American Community Newspapers Inc. Reports 2008 Third Quarter Financial Results

DALLAS, Nov. 19  /PRNewswire-FirstCall/ -- American Community Newspapers Inc. (Pink Sheets: ACNI) ("ACN" or the "Company") today reported financial results for the third quarter ended September 28, 2008.

Summary of Key Events

As previously reported, the Company is not in compliance with certain terms of its credit agreements, including financial and payment covenants, violation of which constitute events of default under such agreements.

The Company and its financial advisors continue to work with its lenders to restructure the Company's debt.  While the Company does not expect its lenders to immediately terminate its credit facilities and/or demand immediate repayment of outstanding debt, they have the right to do so as a result of the events of default.  In such event, the Company's senior lenders could seek to foreclose on their security interests in ACN's assets and those of its subsidiaries. Alternatively, the Company's lenders could exercise the other rights and remedies available to them under their respective credit agreements.  Such actions would materially and negatively impact the Company's liquidity, results of operations and financial condition.  The Company's senior lenders have restricted the Company's access to additional borrowings under the Company's credit agreement with them.

Since there is no assurance that the Company's negotiations and/or restructuring efforts with its lenders will be successful, the entire $144.8 million aggregate balance of all loans outstanding at September 28, 2008 has been reflected as a current liability in the accompanying balance sheet.  This has resulted in a liquidity deficiency of $139.1 million, the amount by which current liabilities of $151.8 million exceed current assets of $12.7 million at September 28, 2008.  Any restructuring that reduces the Company's outstanding debt is likely to have a substantial impact on the Company's capital structure, including but not limited to its common equity.

This financial press release should be read in conjunction with the Company's Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year ended December 30, 2007 and Forms 10-Q filed with the SEC for the quarters ended March 30, 2008 and June 29, 2008.

  Third Quarter Ended September 28, 2008 Results:
  --  Total revenue was $16.3 million, down 12.3% from total revenue of
      $18.5 million in the prior year quarter. The decline was primarily due
      to the macro-economic weakness nationwide and the resulting soft
      advertising environment, with the Company's Minneapolis-St. Paul
      cluster affecting results the most negatively.  Excluding the
      Minneapolis-St. Paul cluster, total revenue was down 8.7%.  There has
      been a significant slowdown in advertising expenditures in newspapers
      nationwide and in advertising in general across all media.
  --  Advertising revenue decreased 13.6% to $14.8 million in the third
      quarter of 2008 compared to advertising revenue in the same quarter of
      the prior year.
  --  ACN's 100 print products had a total circulation of approximately 1.3
      million in the third quarter of 2008. ACN has a free,
      controlled-distribution model for most of its print products, with
      circulation accounting for 4.1% of total Company revenues in the
      period.
  --  Total operating costs and expenses decreased 6.9% to $12.6 million in
      the third quarter of 2008 versus the prior year as a result of
      cost-saving initiatives and lower sales volume.
  --  Newspaper Cash Flow (NCF) decreased 26.9% to $3.6 million in the third
      quarter of 2008 compared to NCF in the third quarter of 2007. The
      decrease was driven primarily by the aforementioned revenue decline.
  --  Corporate expenses increased approximately $0.8 million or 144.5% to
      $1.4 million year-over-year in the 2008 third quarter primarily due to
      approximately $0.8 million expense for professional fees related to
      the Company's restructuring efforts.  About $0.4 million of these
      professional fees are being paid to professionals working on behalf of
      the Company's senior lenders pursuant to the Company's obligations
      under its loan agreement.

  Nine Months Ended September 28, 2008 Pro forma Results:
  --  Total revenue was $49.4 million, down 12.8% from total revenue of
      $56.7 million in the prior year period on a pro forma basis.  The
      decline was primarily due to the macro-economic nationwide weakness
      and the resulting soft advertising environment, with the Company's
      Minneapolis-St. Paul cluster affecting results the most negatively. 
      Excluding the Minneapolis-St. Paul cluster, total revenue was down
      9.4%.  There has been a significant slowdown in advertising
      expenditures in newspapers nationwide and in advertising in general
      across all media.
  --  Advertising revenue decreased 13.9% to $45.1 million for the first
      nine months of 2008 compared to the 2007 comparable period on a pro
      forma basis.
  --  Total operating costs and expenses decreased 9.5% to $38.1 million
      during the first nine months of 2008 versus the 2007 first nine months
      on a pro forma basis as a result of cost-saving initiatives and lower
      sales volume.
  --  Newspaper Cash Flow decreased 22.4% to $11.3 million for the first
      nine months of 2008 compared to pro forma NCF during the comparable
      prior year period. The decrease was driven primarily by the
      aforementioned revenue decline.
  --  Corporate expenses increased by $1.2 million or 90.8% to $2.5 million
      during the first nine months of 2008 compared to the comparable
      period, primarily due to approximately $0.8 million expense for
      professional fees related to the Company's restructuring efforts and
      to a lesser extent from other corporate costs related to the Company
      becoming an operating business as of July 2, 2007.  About $0.4 million
      of these professional fees are being paid to professionals working on
      behalf of the Company's senior lenders pursuant to the Company's
      obligations under its loan agreement.



On July 1, 2008, ACN retained an advisor to provide financial advisory services.  On August 26, 2008 the Company retained restructuring legal counsel.  These advisors are assisting the Company in exploring strategic alternatives relating to, among other things restructuring its long-term debt. Any restructuring that reduces the Company's outstanding debt is likely to have a substantial impact on its capital structure, including but not limited to its common equity.

As of August 13, 2008, the Company has been in violation of a financial covenant under each of its credit facility with the Bank of Montreal, as agent, and a group of banks and other commercial lenders (the "Credit Facility") and its unsecured term loan credit facility with Ares Capital Corporation (the "Subordinated Credit Facility"). Violation of these financial covenants constitutes an event of default under the Credit Facility and the Subordinated Credit Facility.  In addition, due to cross-default provisions under the Credit Facility, the financial covenant default under the Subordinated Credit Facility constitutes an additional event of default under the Credit Facility. Additionally, on September 30, 2008, the Company did not make a principal payment in the amount of $1.05 million as required by the Credit Facility. Such failure to pay constitutes an additional event of default under the Credit Facility. As a consequence of these events of default, any interest due and payable under the Credit Facility shall be at a rate that is 2 percentage points in excess of the interest otherwise payable with respect to the applicable Loans ("Default Interest Rate"). Furthermore, under a cross default provision contained in the certificate of designations for the Company's Series A Preferred Stock, the imposition of Default Interest Rate under the Subordinated Credit Facility has caused the dividend rate on Series A Preferred Stock to increase by 2 percentage points.

On November 30, 2007, the Company executed two interest rate swaps, one in the notional amount of $30 million and one in the notional amount of $25 million, with a spot starting date of December 4, 2007. The interest rate swaps had identical terms of two years. Under these swaps, the Company paid an amount to the swap counterparty representing interest on a notional amount at a fixed rate of 3.91% and received an amount from the swap counterparty representing interest on the notional amount at a rate equal to the three-month LIBOR. At the request of its senior lenders, the Company terminated the interest rate swap contracts on September 29, 2008 and incurred a total close-out fee of approximately $0.7 million which is included in current liabilities for the period ended September 28, 2008.  This transaction resulted in an immaterial gain for the three months ended September 28, 2008 and loss of approximately $0.7 million for the nine months ended September 28, 2008.

On August 21, 2008, the Company received notice from the American Stock Exchange ("AMEX," now known as NYSE Alternext US LLC) staff indicating that the Company was not in compliance with certain of AMEX's continued listing standards, as set forth in Sections 134 and 1101 of the AMEX Company Guide, due to its failure to file its Form 10-Q for the fiscal quarter ended June 29, 2008 with the SEC. The Company was afforded the opportunity to submit a plan of compliance to AMEX and, on September 4, 2008, the Company did so. On September 23, 2008, AMEX notified the Company that it accepted its plan of compliance and allowed it until November 19, 2008, to regain compliance with the continued listing standards. On October 21, 2008 the Company notified AMEX of its intent to voluntarily delist its common stock, warrants and units from AMEX and that it intended to voluntarily deregister its common stock, warrants and units under the Securities Exchange Act of 1934, as amended, and cease filing reports with the SEC.

On November 6, 2008 the Company filed its Form 10-Q for the three and six months ended June 29, 2008 with the SEC.

On November 10, 2008, the Company filed a Form 15 with the SEC to voluntarily deregister its common stock, warrants and units under the Securities Exchange Act of 1934, as amended, suspending its obligation to file reports with the SEC, including Forms 10-K, 10-Q, and 8-K. The Company expects that the deregistration will become effective on or about February 8, 2009. Also on November 10, 2008, the Company's common stock, warrants and units were delisted from AMEX and commenced trading on the Pink OTC Markets, a centralized electronic quotation service for over-the-counter securities, under the ticker symbols ACNI.PK, ACNIW.PK and ACNIU.PK, respectively.

About American Community Newspapers Inc.

ACN is a community newspaper publisher in the United States, operating within four major U.S. markets: Minneapolis - St. Paul, Dallas, Northern Virginia (suburban Washington, D.C.) and Columbus, Ohio.  These markets are some of the most affluent, high growth markets in the United States, with ACN strategically positioned in many of the wealthiest counties within each market. ACN's goal is to be the preeminent provider of local content and advertising in any market its serves.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to ACN's future financial or business performance, strategies and expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," " seek, " "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" and similar expressions.

Pro Forma

The Company has presented its operating results on a pro forma basis for the nine months ended September 28, 2008 and September 30, 2007. This pro forma presentation for the nine months ended September 28, 2008 and September 30, 2007 assumes that the July 2, 2007 acquisition of the Company's operating business and related financings occurred at the beginning of the pro forma period. This pro forma presentation is not necessarily indicative of what the Company's operating results would have actually been had the acquisition and related financings occurred at the beginning of the pro forma period. This pro forma presentation is required for comparison purposes as the Company had no operations for the first two quarters in 2007.

Non-GAAP Financial Measures

This press release includes the following financial information defined as non-GAAP financial measures by the Securities and Exchange Commission: EBITDA and Newspaper Cash Flow.  These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with generally accepted accounting principles.  ACN believes that the presentation of these non-GAAP measures provides information that is useful to investors as it indicates more clearly the ability of ACN to meet capital expenditures and working capital requirements and otherwise meet its obligations as they become due.  ACN's EBITDA was derived by taking earnings before interest, taxes, depreciation and amortization as adjusted for discontinued operations and certain one-time non-recurring items and exclusions. ACN's Newspaper Cash Flow was derived by taking earnings before interest, taxes, depreciation and amortization as adjusted for corporate expenses, discontinued operations and certain one-time non-recurring items and exclusions.  See the following "Reconciliation of net income to EBITDA / Adjusted EBITDA and Newspaper Cash Flow" table for further information regarding these non-GAAP financial measures.

  Selected Financial Information ($000s) - Unaudited

                                            Three Months Ended
                                 September  September   Period      Change
                                  28, 2008   30, 2007
                                   Actual     Actual       $           %
  Revenues:
    Advertising                  $ 14,821   $ 17,161  $ (2,340)     -13.6%
    Circulation                       673        680        (7)      -1.0%
    Commercial printing and other     769        695        74       10.7%
      Total revenue                16,263     18,536    (2,273)     -12.3%

  Operating costs and expenses:
    Operating costs                 7,634      8,080      (446)      -5.5%
    Selling, general and
     administrative                 5,006      5,498      (492)      -8.9%
      Total operating costs
       and expenses                12,640     13,578      (938)      -6.9%

  Newspaper Cash Flow               3,623      4,958    (1,335)     -26.9%

    Corporate expense               1,379        564       815      144.5%

  EBITDA                          $ 2,244    $ 4,394  $ (2,150)     -48.9%



  Selected Financial Information ($000s) - Unaudited

                                             Nine Months Ended
                                 September  September   Period      Change
                                  28, 2008   30, 2007
                                   Actual   Pro Forma      $           %
  Revenues:
    Advertising                   $45,069    $52,317   $(7,248)     -13.9%
    Circulation                     2,025      2,378      (353)     -14.8%
    Commercial printing and other   2,307      1,975       332       16.8%
      Total revenue                49,401     56,670    (7,269)     -12.8%

  Operating costs and expenses:
    Operating costs                22,806     25,144    (2,338)      -9.3%
    Selling, general and
     administrative                15,302     16,968    (1,666)      -9.8%
      Total operating
       costs and expenses          38,108     42,112    (4,004)      -9.5%

  Newspaper Cash Flow              11,293     14,558    (3,265)     -22.4%

    Corporate expense               2,543      1,333     1,210       90.8%

  EBITDA / Adjusted EBITDA         $8,750    $13,225   $(4,475)     -33.8%



  Reconciliation of Net Income to EBITDA / Adjusted EBITDA to Newspapers
  Cash Flow ($000s) - Unaudited

                                 Three Months Ended    Nine Months Ended
                                September  September  September  September
                                 28, 2008   30, 2007   28, 2008   30, 2007

  Net Loss                       $(2,967)   $(2,332) $(117,959)   $(1,816)

  Interest Expense, net            3,612      3,484     10,758      2,465

  Taxes                                -       (106)    (1,684)       138

  Depreciation and amortization    1,599      3,201      6,724      3,201

  Adjustment for acquisitions          -          -          -      9,090

  Non-cash stock based
   compensation expense                -        147        230        147

  Impairment of goodwill and
   other intangible assets             -               110,026          -

  Other expense
   (interest rate swaps)                                   655

    EBITDA / Adjusted EBITDA       2,244      4,394      8,750     13,225

  Corporate expense                1,379        564      2,543      1,333

    Newspapers Cash Flow          $3,623     $4,958    $11,293    $14,558



  Loss per share ($ - millions, except per shares and share amounts) -
  Unaudited

                                 Three Months Ended    Nine Months Ended
                                September  September  September  September
                                 28, 2008   30, 2007   28, 2008   30, 2007

  Net Loss                       $(2.967)   $(2.332) $(117.959)   $(1.816)

  Loss per share:
    Basic and fully diluted        (0.20)     (0.16)     (8.07)     (0.12)

  Weighted average shares
   outstanding                14,623,445 14,623,445 14,623,445 14,623,445



                    American Community Newspapers Inc.
                       Consolidated Balance Sheets
             (In thousands, except share and per share data)

                                                       (unaudited)
                                                       September  December
                                                        28, 2008  30, 2007
                                    Assets

  Current assets:
    Cash and cash equivalents                              $3,357   $1,521
    Accounts receivable, net of allowance for doubtful
     accounts of $179 and $88 at September 28, 2008
     and December 30, 2007, respectively                    7,493    7,010
    Inventories                                               904      618
    Other current assets                                      973      754
      Total current assets                                 12,727    9,903

  Property, plant, and equipment, net of accumulated
   depreciation of $2,271 and $897 at September 28,
   2008 and December 30, 2007, respectively                 8,151    9,324
  Goodwill                                                 34,029   90,110
  Intangible assets, net of accumulated amortization
   of $1,894 and $5,184 at September 28, 2008 and
   December 30, 2007, respectively                         42,047  101,341
  Deferred financing costs, net                             3,335    3,770
  Other assets                                                130      100
      Total assets                                       $100,419 $214,548

                     Liabilities and Stockholders' Equity

  Current liabilities:
    Accounts payable                                       $2,218   $1,401
    Accrued expenses                                        2,301    2,232
    Accrued interest and interest rate swap liability       1,147    2,018
    Deferred revenue                                        1,304    1,314
    Current portion of long-term liabilities              144,797    2,100
      Total current liabilities                           151,767    9,065

  Long-term liabilities:
    Long-term debt                                              -  137,866
    Deferred income taxes                                       -    1,862
    Redeemable preferred stock, $.0001 par value,
     Authorized 1,000,000 shares; 42,193 issued and
     outstanding shares at September 28, 2008 and
     December 30, 2007                                      5,182    4,556
      Total liabilities                                   156,949  153,349

  Commitments and contingencies

  Stockholders' equity (deficit)
    Common stock, $.0001 par value, Authorized
     50,000,000 shares issued and outstanding
     14,623,445 shares                                          1        1
    Additional paid-in capital                             64,559   64,329
    Accumulated deficit                                  (121,090)  (3,131)
      Total stockholders' equity (deficit)                (56,530)  61,199
      Total liabilities and stockholders'
       equity (deficit)                                  $100,419 $214,548

  The accompanying notes should be read in conjunction with these
  unaudited consolidated financial statements.


DATASOURCE: American Community Newspapers Inc.



CONTACT:  Corey Kinger (Investors), , or Joe LoBello

(Media), , both of Brainerd Communicators, for American

Community Newspapers Inc., [phone]

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