U.S.SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended March 31, 2003.
OR
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the transition period from _________ to _________.
Commission File Number: 0-18299
NEWS COMMUNICATIONS, INC.
---------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 13-3346991
------------------------------ -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2 Park Avenue, Suite 1405
New York, New York 10016
--------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 689-2500
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $11,244,171.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of May 6, 2003, is $2,129,427.
The number of shares of common stock outstanding as of May 6, 2003 was
10,339,410.
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 March 31,
2003................................................. 3
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 2003 and 2002........... 4
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 2003 and 2002........... 5
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis or Plan of
Operation............................................ 8
Item 3. Controls and Procedures................................. 13
PART II. Other Information
Item 5. Other Information....................................... 13
Item 6. Exhibits and Reports on Form 8-K........................ 13
Signatures ........................................................ 14
Certifications ........................................................ 15
Exhibit 99.1 Certification of Principal Executive Officer............ 17
Exhibit 99.2 Certification of Principal Financial Officer............ 18
2
PART I
Financial Information
ITEM 1 - Financial Statements
News Communications, Inc. and Subsidiaries
Consolidated Balance Sheet as of March 31, 2003
Assets
Current:
Cash $ 305,932
Accounts receivable - net of allowance for doubtful accounts of $322,534 639,667
Notes Receivable 202,973
Other 217,948
-----------
Total current assets 1,366,520
Restricted Cash 34,102
Notes Receivable, net of current portion 876,667
Property and equipment at cost- net 416,150
Goodwill 314,809
Trade names, net 508,221
Other - net 17,054
-----------
$ 3,533,523
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 767,743
Accrued expenses 881,209
Note payable, current portion 4,445
Unearned revenue 153,849
Due to related parties 734,037
Capital lease, current portion 23,209
-----------
Total current liabilities 2,564,492
Due to related parties 945,578
Note payable, net of current portion 15,558
Capital lease, net of current portion 41,848
-----------
Total liabilities 3,567,476
-----------
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 shares authorized: 192,529
shares issued and outstanding: $2,039,500 aggregate liquidation value 192,529
Common stock, $.01 par value; authorized 100,000,000 shares; 10,844,744
shares issued and 10,289,410 outstanding 109,477
Paid-in-capital preferred stock 1,703,320
Paid-in-capital common stock 25,649,672
Deficit (26,787,222)
-----------
867,776
Less: Treasury stock, (658,334 common shares) - at cost (901,729)
-----------
Total stockholders' equity (33,953)
-----------
$ 3,533,523
===========
See accompanying notes to unaudited financial statements.
3
News Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended March 31, 2003 2002
----------- -----------
Net revenues $ 1,571,062 $ 2,489,107
----------- -----------
Expenses:
Editorial 326,984 275,876
Production and distribution 396,453 683,152
Selling 520,633 642,569
General and administrative 819,522 1,257,040
Depreciation and amortization 46,125 60,725
----------- -----------
Total expenses 2,109,717 2,919,362
----------- -----------
Loss from operations, before interest, minority interest in
income of subsidiary and provision for income taxes (538,655) (430,255)
Interest (income) expense, net 7,352 (4,693)
Minority interest in income of subsidiary -- (45,000)
----------- -----------
Loss before provision for income taxes (546,007) (470,562)
Provision for income taxes (2,000) (27,500)
----------- -----------
Net loss $ (548,007) $ (498,062)
=========== ===========
Loss per common share:
Basic and diluted $ (0.05) $ (0.05)
=========== ===========
Weighted average number of common shares outstanding:
Basic and diluted 10,201,654 10,685,811
=========== ===========
See accompanying notes to unaudited financial statements.
4
News Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended March 31, 2003 2002
--------- ---------
Cash flows from operating activities
Net Loss $(548,007) $(498,062)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 46,125 60,725
Provision for doubtful accounts (34,300) 77,200
Minority interest -- 45,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (133,630) 2,755
Other current assets (36,834) 7,470
Other assets 1,256 11,068
Increase in:
Accounts payable and accrued expenses 272,365 212,198
Other liabilities 75,000 25,110
Related party payable 19,480 3,945
--------- ---------
Net cash used in operating activities (338,545) (52,591)
--------- ---------
Cash flows from investing activities:
Capital expenditures (13,630) (12,250)
--------- ---------
Net cash used in investing activities (13,630) (12,250)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 100,000 --
Dividend on preferred stock (282) (282)
Payment of capital lease obligations (4,025) (4,025)
Payments on automobile loan (1,111) --
Collection of note receivable 11,049 5,250
--------- ---------
Net cash provided by financing activities 105,631 943
--------- ---------
Net decrease in cash (246,544) (63,898)
Cash, beginning of year 552,476 596,505
--------- ---------
Cash, end of year $ 305,932 $ 532,607
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 2,003 $ 5,423
Cash paid during the year for income taxes 12,155 29,841
Non-cash activities:
Purchases of equipment under capital leases 24,886 --
Conversion of preferred stock into common stock 30 --
========= =========
See accompanying notes to unaudited financial statements.
5
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The Company is planning to grow the operations of its core publications, Dan's
Papers and The Hill. The Company intends to finance these new business
initiatives and its existing liabilities from working capital, from additional
sales of equity securities, from the installment payments due to the Company
from the sale of subsidiaries, from the sale of minority interests in its new
publication or by a sale of assets. A total of $150,000 has been received in
2003 from the sale of the Company's common stock. The Company believes that
additional investment to fund the Company's obligations will be received during
the course of 2003. Regardless of whether additional funds are received, the
Company believes that it will have sufficient working capital to fund its
operations through December 31, 2003. During 2004, however, in addition to its
ordinary course obligations, the Company will have to satisfy its $600,000
obligation due to the former minority owner of Dan's Papers and pay $121,458 to
the former publisher of The Hill. In order to meet these obligations and to
finance the full expansion of both its core and new operations, the Company has
determined that approximately $1,200,000 in funds needs to be raised during the
next twelve months. In the event that the Company is not able to secure
additional equity or debt investments, the Company may be forced to cut back
operations or sell assets in order to meet its obligations.
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, 2002 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
months ended March 31, 2003 and 2002.
For the three months ended March 31, 2003, options to purchase 746,489 shares of
common stock, warrants to purchase 3,315,873 shares of common stock, convertible
preferred shares convertible into 749,045 shares of common stock, and
convertible notes convertible into 233,117 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 June 6, 2003
through November 28, 2015, were all outstanding at March 31, 2003.
6
C. Recently Issued Accounting Standards:
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
146"). SFAS 146 addresses 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 statement is effective on a prospective basis for exit or disposal
activates that are initiated after December 31, 2002, with early application
encouraged. The adoption of SFAS 146 did not have a material impact on the
Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensations -- Transition and Disclosure, an amendment of SFAS No. 23,
Accounting for Stock-Based Compensations, which provides alternatives for
companies electing to account for stock-based compensation using the fair value
criteria established by SFAS No. 123. The Company intends to continue to account
for stock-based compensation under the provisions of Accounting Principles Board
Opinion No. 25.
D. Accounting for Stock-Based Compensation:
The Company has several stock-based employee compensation plans in effect that
were entered into in 1987, 1993, and 1999. The Company accounts for all
transactions under which employees receive shares of stock or other equity
instruments in the Company based on the price of its stock in accordance with
the provisions of Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees." No stock-based employee compensation cost is
reflected in net loss, as all options granted under the plan had an exercise
price equal to the market value of the underlying common stock on the date of
grant. There were no options granted and no options were vested during the
quarter ended March 31, 2003. In accordance with SFAS No. 148, the following
table illustrates the effect on net loss and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123 "Accounting
for Stock-Based Compensation".
Quarter ended March 31, 2003 2002
------------------------------------------------------------------------------------------------
Net loss, as reported $(548,007) $(498,062)
Less: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net effect of minority interest - (14,262)
------------------------------------------------------------------------------------------------
Proforma net loss $(548,007) $(512,324)
------------------------------------------------------------------------------------------------
Basic net loss per share: (0.05) (0.05)
------------------------------------------------------------------------------------------------
Proforma SFAS 123 (0.05) (0.05)
------------------------------------------------------------------------------------------------
E. Common Stock:
On January 17, 2003, a shareholder converted 5 shares of 10% convertible
preferred stock into 3,000 shares of common stock.
On March 17, 2003, pursuant to a Subscription Agreement, the President of the
Company, James A. Finkelstein, acquired 50,000 shares of the Company's common
stock at a purchase price of $1.00 per share.
On March 24, 2003, pursuant to a Subscription Agreement, the Company sold 50,000
shares of common stock at a purchase price of $1.00 per share to a related
party.
F. Subsequent Event:
Pursuant to terms of a Subscription Agreement, which was consummated on May 1,
2003, the Company sold 50,000 shares of common stock at a purchase price of
$1.00 per share.
7
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 March 31, 2003, we published 3 newspapers
(The Hill, Dan's Papers, and Montauk Pioneer) and related magazines.
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. GAAP refers to accounting principles generally accepted in the
United States of America. Throughout this Management Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A"), management discusses
financial measures in accordance with GAAP and also on a non-GAAP basis. The
Company's definition of EBITDA is earnings before interest, income taxes,
depreciation and amortization. EBITDA does not include gains or losses from the
sale of subsidiaries. All references in this MD&A to EBITDA are to a non-GAAP
financial measure. 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 relative to the industry.
Additionally, the Company believes that the use of non-GAAP financial measures
enables it and investors to evaluate, and compare from period to period, the
results from ongoing operations in a more meaningful and consistent manner. A
reconciliation of GAAP to non-GAAP financial measures is included on page 11.
Revenue Recognition. We believe our most critical accounting policies include
revenue recognition. Display advertising revenues are earned when the
advertisements appear in our publications. Approximately 74% of revenues from
operations are from display advertising sales and 20% are from classified
advertising sales. Unearned revenues of approximately $154,000 at March 31, 2003
represent future classified advertisement for which customers have paid in
advance and for subscription revenue for future issues.
Allowance for Uncollectible Accounts Receivable. We record an allowance for
doubtful accounts based on specifically identified amounts that we believe to be
uncollectible. We also record additional allowance based on certain percentages
of our aged receivables, which are determined based on historical experience and
our assessment of the general financial conditions affecting our customer base.
If our actual collections experience changes, revisions to our allowance may be
required. We do not have customers with individually large amounts due at any
given balance sheet date. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. Our accounts
receivable balance was approximately
8
$640,000, net of allowance for doubtful accounts of approximately $323,000 at
March 31, 2003.
Long-Lived Assets. Long-lived assets such as trade names 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.
Trade names and property and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. No impairment losses have been necessary through March
31, 2003.
Income Taxes. We have a history of operating losses. These losses generated a
sizeable federal tax net operating loss, or NOL carryforwards, of approximately
$17.3 million as of March 31, 2003. 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 taxes) for current income. It is possible that the Company could become
profitable and that a portion or all of the NOL carryforwards 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.
Accounting for Stock-Based Compensation. The Company has several stock-based
employee compensation plans in effect that were entered into in 1987, 1993, and
1999. The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company based on the price of
its stock in accordance with the provisions of Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees." No stock-based
employee compensation cost is reflected in net loss, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. There were no options granted
and no options were vested during the quarter ended March 31, 2003. In
accordance with SFAS No. 148, the following table illustrates the effect on
net loss and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation".
Quarter ended March 31, 2003 2002
--------- ---------
Net loss, as reported $(548,007) $(498,062)
Less: Total stock-based employee compensation expense determined
under fair value based method for all awards, net effect of
minority interest -- (14,262)
--------- ---------
Proforma net loss $(548,007) $(512,324)
========= =========
Basic net loss per share:
(0.05) (0.05)
--------- ---------
Proforma SFAS 123
(0.05) (0.05)
--------- ---------
9
Results of Operations:
Three Months Ended March 31, 2003 Compared With Three Months Ended March 31,
2002
Revenues
Primarily due to the sale of a business, revenues for the first quarter of 2003
decreased 37% or $918,045 to $1,571,062 compared with $2,489,107 in the first
quarter of 2002. Excluding revenues from the sold business (Queens Tribune and
related publications that were sold in November 2002), overall revenue declined
9% or $151,709 compared with the three months ended March 31, 2002. Variances in
specific revenue categories for the three month period excluding the sold
business were as follows: display advertising, which represented 74% of total
revenues, decreased 18% to $1,158,565 in the first quarter 2003 compared with
$1,418,104 in the first quarter of 2002 and classified advertising increased 15%
to $307,181 compared to $267,677 in 2002. Other revenue, primarily subscription
revenue, increased $68,326 to $105,316 in 2003 compared with $36,990 in 2002.
Among our individual operating units, classified revenues were strong at Dan's
Papers increasing 18% although overall revenues declined 2%. Revenues for The
Hill decreased 13% due to several factors. First, overall advertising revenues
in the advocacy category were down because of the focus of the Congressional
agenda on the war in Iraq which suppressed the advocacy-advertising category.
Also during the quarter, a competitive publication added an edition on
Wednesday, our publication date. The Hill has now added a new edition on
Tuesdays and is contemplating adding a third edition later in the year or next
year.
Operating Expenses
Operating expenses for the first quarter of 2003 were $2,109,717, a decrease of
28%, compared with operating expenses of $2,919,362 during the first quarter of
2002. Excluding expenses from a sold business (Queens Tribune and related
publications that were sold in November 2002), operating expenses were
essentially flat for the first quarter of 2003.
Variances in specific expense categories, excluding the sold business, were as
follows: editorial, production, and distribution were 15% higher compared to the
three months ended March 31, 2002. This is primarily due to the costs associated
with the introduction in March 2003 of a second edition of The Hill. Selling
expenses were 18% higher for the three months ended March 31, 2003 compared to
the same quarter in 2002 primarily due to the establishment of a New York sales
office. Expenditures for market research and promotional materials for new
business initiatives increased in the first quarter of 2003. General and
administrative expenses decreased 16% for the three months ended March 31, 2003
compared to the three months ended March 31, 2002 due primarily to a decrease
in legal and professional fees and bad debt expense.
Provision for Income Taxes
The Company recorded a $2,000 provision for state and local income taxes for the
first quarter of 2003.
Income
EBITDA (earnings before interest, taxes, depreciation and amortization) for the
first quarter of
10
2003, declined by $78,000 from a loss of $414,530 in the first quarter of 2002
to a loss of $492,530 in the first quarter of 2003. This variance was due in
part to losses generated in the first quarter of 2002 by the business that was
sold and to the decline in display advertising sales which was partially offset
by strong classified advertising and by an increase in other revenue. The
variance was impacted by expansion plans resulting in higher editorial,
production, distribution, and selling expenses. General and administrative costs
were lower.
Reconcilations of GAAP to Non-GAAP Financial Measures. Reconciliations of GAAP
to non-GAAP financial measures are provided below. As previously explained,
EBITDA is a measure widely used among media related businesses and is used in
this report because management believes that it is an effective way of
monitoring the operating performance of our company relative to the industry.
EBITDA does not include gains or losses from the sale of subsidiaries.
Quarter ended March 31, 2003 2002
---------------------- ---- ----
Earnings before interest, taxes, amortization
and depreciation (EBITDA)
Loss from operations $(538,655) $(430,255)
Depreciation and amortization 46,125 60,725
Minority interest in income of subsidiary -- (45,000)
--------- ---------
EBITDA $(492,530) $(414,530)
========= =========
EBITDA, excluding the operating loss of the sold business, for the first quarter
of 2003 declined $117,929 to a loss of $492,530 compared to a loss of $374,601
for the same period in 2002. This is primarily attributed to a decrease in
revenue of $151,709, an increase in editorial and manufacturing and distribution
costs of $93,474, and an increase in selling expenses of $79,164. These costs
were partially offset by a decrease in minority interest of $45,000 and a
decrease in general and administrative costs of $161,421.
The net loss increased $49,945 in the first quarter to a net loss of $548,007
compared with net loss of $498,062 in the first quarter of 2002. Excluding the
net loss of the business sold in 2002, the loss increased $95,186. This was
attributed to a decrease in revenues of $151,709, an increase in editorial,
production, and distribution costs of $93,474, and an increase in selling
expenses of $79,164. These variances were partially offset by a decrease in
general and administrative expenses of $161,421, a decrease in depreciation and
amortization of $9,285, a decrease in minority interest of $45,000, and a
decrease in the tax provision of $25,500. Interest expense increased $12,045.
On a per share basis, the net loss was $0.05 for the first quarter of 2003 was
unchanged when compared with net loss of $0.05 for the first quarter of 2002.
Liquidity and Capital Resources
Cash as of March 31, 2003 was $305,932, excluding restricted cash of
$34,102, compared with $532,607, excluding restricted cash of $102,305, for the
same period in 2002. For the three months ended March 31, 2003, total cash used
in operating activities was $338,545, compared to $52,591 for the same period in
2002. This was primarily attributable to the operating loss of $548,007 and an
increase in accounts receivable and other current assets of approximately
$171,000. This which was partially offset by an increase in accounts payable,
accrued expenses and other liabilities of approximately $366,000 and an increase
of approximately $46,000 in depreciation and amortization.
11
Capital expenditures were $13,630. Cash provided by financing activities
totaled $105,631 and was primarily attributed to $100,000 proceeds from the
issuance of common stock. Cash collected on notes receivable was approximately
$11,000 and payments on capital lease obligations and an automobile loan were
approximately $5,000.
As of March 31, 2003, the Company had current assets of $1,366,520,
including cash of $305,932. At March 31, 2003 the Company had an excess
of current liabilities over current assets in the amount of $1,197,972.
Included is a $600,000 payment due to the former minority shareholder of
Dan's Papers, which amount can be paid in 2004 without violating the terms
of the Company's agreement with the minority shareholder, and a $112,461
payment due in 2003 to the former publisher of The Hill for accrued vacation
and bonus and to cash-out a phantom equity interest in Capital Hill.
Historically, in addition to cash from operations, the Company has relied
on financing in the form of sales of equity securities, sales of convertible
notes, and a $1,000,000 Revolving Credit Facility extended by a shareholder to
meet its working capital requirements. The Company also generated cash from the
recent sale of subsidiaries that historically did not generate positive cash
flow. Additionally, cash management techniques implemented by the Company in the
fourth quarter of 2001 greatly improved cash flow during the year 2002 and in
the beginning of 2003.
The Company is planning to grow the operations of its core publications,
Dan's Papers and The Hill. Dan's Papers introduced a new magazine to compliment
its weekly paper. Two editions of Dan's Magazine were published in 2002 and an
expanded publication schedule is planned for 2003. Beginning in March 2003, the
Company expanded publication of The Hill to twice a week, on Tuesdays in
addition to Wednesdays. Plans are further being developed to expand to a third
edition later this year or next year.
The Company is developing a new tabloid-size publication that will be
devoted to homeland security products, systems and services. The magazine will
be targeted to government buyers of security systems and products. The revenue
will be generated primarily from the sale of advertising to manufacturers,
retailers, and integrators of homeland security products and systems. The
Company has committed to give the publisher of the new publication an equity
interest of up to 20% and is considering several proposals from outside
investors for investment into the new publication.
The Company intends to finance these new business initiatives and its
existing liabilities from working capital, from additional sales of equity
securities, from the installment payments due to the Company from the sale of
subsidiaries, from the sale of minority interests in its new publication or by a
sale of assets. A total of $150,000 has been received in 2003 from the sale of
the Company's common stock. The Company believes that additional investment to
fund the Company's obligations will be received during the course of 2003.
Regardless of whether additional funds are received, the Company believes that
it will have sufficient working capital to fund its operations through December
31, 2003. During 2004, however, in addition to its ordinary course obligations,
the Company will have to satisfy its $600,000 obligation due to the former
minority owner of Dan's Papers and pay $121,458 to the former publisher of The
Hill. In order to meet these obligations and to finance the full expansion of
both its core and new operations, the Company has determined that approximately
$1,200,000 in funds needs to be raised during the next twelve months. In the
event that the Company is not able to secure additional equity or debt
investments, the Company may be forced to cut back operations or sell assets in
order to meet its obligations.
12
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.
PART II
OTHER INFORMATION
Item 5. OTHER INFORMATION.
On March 17, 2003, pursuant to a Subscription Agreement, the President of
the Company, James A. Finkelstein, acquired 50,000 shares of the Company's
common stock at a purchase price of $1.00 per share.
On March 24, 2003, pursuant to a Subscription Agreement, the Company sold
50,000 shares of common stock at a price of $1.00 per share to a
related party.
On May 1, 2003, pursuant to a Subscription Agreement, the Company sold
50,000 shares of common stock at a purchase price of $1.00 per share.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
None
13
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: May 20, 2003 By: /s/ James A. Finkelstein
-----------------------------
James A. Finkelstein
President
Date: May 20, 2003 By: /s/ E. Paul Leishman
-----------------------------
E. Paul Leishman
Chief Financial Officer
14
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 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: May 20, 2003
By: /s/ James A. Finkelstein
-------------------------------
James A. Finkelstein
President
15
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.
Date: May 20, 2003
By:/s/ E. Paul Leishman
------------------------------
E. Paul Leishman
Chief Financial Officer
16