##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 001-32549
 American Community Newspapers Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    20-2521288(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 14875 Landmark Boulevard, Suite 110, Addison, Texas 75254
(Address of principal executive offices)
 Telephone: (972) 628-4080
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




---



##### 



PagePart I.
    
    Financial InformationItem 1. Financial Statements (Unaudited):Consolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statement of Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    45Item 4T. Controls and Procedures
    
    
    45Part II.
    
    Other InformationItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 3. Defaults Upon Senior Securities
    
    
    49Item 4. Submission of Matters to a Vote of Security Holders
    
    
    49Item 5. Other Information
    
    
    50Item 6. Exhibits
    
    
    50Signatures
    
    
    51EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION
  2




---



##### Table of Contents



Part
I. Financial Information
 
 Item 1.
Financial Statements
 
 American Community Newspapers Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
 (unaudited)June 29,
    
    
    December 30,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,552
    
    
    $
    1,521Accounts receivable, net of allowance for doubtful accounts of
$115 and $88 at June 29, 2008 and December 30, 2007, respectively
    
    
    7,287
    
    
    
    7,010Inventories
    
    
    752
    
    
    
    618Other current assets
    
    
    826
    
    
    
    754Total current assets
    
    
    11,417
    
    
    
    9,903Property, plant, and equipment, net of accumulated
depreciation of $1,809 and
$897 at June 29, 2008 and December 30, 2007, respectively
    
    
    8,555
    
    
    
    9,324Goodwill
    
    
    34,029
    
    
    
    90,110Intangible assets, net of accumulated amortization of $757 and
$5,184 at June 29, 2008 and December 30, 2007, respectively
    
    
    43,184
    
    
    
    101,341Deferred financing costs, net
    
    
    3,487
    
    
    
    3,770Other assets
    
    
    130
    
    
    
    100Total assets
    
    $
    100,802
    
    
    $
    214,548Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,595
    
    
    $
    1,401Accrued expenses
    
    
    2,010
    
    
    
    2,232Accrued interest and interest rate swap liability
    
    
    1,187
    
    
    
    2,018Deferred revenue
    
    
    1,303
    
    
    
    1,314Current portion of long-term liabilities
    
    
    143,317
    
    
    
    2,100Total current liabilities
    
    
    149,412
    
    
    
    9,065Long-term liabilities:Long-term debt
    
    
    
    
    
    
    137,866Deferred income taxes
    
    
    
    
    
    
    1,862Redeemable preferred stock, $.0001 par value, Authorized
1,000,000 shares; 42,193 issued and outstanding shares at
June 29, 2008 and December 30, 2007
    
    
    4,953
    
    
    
    4,556Total liabilities
    
    
    154,365
    
    
    
    153,349Commitments and contingenciesStockholders equity (deficit)Common stock, $.0001 par value, Authorized 50,000,000 shares
Issued and outstanding 14,623,445 shares
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    64,559
    
    
    
    64,329Accumulated deficit
    
    
    (118,123
    )
    
    
    (3,131
    )Total stockholders equity (deficit)
    
    
    (53,563
    )
    
    
    61,199Total liabilities and stockholders equity (deficit)
    
    $
    100,802
    
    
    $
    214,548
 The accompanying notes should be read in conjunction with these unaudited consolidated financial statements.
 3




---



##### Table of Contents



AMERICAN COMMUNITY NEWSPAPERS INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 29,
    
    
    June 30,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Advertising
    
    $
    15,773
    
    
    $
    
    
    
    $
    30,247
    
    
    $
    Circulation
    
    
    676
    
    
    
    
    
    
    
    1,352
    
    
    
    Commercial printing and other
    
    
    762
    
    
    
    
    
    
    
    1,539
    
    
    
    Total revenues
    
    
    17,211
    
    
    
    
    
    
    
    33,138
    
    
    
    Operating costs and expenses:Operating
    
    
    7,706
    
    
    
    
    
    
    
    15,172
    
    
    
    Selling, general and administrative
    
    
    5,886
    
    
    
    211
    
    
    
    11,690
    
    
    
    293Depreciation and amortization
    
    
    2,230
    
    
    
    
    
    
    
    5,125
    
    
    
    Impairment of goodwill and other intangible assets
    
    
    110,026
    
    
    
    
    
    
    
    110,026
    
    
    
    125,848
    
    
    
    211
    
    
    
    142,013
    
    
    
    293Operating loss
    
    
    (108,637
    )
    
    
    (211
    )
    
    
    (108,875
    )
    
    
    (293
    )Interest expense
    
    
    (3,363
    )
    
    
    
    
    
    
    (7,132
    )
    
    
    Other (expense) income
    
    
    532
    
    
    
    502
    
    
    
    (668
    )
    
    
    1,023(Loss) income from operations before
income taxes
    
    
    (111,468
    )
    
    
    291
    
    
    
    (116,675
    )
    
    
    730Income tax (expense) benefit
    
    
    2,319
    
    
    
    (105
    )
    
    
    1,683
    
    
    
    (214
    )Net (loss) income
    
    $
    (109,149
    )
    
    $
    186
    
    
    $
    (114,992
    )
    
    $
    516(Loss) earnings per share:Basic and diluted:
    
    $
    (7.46
    )
    
    $
    0.01
    
    
    $
    (7.86
    )
    
    $
    0.03Weighted average shares outstanding
    
    
    14,623,445
    
    
    
    16,800,000
    
    
    
    14,623,445
    
    
    
    16,800,000
 The accompanying notes should be read in conjunction with these unaudited consolidated financial
statements.
 4




---



##### Table of Contents



AMERICAN COMMUNITY NEWSPAPERS INC.
Consolidated Statement of Stockholders Equity (Deficit)
(In thousands, except share data)
(Unaudited)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance, December 30, 2007
    
    
    14,623,445
    
    
    $
    1
    
    
    $
    64,329
    
    
    $
    (3,131
    )
    
    $
    61,199Stock based compensation
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    
    
    
    
    230Net loss for the six
months ended June 29,
2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114,992
    )
    
    
    (114,992
    )Balance, June 29, 2008
    
    
    14,623,445
    
    
    $
    1
    
    
    $
    64,559
    
    
    $
    (118,123
    )
    
    $
    (53,563
    )
 The accompanying notes should be read in conjunction with these unaudited consolidated financial statements.
 5




---



##### Table of Contents



AMERICAN COMMUNITY NEWSPAPERS INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Six Months EndedJune 29,
    
    
    June 30,2008
    
    
    2007Cash flows from operating activities:Net (loss) income
    
    $
    (114,992
    )
    
    $
    516Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    5,125
    
    
    
    Impairment of goodwill and other intangible assets
    
    
    110,026
    
    
    
    Provision for doubtful accounts
    
    
    440
    
    
    
    Non-cash interest expense
    
    
    2,856
    
    
    
    Stock based compensation
    
    
    230
    
    
    
    Deferred income taxes
    
    
    (1,862
    )
    
    
    Change in fair value of interest rate swap
    
    
    668Changes in assets and liabilities, net of effect of acquisition:Cash held in Trust Fund
    
    
    
    
    
    
    (1,274
    )Accounts receivable
    
    
    (717
    )
    
    
    Inventories
    
    
    (134
    )
    
    
    Other current assets
    
    
    (72
    )
    
    
    25Long-term assets
    
    
    (30
    )
    
    
    Accounts payable
    
    
    194
    
    
    
    (65
    )Accrued expenses
    
    
    (144
    )
    
    
    Accrued interest
    
    
    (1,499
    )
    
    
    Deferred revenue
    
    
    (11
    )
    
    
    Taxes payable
    
    
    (78
    )
    
    
    (143
    )Deferred dividends
    
    
    397
    
    
    
    255Net cash provided by (used in) operating activities
    
    
    397
    
    
    
    (686
    )Cash flows from investing activities:Payment of deferred acquisition costs and deposit
    
    
    
    
    
    
    (882
    )Purchases of property, plant and equipment
    
    
    (144
    )
    
    
    Net cash used in investing activities
    
    
    (144
    )
    
    
    (882
    )Cash flows from financing activities:Payment of debt issuance costs
    
    
    (22
    )
    
    
    Borrowings under Credit Facility
    
    
    3,300
    
    
    
    Repayments of Credit Facility
    
    
    (2,500
    )
    
    
    Borrowings from related parties
    
    
    
    
    
    
    376Net cash provided by financing activities
    
    
    778
    
    
    
    376Net Increase (decrease) in cash and cash equivalents
    
    
    1,031
    
    
    
    (1,192
    )Cash and cash equivalents at beginning of period
    
    
    1,521
    
    
    
    1,193Cash and cash equivalents at end of period
    
    $
    2,552
    
    
    $
    1Supplemental disclosures:Interest paid
    
    $
    3,880
    
    
    $
    3,243Income taxes paid
    
    $
    
    
    
    $
    340Non-cash investing and financing activities:Accrual of acquisition costs
    
    $
    
    
    
    $
    1,078
 The accompanying notes should be read in conjunction with these unaudited consolidated financial statements.
 6




---



##### Table of Contents



Notes to Consolidated Financial Statement in thousands ($000s) unless noted otherwise
 1. Organization and Basis of Presentation
      7




---



##### Table of Contents



2. Summary of Significant Accounting Policies and Effect of New Accounting Pronouncements
  Going Concern
   8




---



##### Table of Contents



9




---



##### Table of Contents



Use of Estimates
  Intangible Assets
  Goodwill and
Other Intangible Assets
 Goodwill
 Business Combinations,
 Deferred Financing Costs
  10




---



##### Table of Contents



Share-Based Compensation
 Accounting for Stock-Based
Compensation Share-Based Payment
  Income Taxes
  Accounting for Uncertainty in
Income Taxes an interpretation of SFAS 109
 Accounting for Income Taxes
 Earnings (loss) per share
  11




---



##### Table of Contents



Effect of Recently Issued Accounting Pronouncements
 Fair Value Measurements
 Fair Value Measurements
     Fair Value Option for Financial Assets and Financial Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities
 12




---



##### Table of Contents



Determination of the Useful Life of Intangible Assets
 Determination of the Useful
Life of Intangible Assets
 Business Combinations
 Business Combinations
 Disclosure about Derivative Instruments and Hedging Activities
 Disclosures about Derivative Instruments and Hedging
Activities
 The Hierarchy of Generally Accepted Accounting Principles
 The Hierarchy of Generally Accepted Accounting Principles
 13




---



##### Table of Contents



The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles
 3. Acquisition
    14




---



##### Table of Contents



Current Assets
    
    $
    10,395Property, plant and equipment
    
    
    10,048Other long-term assets
    
    
    100Mastheads
    
    
    22,594Advertiser relationships
    
    
    77,379Subscriber relationships
    
    
    3,528Customer relationships
    
    
    3,024Goodwill
    
    
    90,110Total assets
    
    
    217,178Current liabilities
    
    
    (5,957
    )Long-term liabilities
    
    
    (2,114
    )Cash acquired
    
    
    (274
    )Net purchase price
    
    $
    208,833
    Three
    
    SixMonths Ended
    
    Months EndedJuly 1, 2007
    
    July 1, 2007Total revenues
    
    $
    20,095
    
    
    $
    38,134Net income
    
    
    1,893
    
    
    
    2,855Earnings per common
share  basic and diluted
    
    
    0.13
    
    
    
    0.20
 15




---



##### Table of Contents



4. Goodwill and Other Intangible Assets
  June 29, 2008Weighted
    
    Gross
    
    
    
    
    
    Netaverage
    
    carrying
    
    Accumulated
    
    CarryingUseful Lives
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Advertiser relationships
    
    
    7
    
    
    $
    30,705
    
    
    $
    (714
    )
    
    $
    29,991Subscriber relationships
    
    
    8
    
    
    
    1,129
    
    
    
    (23
    )
    
    
    1,106Customer relationships
    
    
    9
    
    
    
    1,147
    
    
    
    (20
    )
    
    
    1,12732,981
    
    
    
    (757
    )
    
    
    32,224Non-amortized intangible
assets:Mastheads
    
    
    
    
    
    
    10,960
    
    
    
    
    
    
    
    10,960Total Intangible assets, net
    
    
    
    
    
    $
    43,941
    
    
    $
    (757
    )
    
    $
    43,184
  Goodwill and Other Intangible Assets,
   2008
    
    $
    2,2742009
    
    
    4,5482010
    
    
    4,5482011
    
    
    4,5482012
    
    
    4,548Thereafter
    
    
    11,758Total
    
    $
    32,224
  June 29, 2008Goodwill, beginning of year
    
    $
    90,110Goodwill, impairment
    
    
    (56,081
    )Goodwill, end of period
    
    $
    34,029
 16




---



##### Table of Contents



Impairment
  OriginalCarrying Value
    
    
    Fair Value
    
    
    ImpairmentMastheads
    
    $
    22,594
    
    
    $
    10,960
    
    
    $
    11,634Advertising, subscriber,
and customer relationships
    
    
    75,292
    
    
    
    32,981
    
    
    
    42,311Goodwill
    
    
    90,110
    
    
    
    34,029
    
    
    
    56,081$
    187,996
    
    
    $
    77,970
    
    
    $
    110,026
  Accounting for the Impairment or Disposal of Long-Lived
Assets
 Mastheads
  Identifiable intangible assets with definite lives
  17




---



##### Table of Contents



OriginalCarryingValue
    
    
    Impairment
    
    
    Fair ValueAdvertisers (A)
    
    $
    69,319
    
    
    $
    (38,614
    )
    
    $
    30,705Subscribers (S)
    
    
    3,201
    
    
    
    (2,072
    )
    
    
    1,129Customers (C)
    
    
    2,772
    
    
    
    (1,625
    )
    
    
    1,147Total A, S & C
    
    $
    75,292
    
    
    $
    (42,311
    )
    
    $
    32,981
  Goodwill
     18




---



##### Table of Contents



5. Long Term Debt
  June 29, 2008Revolving Credit Facility
    
    $
    3,500Term Loan FacilityTerm A Loans
    
    
    35,000Term B Loans
    
    
    70,000Subordinated Credit Facility
    
    
    34,817143,317Less current portion
    
    
    (143,317
    )$
    
     19




---



##### Table of Contents



20




---



##### Table of Contents



6. Share-Based Compensation
  21




---



##### Table of Contents



Accounting for Stock Based Compensation
    WeightedAverageOptions
    
    
    Exercise PriceOutstanding stock options, December 30, 2007
    
    
    1,260,500
    
    
    $
    4.82Granted
    
    
    10,000
    
    
    
    0.60Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (391,500
    )
    
    
    (4.92
    )Outstanding stock options, June 29, 2008
    
    
    879,000
    
    
    $
    4.73Exercisable stock options, June 29, 2008
    
    
    200,396
    
    
    $
    5.10Weighted average grant date fair value of options granted
    
    
    
    
    
    $
    1.73Weighted average remaining contractual life (years)
    
    
    
    
    
    
    9.4
 7. Redeemable Preferred Stock
  22




---



##### Table of Contents



8. Income Taxes
 Accounting for Income Taxes,
  9. Subsequent Events
   23




---



##### Table of Contents



24




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Note Regarding Forward Looking Information
    Overview
   25




---



##### Table of Contents



26




---



##### Table of Contents



Recent Developments
   27




---



##### Table of Contents



28




---



##### Table of Contents



Recently Issued Accounting Standard s
  Pro Forma
  Critical Accounting Policy Disclosure
  29




---



##### Table of Contents



Three Months Ended June 29, 2008 Compared to Three Months Ended July 1, 2007 (Pro Forma)
   30




---



##### Table of Contents



Unaudited(In thousands)Three Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    Period changeActual
    
    
    Pro Forma
    
    
    $
    
    
    %Revenues:Advertising
    
    $
    15,773
    
    
    $
    18,685
    
    
    $
    (2,912
    )
    
    
    -15.6
    %Circulation
    
    
    676
    
    
    
    774
    
    
    
    (98
    )
    
    
    -12.7
    %Commercial printing and other
    
    
    762
    
    
    
    636
    
    
    
    126
    
    
    
    19.8
    %Total revenues
    
    
    17,211
    
    
    
    20,095
    
    
    
    (2,884
    )
    
    
    -14.4
    %Operating costs and expenses:Operating
    
    
    7,706
    
    
    
    8,567
    
    
    
    (861
    )
    
    
    -10.1
    %Selling, general and administrative
    
    
    5,886
    
    
    
    6,240
    
    
    
    (354
    )
    
    
    -5.7
    %Depreciation and amortization
    
    
    2,230
    
    
    
    3,480
    
    
    
    (1,250
    )
    
    
    -35.9
    %Impairment of goodwill and other
intangible assets
    
    
    110,026
    
    
    
    
    
    
    
    110,026125,848
    
    
    
    18,287
    
    
    
    107,561
    
    
    
    588.2
    %Operating income (loss)
    
    
    (108,637
    )
    
    
    1,808
    
    
    
    (110,445
    )
    
    
    -6,108.7
    %Interest expense
    
    
    (3,363
    )
    
    
    (2,287
    )
    
    
    (1,076
    )
    
    
    47.0
    %Other (expense) income
    
    
    532
    
    
    
    
    
    
    
    532
    
    
    
    (Loss) income from operations before
income taxes
    
    
    (111,468
    )
    
    
    (479
    )
    
    
    (110,989
    )
    
    
    23,171.0
    %Income tax benefit
    
    
    2,319
    
    
    
    
    
    
    
    2,319
    
    
    
    Net (loss) income
    
    $
    (109,149
    )
    
    $
    (479
    )
    
    $
    (108,670
    )
    
    
    22,686.8
    %(Loss) earnings per share:Basic and diluted:
    
    $
    (7.46
    )
    
    $
    (0.03
    )
    
    $
    (7.43
    )
    
    
    22,686.8
    %Weighted average shares outstanding
    
    
    14,623,445
    
    
    
    14,623,445
    
    
    
    
 Advertising Revenue .
 31




---



##### Table of Contents



Circulation Revenue .
 Commercial Printing and Other Revenue .
 Operating Costs .
 Selling, General and Administrative Expenses .
 Depreciation and Amortization .
 Impairment of Goodwill and Other Intangible Assets .
 Interest Expense .
 Three Months Ended June 29, 2008 Compared to Three Months Ended June 30, 2007
  32




---



##### Table of Contents



Unaudited(In thousands)Three Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    Period changeActual
    
    
    Actual
    
    
    $
    
    
    %Revenues:Advertising
    
    $
    15,773
    
    
    $
    
    
    
    $
    15,773
    
    
    
    Circulation
    
    
    676
    
    
    
    
    
    
    
    676
    
    
    
    Commercial printing and other
    
    
    762
    
    
    
    
    
    
    
    762
    
    
    
    Total revenues
    
    
    17,211
    
    
    
    
    
    
    
    17,211
    
    
    
    Operating costs and expenses:Operating
    
    
    7,706
    
    
    
    
    
    
    
    7,706
    
    
    
    Selling, general and administrative
    
    
    5,886
    
    
    
    211
    
    
    
    5,675
    
    
    
    2,690
    %Depreciation and amortization
    
    
    2,230
    
    
    
    
    
    
    
    2,230
    
    
    
    Impairment of goodwill and other
intangible assets
    
    
    110,026
    
    
    
    
    
    
    
    110,026
    
    
    
    125,848
    
    
    
    211
    
    
    
    125,637
    
    
    
    59,544
    %Operating loss
    
    
    (108,637
    )
    
    
    (211
    )
    
    
    (108,426
    )
    
    
    51,387
    %Interest expense
    
    
    (3,363
    )
    
    
    
    
    
    
    (3,363
    )
    
    
    Other (expense) income
    
    
    532
    
    
    
    502
    
    
    
    30
    
    
    
    6
    %(Loss) income from operations before
income taxes
    
    
    (111,468
    )
    
    
    291
    
    
    
    (111,759
    )
    
    
    -38,405
    %Income tax benefit
    
    
    2,319
    
    
    
    (105
    )
    
    
    2,424
    
    
    
    -2,309
    %Net (loss) income
    
    $
    (109,149
    )
    
    $
    186
    
    
    $
    (109,335
    )
    
    
    -58,782
    %(Loss) earnings per share:Basic and diluted:
    
    $
    (7.46
    )
    
    $
    0.01
    
    
    $
    (7.48
    )Weighted average shares outstanding
    
    
    14,623,445
    
    
    
    16,800,000
    
    
    
    (2,176,555
    )
 Total Revenues .
 33




---



##### Table of Contents



Operating Costs .
 Selling, General and Administrative Expenses .
 Depreciation and Amortization .
 Impairment of Goodwill and Other Intangible Assets .
 Interest Expense .
 Interest Income .
 Income Tax Expense .
 Six Months Ended June 29, 2008 Compared to Six Months Ended July 1, 2007 (Pro Forma)
  34




---



##### Table of Contents



Unaudited(In thousands)Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    Period changeActual
    
    
    Pro Forma
    
    
    $
    
    
    %Revenues:Advertising
    
    $
    30,247
    
    
    $
    35,150
    
    
    $
    (4,903
    )
    
    
    -13.9
    %Circulation
    
    
    1,352
    
    
    
    1,698
    
    
    
    (346
    )
    
    
    -20.4
    %Commercial printing and other
    
    
    1,539
    
    
    
    1,286
    
    
    
    253
    
    
    
    19.7
    %Total revenues
    
    
    33,138
    
    
    
    38,134
    
    
    
    (4,996
    )
    
    
    -13.1
    %Operating costs and expenses:Operating
    
    
    15,172
    
    
    
    17,065
    
    
    
    (1,893
    )
    
    
    -11.1
    %Selling, general and administrative
    
    
    11,690
    
    
    
    12,497
    
    
    
    (807
    )
    
    
    -6.5
    %Depreciation and amortization
    
    
    5,125
    
    
    
    6,552
    
    
    
    (1,427
    )
    
    
    -21.8
    %Impairment of goodwill and other
intangible assets
    
    
    110,026
    
    
    
    
    
    
    
    110,026
    
    
    
    142,013
    
    
    
    36,114
    
    
    
    105,899
    
    
    
    293.2
    %Operating loss
    
    
    (108,875
    )
    
    
    2,020
    
    
    
    (110,895
    )
    
    
    -5,489.9
    %Interest expense
    
    
    (7,132
    )
    
    
    (3,734
    )
    
    
    (3,398
    )
    
    
    91.0
    %Other (expense) income
    
    
    (668
    )
    
    
    
    
    
    
    (668
    )
    
    
    (Loss) income from operations before
income taxes
    
    
    (116,675
    )
    
    
    (1,714
    )
    
    
    (114,961
    )
    
    
    6,707.2
    %Income tax benefit
    
    
    1,683
    
    
    
    
    
    
    
    1,683Net (loss) income
    
    $
    (114,992
    )
    
    $
    (1,714
    )
    
    $
    (113,278
    )
    
    
    6,609.0
    %(Loss) earnings per share:Basic and diluted:
    
    $
    (7.86
    )
    
    $
    (0.12
    )
    
    $
    (7.75
    )
    
    
    6,609.0
    %Weighted average shares outstanding
    
    
    14,623,445
    
    
    
    14,623,445
    
    
    
    
 Advertising Revenue .
 35




---



##### Table of Contents



Circulation Revenue .
 Commercial Printing and Other Revenue .
 Operating Costs .
 Selling, General and Administrative Expenses .
 Depreciation and Amortization .
 Impairment of Goodwill and Other Intangible Assets .
 36




---



##### Table of Contents



Interest Expense .
 Six Months Ended June 29, 2008 Compared to Six Months Ended June 30, 2007
   37




---



##### Table of Contents



Unaudited(In thousands)Six Months EndedJune 29, 2008
    
    
    June 29, 2007
    
    
    Period changeActual
    
    
    Actual
    
    
    $
    
    
    %Revenues:Advertising
    
    $
    30,247
    
    
    $
    
    
    
    $
    30,247
    
    
    
    Circulation
    
    
    1,352
    
    
    
    
    
    
    
    1,352
    
    
    
    Commercial printing and other
    
    
    1,539
    
    
    
    
    
    
    
    1,539
    
    
    
    Total revenues
    
    
    33,138
    
    
    
    
    
    
    
    33,138
    
    
    
    Operating costs and expenses:Operating
    
    
    15,172
    
    
    
    
    
    
    
    15,172
    
    
    
    Selling, general and administrative
    
    
    11,690
    
    
    
    293
    
    
    
    11,397
    
    
    
    3,889.8
    %Depreciation and amortization
    
    
    5,430
    
    
    
    
    
    
    
    5,430
    
    
    
    Impairment of goodwill and other
intangible assets
    
    
    110,026
    
    
    
    
    
    
    
    110,026
    
    
    
    142,318
    
    
    
    293
    
    
    
    142,025Operating loss
    
    
    (109,180
    )
    
    
    (293
    )
    
    
    (108,887
    )
    
    
    37,162.8
    %Interest expense
    
    
    (6,827
    )
    
    
    
    
    
    
    (6,827
    )
    
    
    Other (expense) income
    
    
    (668
    )
    
    
    1,023
    
    
    
    (1,691
    )
    
    
    -165
    %(Loss) income from operations before
income taxes
    
    
    (116,675
    )
    
    
    730
    
    
    
    (117,405
    )
    
    
    -16,082.9
    %Income tax expense
    
    
    1,683
    
    
    
    (214
    )
    
    
    1,897
    
    
    
    -886.4
    %Net (loss) income
    
    $
    (114,992
    )
    
    $
    516
    
    
    $
    (115,508
    )
    
    
    -22,385.3
    %(Loss) earnings per share:Basic and diluted:
    
    $
    (7.86
    )
    
    $
    0.03
    
    
    $
    (7.89
    )
    
    
    -25,702.2
    %Weighted average shares outstanding
    
    
    14,623,445
    
    
    
    16,800,000
    
    
    
    (2,176,555
    )
 Total Revenues .
 Operating Costs .
 Selling, General and Administrative Expenses .
 38




---



##### Table of Contents



Depreciation and Amortization .
 Impairment of Goodwill and Other Intangible Assets
 Interest Expense .
 Interest Income .
 Income Tax Expense .
 Liquidity and Capital Resources
     39




---



##### Table of Contents



Cash Flows
  Unaudited (In thousands)Six Months EndedJune 29,
    
    July 1,2008
    
    2007Cash provided by (used in) operating activities
    
    $
    397
    
    
    $
    (686
    )Cash used in investing activities
    
    
    (144
    )
    
    
    (882
    )Cash provided by financing activities
    
    
    778
    
    
    
    376
 40




---



##### Table of Contents



Cash Flows from Operating Activities .
 Cash Flows from Investing Activities .
 Cash Flows from Financing Activities .
 Impairment
     Changes in Financial Position
  41




---



##### Table of Contents



Accounts Receivable .
 Inventories .
 Property, Plant, and Equipment .
 Goodwill and Intangible Assets .
 Accounts Payable .
 Accrued Expenses .
 Accrued Interest .
 Deferred income taxes .
 Other Information
 Non-GAAP Financial Measures
  Adjusted EBITDA and pro forma Adjusted EBITDA
  before
 
 42




---



##### Table of Contents



before
 
 Plus/Minus:
  Managements Use of Adjusted EBITDA and pro forma Adjusted EBITDA
   Limitations of Adjusted EBITDA and pro forma Adjusted EBITDA
  43




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Income (loss)
    
    $
    (109,149
    )
    
    $
    186
    
    
    $
    (114,992
    )
    
    $
    516Income tax benefit
    
    
    (2,319
    )
    
    
    105
    
    
    
    (1,683
    )
    
    
    214Non-cash stock based compensation
expense
    
    
    93
    
    
    
    
    
    
    
    230
    
    
    
    Other (expense) income
    
    
    (532
    )
    
    
    (502
    )
    
    
    668
    
    
    
    (1,023
    )Interest expense
    
    
    3,363
    
    
    
    
    
    
    
    7,132
    
    
    
    Depreciation and amortization
    
    
    2,230
    
    
    
    
    
    
    
    5,125
    
    
    
    Impairment of goodwill and other
intangible assets
    
    
    110,026
    
    
    
    
    
    
    
    110,026
    
    
    
    Adjusted EBITDA
    
    $
    3,712
    
    
    $
    (211
    )
    
    $
    6,506
    
    
    $
    (293
    )
 44




---



##### Table of Contents



3 months
    
    
    6 monthsJuly 1,
    
    
    July 1,2007
    
    
    2007Proforma Net Income
    
    $
    (479
    )
    
    $
    (1,714
    )Interest
    
    
    2,287
    
    
    
    3,734Depreciation and amortization
    
    
    3,480
    
    
    
    6,552Pro Forma Adjusted EBITDA
    
    $
    5,288
    
    
    $
    8,572
 Off Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 Item 4T. Controls and Procedures
 Disclosure controls and procedures
  45




---



##### Table of Contents



Internal Control over Financial Reporting
   
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  46




---



##### Table of Contents



Our indebtedness could adversely affect our financial health and reduce the funds available to us
for other purposes.
    
    
    a substantial portion of our cash flow from operations must be dedicated to the
payment of interest on our outstanding indebtedness, thereby reducing the funds
available to us for other purposes, including capital expenditures, acquisitions,
working capital and general corporate purposes;
    
    our substantial degree of leverage could make us more vulnerable in the event of a
downturn in general economic conditions or other adverse events in our business;
    
    our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired, limiting our
ability to maintain the value of our assets and operations; and
    
    there would be a material and adverse effect on our business and financial
condition if we are unable to service our indebtedness or obtain additional financing,
as needed.
 
 47




---



##### Table of Contents



Goodwill and other intangible assets
  48




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
   
 Item 4. Submission of Matters to Vote of Security Holders
    49




---



##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive, Financial and Accounting Officers, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 50




---



##### Table of Contents



SIGNATURES
 th
  /s/ Eugene M. CarrEugene M. CarrChairman,
President and Chief Executive Officer(Principal Executive Officer)/s/ David J. KosofskyDavid J. KosofskyChief Financial Officer(Principal Financial Officer)/s/ Richard D. HendricksonRichard D. HendricksonCorporate Controller(Principal Accounting Officer)
 51