103, compared with $763,858, excluding restricted cash of $103,600, for the
same period in 2001.
During 2001, we sold subsidiaries that historically did not generate positive
cash flow. Additionally, the Company implemented cash management improvements in
the fourth quarter of 2001 and is now realizing increased cash flow compared to
the previous year. Cash flow improved in the third quarter due to the
seasonality of our business.
During the nine months of 2002, total cash generated from operations was
$571,560 compared with net cash used in operations in 2001 of $1,025,751. This
was primarily attributed to a reduction of $1,919,462 in the net loss of
$2,089,524 in 2001 to a net loss of $170,062 in 2002. Management believes that
with the existing cash position, we will have sufficient working capital to fund
our operations for the next twelve months.
Capital expenditures were $41,036. Cash used in financing activities was
$264,264 and included the payment of $300,000 to the former CEO and President
relating to the stock purchase by the Company of 150,000 shares of the Company's
common stock at $2 per share. The expense and the liability were recorded in
December 2000 upon the termination of the former CEO and President.
As of September 30, 2002, we had current assets of approximately $2,562,000,
including cash of approximately $863,000. At September 30, 2002 we had an excess
of current liabilities over current assets in the amount of approximately
$232,000. Included in current liabilities is the payment due to a related party
from the Company's acquisition of the minority interest (see Footnote F to the
Financial Statements) of $400,000 due November 25, 2002.
16
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Company's Chief Executive Officer and its Chief Financial
Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date
within 90 days of the filing date of this quarterly report on Form
10-Q (the "Evaluation Date")), have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures
were adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities, particularly
during the period in which this quarterly report on Form 10-Q was
being prepared.
(b) CHANGES IN INTERNAL CONTROLS.
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect the
Company's disclosure controls and procedures subsequent to the
Evaluation Date, nor any significant deficiencies or material
weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
17
PART II
OTHER INFORMATION
Item 5. OTHER INFORMATION.
In connection with the preparation of this Report, as required by Section 906 of
the Sarbanes-Oxley Act of 2002, each of James A. Finkelstein, the Company's
President, and E. Paul Leishman, the Company's Chief Financial Officer, have
certified that this quarterly report on Form 10-QSB fully complies with the
reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, and that the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of the Registrant.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
The Company filed a Current Report on Form 8-K with the Securities and Exchange
Commission on June 27, 2002. The following items were reported on such Form 8-K:
1. Item 5. Other Events.
2. Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 20, 2002 By: /s/ James A. Finkelstein
-----------------------------------
James A. Finkelstein
President
Date: November 20, 2002 By: /s/ E. Paul Leishman
------------------------------------
E. Paul Leishman
Chief Financial Officer
19
CERTIFICATIONS
I, James A. Finkelstein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of News Communications,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report
20
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 20, 2002
By: /s/ James A. Finkelstein
----------------------------
[Signature]
President
21
CERTIFICATIONS
I, E. Paul Leishman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of News Communications,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
22
Date: November 20, 2002
By:/s/ E. Paul Leishman
-----------------------
[Signature]
Chief Financial Officer
23