UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended March 29, 2009
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                                                                                to

Commission File Number 333-134701

NETWORK COMMUNICATIONS, INC.

Formed under the laws of the State of Georgia

I.R.S. Employer Identification Number 58-1404355

2305 Newpoint Parkway, Lawrenceville, GA 30043

Telephone Number: (770) 962-7220

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o    No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o    No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.     þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated files” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o    Accelerated filer o   Non-accelerated filer þ Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)     Yes o    No þ

None of the Registrant’s common stock is held by non-affiliates of the Registrant.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 

Class	Outstanding at March 29, 2009
Common Stock, $0.001 par value per share	100 shares

TABLE OF CONTENTS

	PART I	Page
Item 1.	Business	3
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	71
Item 9A.	Controls and Procedures	71
Item 9B.	Other Information	72
PART III
Item 10.	Directors and Executive Officers of the Registrant	72
Item 11.	Executive Compensation	74
Item 12.	Security Ownership of Certain Beneficial Owners and Management	80
Item 13.	Certain Relationships and Related Transactions	80
Item 14.	Principal Accountant Fees and Services	82
PART IV
Item 15.	Exhibits and Financial Statement Schedules	82
Signatures		83
EX-10.28 AMENDEMENT TO THE REVOLVING CREDIT AGREEMENT
EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1 SECTION 302, CERTIFICATION OF CEO
EX-31.2 SECTION 302, CERTIFICATION OF CFO
EX-32.1 SECTION 906, CERTIFICATION OF CEO
EX-32.2 SECTION 906, CERTIFICATION OF CFO

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Part I

Item 1.   Business

Except as otherwise stated or required by the context, references in this document to “NCI,” “our company,” “we,” “us” and “our” refer to Network Communications, Inc. and its consolidated subsidiaries. References to “GMH” are to Gallarus Media Holdings, Inc., our parent. Each reference in this report to a fiscal year, “fiscal 2009” for example, refers to the fifty-two or fifty-three week accounting year ended on the last Sunday of March of such year and includes 13 four-week periods.

Overview

We are one of the largest and most diversified publishers of information for the local real estate market in North America. Through our extensive proprietary network of online and print distribution points, we provide critical local information to consumers involved in buying, leasing and renovating a home. Our reader base selects our print and online publications almost exclusively for the extensive advertisements, and, as a result, we are able to provide high quality leads at an effective cost to our advertisers, which are comprised of agents, property management companies, new home builders and home renovation products and service providers.

We were acquired by Citigroup Venture Capital Equity Partners, L.P. (“CVC”) on January 7, 2005. CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry’s oldest private equity firms. Effective September 2006, CVC spun off from its former owner, Citigroup.  The new entity has been renamed Court Square Capital Partners.

We operate in over 550 targeted markets which may overlap geographically across the U.S. and Canada, and have a monthly print and online reach of over 13 million potential consumers seeking to buy, rent or renovate their homes. The predominant content in our publications is advertisements, and our two largest publications are 100% advertisement based. In the resale home market, our flagship brand, The Real Estate Book (“TREB”), is the largest real estate advertising publication in North America. In the leasing market, we provide residential and commercial leasing listings, primarily through Apartment Finder and Black’s Guide. In the home improvement market, we are the largest publisher of local and regional design magazines for the luxury market, including Kansas City Homes & Gardens, Atlanta Homes & Lifestyles, Colorado Homes & Lifestyles, Mountain Living and New England Home.

We believe that our proprietary online and print distribution strategy gives us an advantage in reaching consumers at critical points in the purchase process. We distribute our printed publications through an extensive rack distribution network, comprised of high traffic locations in areas frequented by our target consumers. For those products targeting affluent consumers and businesses, we utilize sophisticated database management and customer acquisition tools in order to develop highly targeted direct mail distribution. We also distribute all of our content online to our advertisers. We maintain a proprietary online network which has over two million unique visitors each month. In addition, we distribute our content to more than twenty online distribution partners, including Trulia, FrontDoor.com and BobVila.com, with a monthly reach of over 47 million online users. We believe our combined online and print distribution network, which is provided to advertisers at one all-inclusive cost, drives exceptional results for our advertisers.

We have two marketing channels through which we generate revenue, the Independent Distributor (“ID”) channel and the Direct channel. In our ID channel, the independent distributor is responsible for selling the advertising, collecting listings from agents/brokers and distributing publications in a specific geographic market. In our Direct channel, we sell the advertising, collect the listings from the agents/brokers, create and print the publications and distribute the publications. In fiscal year 2009, the ID channel and the Direct channel accounted for 23.7% and 76.3% of our total consolidated revenue, respectively.

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We are dedicated to delivering the highest quality products to our advertisers and consumers. Substantially all of our products are printed in four-color on quality paper stock. In addition, we print primarily digest-sized magazines, which are easy to use and transport during a home search. Our vertical integration strategy, which includes printing approximately 95% of our publications in-house, allows for exceptional quality control and speed to market for the multitude of products we produce. We print the remaining 5% of our publications at third party commercial printers.

We operate a highly efficient manufacturing and shipping network. At our corporate headquarters and production facility in Lawrenceville, GA, a suburb of Atlanta, we own and operate six Zirkon presses that are optimized to produce our digest-sized four-color publications. Through our fleet of eight trucks, we deliver our publications to over 550 targeted markets which may overlap geographically across the U.S. and Canada. The benefits of our vertical integration strategy include lower cost of production, higher quality control and faster time to market than our competitors.

Industry Overview

We participate predominantly in the local advertising industry. Spending on local advertising is divided between display advertising in newspapers, radio, TV, and classified advertising in newspapers, yellow pages and classified-only publications. Classified advertising has traditionally been the most stable and profitable sector of the local advertising industry and our The Real Estate Book (“TREB”) and Apartment Finder brands operate exclusively in the classified advertising market.

In the past five years, consumers have been increasingly turning to the internet to search for products and services traditionally served by print classifieds. A number of internet-only companies have developed to satisfy this consumer interest.

The majority of products sold through classified advertising, such as real estate, are sold locally.  A potential seller will, therefore, typically focus on a local or regional customer base and select one or two of the following media in which to advertise: classified-only publications; traditional newspapers; local television and radio; or internet-only applications.

Competition

We are a leading local media company focused primarily on the U.S. housing guide market. The major competing players in the local home advertising marketplace are: newspapers, yellow pages, free guides, consumer magazines, and internet companies. We compete in these categories based on the quality of our publications and websites, product pricing, customer service, distribution and the effectiveness of providing advertisers with qualified leads at a cost effective rate.

Our vast proprietary distribution network allows us to distribute our guides more effectively and widely than any competitive publisher. In addition, our vertically integrated production process allows us to be a low-cost producer of guides, creating a lower cost per lead and, as a result, offer greater value to our advertisers than other comparable marketing channels. Management believes that newspaper listings, on average, cost more per lead, and that we produce leads at a lower cost than our more direct competition due to the fact that we have an advanced business model, incorporating low fixed cost distribution and high product quality. Our largest competitor in the resale home market is the local newspaper. We have a significant competitive advantage against local newspapers as our advertising is less costly to real estate brokers, more targeted in distribution, and provides more information and color photos of homes for sale.

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We also compete against other free guides in local markets. We believe that we have a competitive advantage over such other free guides because we have achieved significant economics of scale in infrastructure and database of listings.

Print Competition

We are one of the substantial publishers of print guides for apartments, new homes and resale homes. Our three main competitors in the print guides market are Dominion Enterprises, PRIMEDIA, Inc. and Endurance Business Media. TREB’s competitive strength is a result of its high quality product offering and its sales personnel, coupled with its superior distribution network. Management further believes that Apartment Finder is the number one or number two publication in approximately 80% of the markets in which it competes for the same competitive reasons as TREB. Our online distribution strategy and leadership further support the competitive advantages exhibited by TREB and Apartment Finder.

A major point of differentiation between us and our competitors in the print guide market is our distribution network. While the competition predominantly utilizes costly paid “big-box” retailer distribution (i.e., supermarkets and superstores) to distribute their publications, we utilize free “small-box” retail in order to do so. Further, we and our independent distributors cover a market with hundreds of distribution points, whereas Dominion and PRIMEDIA utilize fewer distribution points. Our free distribution strategy allows us to distribute more, higher quality, widely read magazines, thereby offering a greater value to advertisers. Management believes that this strategy affords it a meaningful competitive advantage over Dominion Enterprises, PRIMEDIA, Inc. and Endurance Business Media.

Online Competition

We have a significant presence in the online channel.  Our primary internet-only competitors are Move.com and REALTOR.com®.

Management believes that we are well positioned to participate in the projected rapid growth of web-based residential real estate advertising due to its multiple third party online partnerships and portfolio of rich online offerings under the LivingChoices.com umbrella. Currently, over 20 million unique visitors view 500 million listings annually at LivingChoices.com and our brand-specific websites.  We believe that our websites complement our publications by connecting our advertisers with consumers actively seeking their next apartment or home.

Raw Materials

Costs related to certain raw materials used in our printing process, including paper, ink and printing plates, have an effect on our liquidity. Although there has been reduced demand for coated paper due to lower magazine and catalog page counts and circulation volumes, there has also been a reduction in paper supply resulting from permanent mill closures and a decline in imports.

Excluding the noncash goodwill impairment charge recorded in fiscal year 2009, paper expense accounted for approximately 9.5% of our operating expenses and 9.1% of consolidated revenue in fiscal year 2009.  We experienced an increase of approximately 7% in our paper pricing in fiscal year 2009 as we benefited from locking our prices in with our vendors for the duration of the fiscal year.  We anticipate paper prices in the coming year to remain substantially unchanged.  We believe that we continue to be in a position to mitigate paper prices in the future for three main reasons. First, we continue to improve the efficiencies of our print operations, including reducing paper waste. Second, we are a large and consistent buyer of paper, we negotiate directly with paper producers and are able to secure favorable terms. Third, we utilize “throw-away” rolls on our presses, which represent remnant inventory that is difficult for paper suppliers to market, thereby enabling us to secure such inventory at attractive prices.

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Ink expense accounted for 0.58% of our operating expenses excluding the noncash goodwill impairment charge recorded in fiscal year 2009 and 0.55% of consolidated revenue in fiscal year 2009.  Our current contract with our ink vendor, which does not include any minimum purchase requirements, extends through March 2010.

Costs for printing plates, which are aluminum plates which capture the images that are transferred to our printing press, accounted for 0.29% of our operating expenses excluding the noncash goodwill impairment charge recorded in fiscal year 2009 and 0.27% of consolidated revenue in fiscal year 2009. We currently have a contract that satisfies our printing plate requirements through January 2011. The contract has a minimum annual purchase requirement of $0.35 million.

Business Strategy

Our principal business strategies include the following:

Increase advertising volume in each local market through enhanced print and online products and services. The key driver of growth in our existing business is increasing the number of advertisers in our print and online products while simultaneously increasing the average revenue per advertiser by consistently enhancing the value and offerings we deliver to the advertiser. We believe that our products offer a compelling return on investment (“ROI”) to our advertisers. We continuously seek to further enhance the ROI to our advertisers through continued investments in product offerings and services, our distribution network and by further strengthening the branding of our products. In addition, we are making incremental investments in information technology to better track lead generation and enhance our customer sales and service.

Continue to provide integrated print and online products to capture increased online activity. Our websites complement the strength of our print publications by providing broad distribution of our database of real estate listings to the millions of consumers searching for homes online. With over 20 million unique visitors viewing 500 million listings annually, LivingChoices.com and our brand-specific websites are highly trafficked online destinations for consumers searching for homes and apartments. In addition, we distribute our content to a broad range of websites, including Trulia and BobVila.com. We aim to continuously expand and develop our web presence to further enhance the strength of our brands and to further improve the ROI for our advertiser base.

Maintain our existing market and selectively expand into new geographic markets. We are focused on supporting our existing ID and Direct channel markets by introducing new promotional and marketing programs designed to retain existing advertisers and attract new clients.  We plan to selectively expand into new geographic markets primarily through both our ID and Direct sales channels where such opportunities require minimal capital and can generate positive cash flow.

Our Markets and Publications

We offer a wide range of publications targeted towards the following areas of the real estate and leasing market for both the luxury and mass consumers:

·   in the resale and new sales area, we offer, among other publications, TREB, New Home Finder, Unique Homes, Enclave and By Design;

·   in the rental and leasing area, which includes the residential, and commercial real estate markets, we offer, among other publications, Apartment Finder, Mature Living Choices and Black’s Guide; and

·   in the remodeling and home improvement area, we offer, among other publications, Atlanta Homes & Lifestyles, Colorado Homes & Lifestyles, Mountain Living and New England Home which are local home design magazines for affluent homeowners.

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In the resale and new sales area, we focus on home buyers, real estate agents and new home developers; in the rental and leasing area, we target renters, property managers and property owners; and in the remodeling and home improvement area, we focus on home owners and providers of products and services intended to improve the value and quality of a home.

The table below summarizes our main product portfolio at March 29, 2009:

	NCI’s Publications — Fiscal Year 2009
	Publishing
	Cycles Per		Number of
Publication	Year		Publications
The Real Estate Book (“TREB”)		13		388
Apartment Finder		4/6		114
Unique Homes		6		1
Black’s Guide		2/4		8
New Home Finder/New Homes Journal		4/6		7
Mature Living Choices/Senior Living Choices		2/4		19
Remodeling and Home Improvement		6-12		28
Enclave		4		2
By Design		6/12		3

Resale and New Sales Area

The resale and new sales real estate area is a broad and general category of real estate transactions within which our advertisers target niche consumers, investors or commercial entities with their real estate listings. Our main publications in this area are The Real Estate Book(“TREB”), New Home Finder, Unique Homes,Enclave and By Design.  The revenue generated from our publications in the resale and new sales area was 42.9%, 52.5% and 59.2% of our total consolidated revenue in fiscal years 2009, 2008 and 2007, respectively.

The Real Estate Book

Our flagship brand for over 20 years, TREB is a market leader by volume and popularity among local real estate advertising publications in the United States. TREB generated 69.9% of the resale and new sales total revenue for fiscal year 2009.  We believe that TREB, with a circulation of over six million copies per issue, is the only free-to-the-public real estate publication whose circulation is independently audited and verified through BPA Worldwide, thus assuring value to the local advertiser. BPA Worldwide is a global industry resource that provides independent circulation audits for various media outlets, including magazines.

TREB, by delivering “must-have” information to consumers with respect to the home-buying process (such as a wide selection, clear photographs, well-written copy and agent/broker information), ensures an audience of interested and qualified buyers. TREB’s distribution covers almost 70% of the population in the U.S., including almost every major metropolitan area. TREB has a geographically diverse revenue base. While Georgia, its home state, accounted for 9.4% of TREB’s fiscal year 2009 consolidated revenue (resulting from our significant Direct channel operations in Georgia), the next largest state accounted for approximately 9.3% of our fiscal year 2009 consolidated revenue. Such diversity is very important, as real estate market conditions tend to vary from market to market at various points in time.

TREB also offers a comprehensive and user-friendly real estate website at TheRealEstateBook.com. Additionally, TREB is a major supplier of real estate listings to other real estate sites. TREB is published every four weeks, or 13 times per year, in the majority of its markets.

New Home Finder/New Homes Journal

Published four or six times per year, New Home Finder and New Homes Journal are housing guides for new construction. These comprehensive guides provide help in organizing and simplifying the new home search for homebuyers and offer new home marketers distinctive full-color advertising reach. The publications are distributed free-of-charge and available in Charlotte, Raleigh, Dallas/Ft. Worth, Denver, Greenville/Spartanburg, Orlando, and Kansas City.  New Home Finder is available on the web at NewHomeBook.com.

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Unique Homes

We acquired Unique Homes in December 1998. For over 30 years, Unique Homes has featured luxurious real estate throughout the world.  European castles, oceanfront contemporaries, world-class resort properties and luxurious hideaways are showcased in full-color pages in each issue. Unique Homes is a bi-monthly subscription-and newsstand-based publication. Unique Homes currently has over 8,800 paid subscribers and can also be purchased on the newsstand and in bookstores such as Barnes & Noble and Borders. Two-year subscriptions (12 issues) are currently priced at $46.97 and one-year subscriptions (6 issues) are currently priced at $24.97. Unique Homes is available on the Web at UniqueHomes.com.

Enclave

A locally-oriented spin-off of Unique Homes, this publication is published quarterly and distributed in the Atlanta and Dallas markets via direct mail. Enclave provides targeted local exposure for luxury properties.

By Design

By Design encompasses three publications – Home By Design, Your Home and Lifestyle and Life by Design.  These publications are custom marketing tools for real estate agents that are mailed directly to target lists of consumer prospects.

Rental and Leasing Area

In the real estate rental and leasing area, we offer Apartment Finder, Mature Living Choices and Black’s Guide, in which our advertisers target rental and leasing consumers and commercial entities. The revenue generated from our publications in the rental and leasing area was 43.7%, 33.1%, and 29.0% of our total consolidated revenue in fiscal years 2009, 2008 and 2007, respectively.

Apartment Finder

Apartment Finder is the premier digest-size, full-color local rental community publication in North America.  Apartment Finder generated 94.3% of the rental and leasing total revenue for fiscal year 2009. Apartment Finder is distributed in 114 markets with a circulation of approximately 5 million per quarter. Quality apartment homes, including locator maps and directions, are showcased in Apartment Finder in full color. Apartment Finder features long-term, short-term and corporate housing communities. Apartment Finder’s advertiser base is comprised primarily of property management companies. One of our key objectives has been to expand Apartment Finder into many primary major metropolitan markets by opening new books or acquiring existing publications.  We have demonstrated the ability to successfully expand into these larger, more competitive apartment markets with our differentiated product format and quality, our extensive proprietary distribution strategy and our ability to offer our superior product at lower price points than our competitors. Apartment Finder is available on the web at ApartmentFinder.com.

Black’s Guide

Founded in 1978, Black’s Guide is a leading business-to-business commercial real estate print directory and website and the only comprehensive national print and online resource of its kind in the U.S., with 20 separate editions serving eight U.S. real estate markets. Advertisers use the guides to reach their target audience of commercial real estate professionals including brokers, developers, property managers, tenants and others. Its readers regard Black’s Guide as a source of information on office buildings, flex projects (joint office/industrial space) and industrial buildings. The more than 50,000 properties listed in Black’s Guide are each in excess of 10,000 square feet in size.

The guides are a business-to-business advertising-supported medium that is a free circulation publication. More than 48,000 magazines are distributed free of charge annually. All but two market editions are published semiannually. The Atlanta and South Florida guides are published quarterly. Black’s Guide also sells a number of ancillary products and services, including wall maps, reprints, creative services, bus tour books, brochures and other advertising vehicles to support the targeted advertisers. Black’s Guide has regional offices across the U.S. that serve its eight markets. Black’s Guide is available on the web at BlacksGuide.com.

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Mature Living Choices/Senior Living Choices

Mature Living Choices is a free comprehensive mature living guide for the active senior citizen. A full-color directory, Mature Living Choices is published quarterly in 14 markets across North America. We believe that it is a leading guide to living options and support services for persons aged 55 years and beyond. Standard formats, including maps and directions, are designed with the senior in mind and make Mature Living Choices a user-friendly housing guide. Mature Living Choices can be found on the web at MatureLivingChoices.com.  We have a second product serving the senior market called Senior Living Choices. It is a free guide of assisted living communities that is distributed in five markets and can be found on the web at SeniorLivingChoices.com.

Remodeling and Home Improvement Area

The remodeling market is a specific category of real estate transactions within which our advertisers target niche consumers with their various remodeling supply and service advertisements. We offer 28 local home design and home improvement publications in various regions in the United States, such as Kansas City Homes & Gardens, Atlanta Homes & Lifestyles and Atlanta Home Improvement. Our revenue generated from this area was 13.4%, 14.4%, and 11.8% of our total consolidated revenue in fiscal years 2009, 2008 and 2007, respectively.

We made nine acquisitions since 2003 to establish a presence in the home design and home improvement real estate markets. Currently, we publish home and design magazines for the Kansas City, Atlanta, Colorado, Seattle, St. Louis, Arkansas, New Hampshire, Las Vegas and New England markets. The publications provide advertisers, who are home furnishers, new homebuilders, home service companies or other similar persons, with a cost-effective medium to reach affluent homeowners and generate leads. The publications are distributed through subscriptions, newsstands and controlled direct mail. We also publish home improvement magazines using our Direct and ID sales channels in 16 markets that are distributed free through our rack distribution network.

Online Complementary Services

Our websites complement the strength of our print publications creating a highly effective multi-channel advertising option for advertisers. Our strategy is to individually market the brand URLs for each of our publications. We are able to leverage our extensive database for the benefit of our online customers. We are also able to provide real time updates on listings which are efficiently distributed to viewers of our websites.

We have joined forces with various major online companies, whose local information focus complements our local residential real estate content, and whose audience is composed of demographics very closely matching the target audience the real estate community desires to reach. We have contractual relationships with leading on-line portals such as New York Times and Wall Street Journal. The increased media exposure through joint advertising and public relation promotions with these search engines and e-commerce companies heightens awareness of our local print products. We are able to leverage our database for the benefit of all customers online. Our branded websites generate more than twenty million unique visitors each year and provide an environment where our advertisers can interact and engage with their customers.

We currently charge a single fee to advertisers for listing a property in our publications and on our websites. We also offer several upgraded advertising options for those advertisers looking to make more of an impact with visitors to the various publication websites. Included in these value-added options are enhanced realtor profiles, enhanced listing profiles and “featured property” placements.

We have relationships with over 20 online content distributors. Some relationships are exclusive, meaning the distributor has agreed to refrain from displaying listings from our print competitors. We pay eight of our online distributors a set fee based on volume of traffic delivered to our sites. Five of our online partners share in the revenue from enhanced listings revenue directly proportionate to the leads traffic generated to the Company’s site from the partner site. The remaining content providers simply display our content without any monetary consideration or exclusive restrictions in exchange for being able to provide real estate content to their website visitors.

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Business Development

We completed the following acquisitions during fiscal year 2008:

On March 28, 2007, we acquired the New England Home magazine. The acquisition expands our Home and Design presence in the New England states.

On April 4, 2007, we acquired the Relocating in St. Louis magazine. The quarterly publication focuses on home products and services for the St. Louis area.

On May 10, 2007, we acquired The Greater Jacksonville Apartment Guide, an apartment directory serving communities in and around the Jacksonville, Florida area.

On July 31, 2007 we acquired the publishing assets of By Design Publishing, a provider of personal marketing products for real estate agents. The product lines acquired allow us to provide a broader menu of options for our real estate advertisers.

On August 30, 2007, we acquired the publishing assets of DGP Apartment Publications of Louisiana. This acquisition expands our multi-housing footprint into the state of Louisiana.

On November 28, 2007, we acquired the publishing assets of Apartment Rental Source magazine, a leading monthly apartment rental publication covering the greater Boston area. The acquisition expands our presence into the Southern New England region.

On December 5, 2007, we acquired the publishing assets of the Fredericksburg Apartment Finder’s Guide. The acquisition expands our presence into the state of Virginia.

Corporate RelocationResourceCenter Complementary Services

Our Corporate Relocation Resource Center serves the relocation industry with comprehensive housing information in the form of our portfolio of publications. This service complements all of our publications by directing consumers to the applicable publication that we offer with respect to their needs. Each month more than 2,100 companies, of the 3,900-plus registered, request and receive over 40,000 issues of our publications. We also provide a toll-free Moving Hotline which enables the consumer to order publications directly.

Direct and ID Marketing Channels

We have two marketing channels through which we generate revenue, the Direct channel and the ID channel. In fiscal year 2009, the ID channel and Direct channel accounted for 23.7% and 76.3% of our consolidated revenue, respectively.

Direct Channel

In the Direct channel, we sell the advertising, collect the listings from the agents/brokers, create and print the publications and update the online listings. The Direct channel is staffed by our employees.

ID Channel

In the ID channel, our independent distributors sell the advertising, collect the listings from real estate agents and/or brokers, and create ID channel publications, which we then print and publish, for which we charge the independent distributors a contractual base advertising fee based upon the number of pages and copies published. We secure contracts with our independent distributors for a minimum of ten years which give them an exclusive license to sell and distribute one of our products for an agreed-upon territory. A typical independent distributor contract sets out the minimum requirements that an independent distributor has to meet, including minimum page and press run requirements. Failure to meet the established minimum requirements permits us to terminate the contract. The contract also contains standard noncompete clauses, prohibiting independent distributors from competing against us in certain markets.

Distribution Network

We believe that our vast proprietary distribution network is a key competitive advantage. Our network allows us to distribute our publications more efficiently and widely than any print competitor. We distribute approximately ten million copies of our publications each month in an effort to saturate our markets and drive readership and, in turn, results for our advertisers.

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We own over 30,000 proprietary outdoor distribution boxes, which have a patented, bird house design. Additionally, we use individual distribution points in high-traffic locations including convenience stores, fast food outlets, nail and hair salons, restaurants and various other retail locations. This market saturation strategy has made Apartment Finder and TREB the leading free publications in North America.

We enter into shorter term contracts with variable rates, which give us the flexibility to efficiently alter our distribution network to maximize readership. As such, management believes that our competition is unwilling and unable to distribute their products as broadly. Thus, our proprietary distribution strategy drives readership and, in turn, superior results for our advertisers.

We continually seek to increase our distribution points through alternative distribution channels. Our online distribution strategy integrates our publications and brands through our websitesand other popular websites that enable all brands to receive exposure with each customer visit. It offers a simplified option for viewers to search and locate residential properties throughout North America. The websites generate traffic of more than twenty million unique visitors who view in excess of 500 million properties annually. Additionally, approximately 10,000 publications per month are ordered on the internet through our websites and toll free 1-800 Hotline number.

Intellectual Property

We hold and maintain or have pending applications for numerous trademarks in connection with our various publications. Each publication title is registered or pending registration either with the appropriate state agencies or United States Patent and Trademark Office. U.S. Trademark registrations can be renewed every ten years. Our material trademarks are The Real Estate Book®, Unique Homes® and Apartment Findertm. These trademarks are important to our business because they are the titles of our most widely distributed publications. These and all of our brands enhance brand recognition among the target consumers for our advertisers. We have 44 registered trademarks in total. We also hold the design patents for the bird house design of our distribution boxes that we place in various retail and other sites for our publications. This patent expires August 29, 2009.

Employees

As of March 29, 2009, we had 821 employees, 381 of which were located at our leased corporate headquarters and production facility in Lawrenceville, Georgia. Our employees are allocated among our internal departments as follows: 322 in our sales department; 116 in our corporate department; 259 in our production facility; 34 in our distribution department; and 90 in our customer support department.

Environmental Matters

Our printing operations are subject to environmental laws and regulations which govern, among other things, the use, storage and disposal of solid and hazardous wastes, the discharge of pollutants into the air, land and water, and the cleanup of contamination. Some of our operations require environmental permits and controls, and these permits are subject to modification, renewal and revocation by issuing authorities. We believe that our operations are currently in compliance with all environmental laws and permits, and do not expect current or future environmental costs to be material to our business or results of operations.

Foreign Operations

Our only foreign country operation is in Canada. For fiscal years 2009, 2008 and 2007, it generated revenue of approximately $3.0 million, $3.7 million, and $3.2 million, respectively, that is 1.7%, 1.7% and 1.6% of our total consolidated revenue for those years, respectively.

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Available Information

Our internet address is www.nci.com. Our internet address is included herein as an inactive textual reference only. The information contained on our website is not incorporated by reference herein and should not be considered part of this report. We file annual, quarterly and current reports, and other information with the Securities and Exchange Commission (“SEC”)and we make available free of charge most of our SEC filings through our website as soon as reasonably practicable after filing with the SEC.

Forward Looking Statement

Our disclosure and analysis in this document include some forward-looking statements.  Forward-looking statements give our current expectations or forecasts of future events.  All statements other than statements of current or historical fact contained in this document, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.  The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “will” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

Our forward-looking statements speak only as of the date made.  We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Further, our business is subject to a number of general risks that would affect any forward-looking statements, including the risks discussed under “Item 1A. – Risk Factors”

Item 1A.  Risk Factors

Our business is subject to risk and uncertainties including, but not limited to the following specific risks:

We have determined that our goodwill has become impaired and if our goodwill definite or indefinite-lived intangible assets become further impaired we may be required to record a further significant charge to earnings.

Goodwill and intangible assets not subject to amortization are tested for impairment at least annually or more frequent if events and circumstances indicate impairment might have occurred. We review our definite-lived intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered include a decline in our operating income or results, reduced future cash flow estimates, and slower growth rates in our industry. As a result of continued declines in our consolidated operating income during fiscal year 2009 and the current fair market value of our outstanding debt, we determined that a triggering event under SFAS 142 had occurred as of December 7, 2008. We performed an assessment of goodwill for impairment as of December 7, 2008 on all of our reporting units using the discounted cash flow approach. Our reporting units are the Resale and New Sales unit, the Rental and Leasing unit and the Remodeling and Home Improvement unit. Based on the results of the SFAS 142 assessment, it was determined that there was an indication of impairment in the Resale and New Sales unit and the Remodeling and Home Improvement unit. In accordance with paragraph 22 of SFAS 142, we recorded an estimated noncash impairment charge based on a preliminary assessment in the amount of $85.4 million in our statements of operations for the three periods and nine periods ended December 7, 2008. The step two analysis was completed and resulted in an additional noncash impairment charge of $6.6 million that was recorded in the fourth quarter of fiscal year 2009.

During the fourth quarter of fiscal year 2009, we completed our annual impairment analysis due to continued economic declines. The impairment analysis resulted in an additional impairment charge of $27.5 million in the fourth quarter of fiscal year 2009.  The amounts of the recorded impairment charges during fiscal year 2009 for the Resale and New Sales unit and the Remodeling and Home Improvement unit were $109.2 million and $10.3 million, respectively. The impairment loss relates primarily to the deteriorating global economic conditions and the downturn in the resale and new home markets. A change in the economic conditions or other circumstances influencing the estimate of future cash flows or fair value could result in future impairment charges of goodwill or intangible assets with definite or indefinite lives and could adversely impact our results of operations.

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We depend on individual agents in the residential market for existing home sales for substantially all of our revenues in TREB and any industry downturn and consequential decrease in real estate prices in the residential market for existing home sales could adversely impact our financial results.

We generate a significant portion of all of our revenues from the residential real estate market, especially existing home sales, and thus depend on large real estate transaction volume and a stable supply of and demand for residential housing. The real estate market has been historically cyclical and is influenced by three key factors: interest rates, employment and consumer confidence. To the extent that interest rates rise significantly above their current levels, unemployment increases significantly or consumer confidence declines due to economic uncertainties or some other factors then the real estate market could experience further declines and our business would be negatively impacted.

The return on investment (“ROI”) for our advertisers depends on the success rate of actual sales that are closed in comparison to the advertising expenses paid. Whether a real estate sale will actually close depends on factors beyond our control, such as (in addition to the factors mentioned above) the market conditions and preferences, the availability of financing, the personal choices of the people actually making the sale or purchase and other social and economic considerations. If our advertisers experience lower ROI because actual sales decline for reasons beyond our control, they may choose to decrease the level of advertising which would adversely affect our revenues.

Although we believe that the primary driver of advertising and marketing expenditures is the number of home sales per year, downward movements of sale prices in local real estate markets can cause corresponding downward movements in advertising and marketing expenditures. As a result of such decreased expenditures, additional declines in home sale prices could adversely impact our financial position, results of operations, or cash flows.

We rely on our proprietary distribution network as a competitive advantage to effectively and efficiently distribute our publications. Any material hindrance to our ability to distribute our publications effectively and efficiently may materially reduce the market appeal of our publications for advertising.

Our customers look for an efficient and wide distribution network when placing advertisements. Unlike our major direct print competitors that have entered into several multi-year, non-cancelable and long-term contracts that yield relatively high fixed costs and less flexibility to alter their distribution network, we have various low-cost, flexible agreements and arrangements with retail stores, restaurants and other public commercial locations to set up our distribution boxes. In addition, we have arrangements with some of our competitors to use their distribution outlets for our publications. If these various public commercial locations or our competitors do not allow us to set up our distribution network, or significantly raise the costs for us, our ability to effectively and efficiently distribute our publications may be materially impaired. Such impairment may materially reduce the demand from our customers and could adversely impact our financial position, results of operations or cash flows.

If we are unable to meet rapid changes in technology, our services and proprietary technology and systems may become obsolete.

The internet and e-commerce are constantly changing. Due to the costs and management time required to introduce new services and enhancements, we may not be able to respond in a timely manner to competitive innovations. To remain competitive, we must continue to enhance and improve the functionality and features of our online commerce business. Further, to remain competitive, we must meet the challenges of the introduction by our competitors of new services using new technologies or the introduction of new industry standards and practices. In addition, the vendors we use to support our technology may not provide the level of service we expect or may not continue to provide their product or service on commercially reasonable terms or at all. If we fail to meet any of these potential changes or our vendors fail to provide the necessary support to our technology, our financial position, results of operations or cash flows could be negatively impacted.

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The market for our products and services is highly competitive.

The market for our products and services is dispersed throughout North America. Generally, newspapers, the yellow pages and free guides dominate the local print market and represent our main competitors. Many of these publishers have a strong local distribution base and traditional readership.

Another class of competitors that have a potentially significant distribution base are various websites that focus on real estate sales. Since the cost of entry into our business is relatively low, we may face increased competition from other publications, whether paper or online. In addition, our current and potential competitors may have greater financial, technical, operational and marketing resources. Competitive pressures may also force prices for our service to go down which may adversely affect our financial position, results of operations or cash flows.

Any significant increase in paper, ink or printing plate costs would cause our expenses to increase significantly.

Because of our print products, direct mail solicitations and product distributions, we incur substantial costs for paper, ink and printing plates, which are aluminum plates that capture the images that are transferred to our printing presses. We do not currently use forward contracts to purchase paper and, therefore, we are not protected against fluctuations in paper prices. In addition, we currently have a contract that satisfies our ink requirements through March 2010.  Finally, we currently have a contract that satisfies our printing plates requirements through January 2011.  If we cannot renew our existing agreements and/or pass increased costs for paper, ink or printing plates through to our customers, our financial position, results of operations, or cash flows could be adversely affected.

A further downturn in the economy or unexpected macroeconomic event could increase the adverse impact on our advertising revenue, a substantial portion of which is derived from our free publications.

Our customers have reduced their marketing and advertising budgets in response to the general economic downturn in the United States. The longer the economic downturn continues, the more likely it becomes that our customers will make additional reductions to their marketing and advertising budgets. Any further decrease in our customers’ marketing and advertising budgets would likely result in an additional reduction in the demand for advertising in our publications and on our websites. Despite our efforts to diversify our publications, a substantial portion of our revenue is generated from the sale of advertising in our free publications, which include TREB and Apartment Finder. Any deepening of the downturn in the real estate market can negatively affect our revenue.  Furthermore, an unexpected event such as a terrorist attack, labor strike, natural catastrophe or general economic weakness can adversely affect the advertising demand for these publications and, in turn, could adversely impact our financial position, results of operations or cash flows.

Our success and growth depend to a significant degree upon the protection of our intellectual property rights.

As a media company we have a significant intellectual property portfolio, especially copyrights and trademarks, and have allocated considerable resources toward intellectual property maintenance, prosecution and enforcement. For example, we hold and maintain or have pending applications for numerous trademarks in connection with our various publications, such as TREB. We have 44 registered trademarks in total. We also hold the design patents for the bird house design of our distribution boxes that we place in various retail and other sites for our publications. In addition, we continuously develop and create proprietary software to enhance our ability to effectively and efficiently update the listings in our online and print publications. For example, our advertising management system technology was developed by us to easily track new and updated listings. We may be unable to deter infringement or misappropriation of our data and other proprietary information, detect unauthorized use or take appropriate steps to enforce our intellectual property rights. Any unauthorized use of our intellectual property could make it more expensive for us to do business and consequently harm our business and adversely impact our financial position, results of operations or cash flows.

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A loss of production capacity at our in-house printing facilities could adversely impact our results of operations and financial position.

We produce the vast majority of our products at our printing facilities located at our headquarters in Lawrenceville, Georgia. We generally house approximately a one-month supply of paper, six printing presses and other materials necessary to produce our publications at these facilities. To the extent that an unexpected event such as a fire, explosion or natural catastrophe occurs at our in-house printing facilities, we could experience significant delays in the production and delivery of our products to our customers. In addition, we may be forced to engage an independent third-party publisher to produce our publications at higher costs. The engagement of an independent third-party publisher would reduce our revenues and require an additional expenditure of capital by us and would negatively impact our margins. As a result, our financial position, results of operations or cash flows could be adversely impacted.

Loss of key personnel could impair our success.

We benefit from the leadership, experience and business relationships of our senior management team, and we depend on their continued services in order to successfully implement our business strategy. Although we have entered into employment agreements with our Chief Executive Officer and Chief Financial Officer, they and other key personnel may not remain in our employment. The loss of key personnel or our inability to attract new personnel could have a material adverse effect on our business, financial position, results of operations or cash flows.

We also employ approximately 322 people in our sales force and depend on their ability to generate advertising for our publications and websites. A significant loss of such sales force may adversely affect our revenue which would adversely impact our financial position, results of operations or cash flows.

We are subject to state use taxes. If our distribution arrangements with our independent distributors are characterized as a sale of publications as opposed to a distribution arrangement, we could be subject to higher use taxes from the state tax authorities.

We sell advertising space through our independent distributors and distribute our publications to the distribution boxes in various states through such independent distributors. Based on this arrangement, we pay certain state use taxes on the production costs of our publications, because we do not view our arrangement with the independent distributors as a sale of our publications to such independent distributors. We cannot guarantee that state tax authorities will agree with our view on the arrangements with our independent distributors in the future. If state tax authorities were successful in characterizing our arrangements as a sale of the publications to the independent distributors for tax purposes, we may be subject to significantly higher state use taxes. Such higher taxes may have a material adverse impact on our financial position, results of operations or cash flows.

Our arrangement with our independent distributors and independent contractors may become subject to various additional federal and state regulatory laws that do not affect the current operations.

Currently, certain federal and state regulatory laws, including laws related to antitrust, franchises, employment and tax, do not regulate our arrangements with our independent distributors and independent contractors. We do not believe our arrangements should be regulated under such federal and state regulatory schemes. However, we cannot guarantee that the federal and state regulatory authorities will continue to agree that such regulatory scheme is not applicable to our arrangements with the independent distributors and independent contractors. If we are subject to various other burdensome federal or state regulatory schemes (such as certain registration or filing requirements), such additional costs and efforts may negatively impact our financial position, results of operations or cash flows.

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To the extent we consummate acquisitions in the future, there will be integration risk.

The process of integrating acquired businesses into our existing operations may result in unforeseen difficulties and liabilities and may require a disproportionate amount of resources and management attention. Difficulties that we may encounter in integrating the operations of acquired businesses could have a material adverse effect on our financial position, results of operations or cash flows. Moreover, we may not realize any of the anticipated benefits of an acquisition and integration costs may exceed anticipated amounts. In addition, acquisitions of businesses may require us to assume or incur additional debt financing, resulting in additional leverage.

We have substantial indebtedness which consumes a substantial portion of the cash flow that we generate.

A substantial portion of our cash flow is dedicated to the payment of interest on indebtedness which reduces funds available for capital expenditures and business opportunities and may limit our ability to respond to adverse developments in our business or in the economy.

Our internal control over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur.  Internal control over financial reporting and disclosure controls and procedures no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objective will be met.

We made evaluations of our internal control over financial reporting and our disclosure controls and procedures which included a review of the objectives, design, implementation and effects of the controls and information generated for use in our periodic reports.  We performed the system and process evaluation and testing to comply with the management certification requirements of Section 404 of the Sarbanes Oxley Act of 2002.

We assessed the effectiveness of our internal control over financial reporting as of March 29, 2009 and have found that material weaknesses existed in our internal control over financial reporting.  Our assessment identified the following material weaknesses in our internal control over financial reporting:

1.   Deficiencies existed in our information technology (“IT”) environment due to untimely removal of network access for terminated employees.

2.   Deficiencies existed in maintaining adequate controls over certain key spreadsheets used in our financial reporting process including review of these spreadsheets.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied.  Internal control over financial reporting and disclosure controls and procedures are designed to give a reasonable assurance that they are effective to achieve their objectives.  We cannot provide absolute assurance that all of our possible future control issues will be detected.  These inherent limitations include the possibility that judgments in our decision making can be faulty, and that isolated breakdowns can occur because of simple human errors or mistakes.  The design of our system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed absolutely in achieving our stated goals under all potential future or unforeseeable conditions.  Because of inherent limitations in a cost-effective control system, misstatement due to error could occur and not be detected.

We are controlled by principal equity holders who are able to make important decisions about our business and capital structure and their interests may differ from the interests of our noteholders.

Court Square Capital Partners and its affiliates control us and have the power to elect a majority of the members of our Board of Directors, appoint new management and approve any action requiring the approval of the holders of GMH’s, our parent’s, membership interests, including approving acquisitions or sales of all or substantially all of our assets. Court Square Capital Partners and its affiliates beneficially own securities representing approximately 89% of our voting equity interests and, therefore, have the ability to control decisions affecting our capital structure, including the issuance of additional capital stock, the implementation of stock repurchase programs and the declaration of dividends. The interests of our equity holders may not in all cases be aligned with the interests of the noteholders.  If we encounter financial difficulties or we are unable to pay our debts as they mature, the interests of our equity holders might conflict with those of the noteholders. In that situation, for example, the noteholders might want us to raise additional equity from our equity holders or other investors to reduce our leverage and pay our debts, while our equity holders might not want to increase their investment in us or have their ownership diluted and instead choose to take other actions, such as selling our assets. Our equity holders may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you as a noteholder. In addition, our equity holders may pursue acquisition opportunities through companies other than us, even if such opportunities may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

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Item 1B.               Unresolved Staff Comments

None.

Item 2.                 Properties

We do not own any real estate properties. Our principal leased properties are our corporate headquarters and production facility in Lawrenceville, Georgia and over 60 field offices located in the United States for our Direct sales channel publications.

Item 3.                 Legal Proceedings

While there are no material pending legal proceedings to which we are a party, we are involved in various claims, legal actions and regulatory proceedings arising in the ordinary course of our business. In the opinion of our management, the resolution of these matters will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 4.                 Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.                Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We are wholly-owned by Gallarus Media Holdings, Inc. (“GMH”), which is a wholly-owned subsidiary of GMH Holding Company (“GMHC”), a privately owned corporation. There is no public trading market for our equity securities or for those of GMH or GMHC. As of March 29, 2009, GMHC’s common shares are held by Court Square Capital Partners, certain members of management and other external investors. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

We have not paid any dividends in fiscal years 2009 and 2008.  Our senior credit facility contains customary restrictions on our ability, GMHC’s ability and the ability of certain of our subsidiaries to declare or pay any dividends. The indenture governing our Senior Notes due 2013 and the notes issued by GMH to Citicorp Mezzanine III, L.P. contain customary terms restricting our ability and the ability of certain of our subsidiaries to declare or pay any dividends.

Item 6.                 Selected Financial Data

The following table sets forth our selected historical consolidated financial data as of the dates and for the periods indicated.  We derived the consolidated balance sheet data as of March 29, 2009 and March 30, 2008 and the consolidated statements of operations and consolidated statements of cash flows data for the fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007, from the Consolidated Financial Statements included herein. We derived the consolidated balance sheet data as of March 25, 2007, March 26, 2006, and March 27, 2005 and the consolidated statements of operations and consolidated statements of cash flows data for the fiscal years ended March 26, 2006 and March 27, 2005 from audited Consolidated Financial Statements.  You should read the data presented below together with, and qualified by reference to, our consolidated financial statements and related notes and “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which is included herein. The results of operations shown below may not be indicative of future results.

On January 7, 2005, we were acquired by CVC (now known as Court Square Capital Partners). For financial reporting purposes, the effective date of the acquisition was January 7, 2005 and our results of operations presented in the statements of operations showing in the below table have been separated as pre-January 7 and post-January 7 due to a change in basis of accounting in the underlying assets and liabilities. We refer to our results prior to January 7, 2005 as results for the “Predecessor Company” and we refer to our results after January 7, 2005, as results for the “Successor Company”.

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	Fiscal 2009			Fiscal 2008			Fiscal 2007			Fiscal 2006			Fiscal 2005
	Successor			Successor			Successor			Successor			Successor			Predecessor
(Dollars in thousands)	Fiscal Year Ended March 29, 2009			Fiscal Year Ended March 30, 2008			Fiscal Year Ended March 25, 2007			Fiscal Year Ended March 26, 2006			Period From January 7, 2005 to March 27, 2005			Period From March 29, 2004 to January 6 2005
Statement of Operations Data:
Revenue	$	181,216		$	223,726		$	203,739		$	176,522		$	29,054		$	109,748
Cost of sales (exclusive of production depreciation and software amortization expense shown separately below)		127,961			150,200			134,749			116,674			19,660			70,577
Production depreciation and software amortization		5,177			5,085			9,544			9,784			2,036			3,245
Gross profit		48,078			68,441			59,446			50,064			7,358			35,926
Selling, general & administrative expenses		20,626			24,399			22,640			20,234			4,107			13,989
Nonproduction depreciation and software amortization		1,819			1,786			3,353			3,438			715			1,140
Amortization of intangibles		17,025			17,151			15,411			15,049			3,279			6,128
Impairment loss		119,522			—			—			—			—			—
Operating (loss) income		(110,914	)		25,105			18,042			11,343			(743	)		14,669
Interest expense, net		(28,992	)		(34,400	)		(28,748	)		(28,560	)		(4,716	)		(7,247	)
(Loss) gain on derivatives		—			—			(7	)		6			—			418
Other income, net		77			70			55			5			109			42
(Loss) income from continuing operations before benefit (provision) from income taxes		(139,829	)		(9,225	)		(10,658	)		(17,206	)		(5,350	)		7,882
Benefit (provision) for income taxes		14,418			3,047			4,831			6,186			1,926			(3,203	)
Net (loss) income from continuing operations		(125,411	)		(6,178	)		(5,827	)		(11,020	)		(3,424	)		4,679
Income (loss) from discontinued operations, net of tax		—			—			9			19			21			(63	)
Loss on disposal of discontinued operations, net of tax		—			—			(121	)		—			—			—
Net (loss) income	$	(125,411	)	$	(6,178	)	$	(5,939	)	$	(11,001	)	$	(3,403	)	$	4,616

	Fiscal 2009			Fiscal 2008			Fiscal 2007			Fiscal 2006			Fiscal 2005
Balance Sheet Data (at end of fiscal year):
Cash and cash equivalents	$	2,585		$	6,716		$	9,338		$	16,418		$	4,091
Total assets		372,857			514,945			507,697			509,385			480,704
Total debt and long-term obligations		285,709			286,629			262,324			252,345			211,891
Total stockholders’ equity		42,529			168,046			174,203			180,071			190,975
Other Financial Data:
Capital expenditures		6,035			6,185			7,144			5,085			6,117
Net cash provided by operating activities		9,749			17,754			17,645			22,069			20,182
Net cash used in investing activities		(7,718	)		(39,271	)		(30,297	)		(36,821	)		(263,795	)
Net cash (used in) provided by financing activities		(6,162	)		18,895			5,572			27,080			246,461

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto included as part of this Form 10-K. This report contains forward-looking statements that are based upon current expectations. We sometimes identify forward-looking statements with such words as “may”, “will”, “expect”, “anticipate”, “estimate”, “seek”, “intend”, “believe” or similar words concerning future events. The forward-looking statements contained herein, include, without limitation, statements concerning future revenue sources and concentration, gross profit margins, selling, general and administrative expenses, capital resources, additional financings or borrowings and the effects of general industry and economic conditions; and are subject to risks and uncertainties including, but not limited to, those discussed below and elsewhere in this Form 10-K that could cause actual results to differ materially from the results contemplated by these forward-looking statements. We also urge you to carefully review the risk factors set forth in other documents we file from time to time with the SEC.

On January 7, 2005, we were acquired by Citigroup Venture Capital Partners L.P. (“CVC”).  Effective September 2006, CVC spun off from its former owner, Citigroup.  The new entity has been renamed Court Square Capital Partners. In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141, our acquired assets and assumed liabilities were revalued to reflect fair value as of the date of the acquisition. In valuing acquired assets and assumed liabilities, fair values are based on, but are not limited to: future expected cash flow; comparative analysis with similar organizations within the industry; historical experience with customer relationships; current replacement cost for similar capacity for certain fixed assets; market assumptions for contractual obligations; settlement plans for litigation and contingencies; and appropriate discount rates and growth rates.

We have 13 reporting periods in each fiscal year. The first, second and third quarters each contain three periods, or twelve weeks each, and the fourth quarter contains four periods, or sixteen weeks.  Our fiscal year ends on the last Sunday of March of each year. The following discussion includes comparisons of our fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007.

Overview of Operations

We are one of the largest and most diversified publishers of information for the local real estate market in North America. Through our extensive proprietary network of online and print distribution points, we provide critical local information to consumers involved in buying, leasing and renovating a home. Our reader base selects our print and online publications almost exclusively for the extensive advertisements, and, as a result, we are able to provide high quality leads at an effective cost to our advertisers, which are comprised of agents, property management companies, new home builders and home renovation products and service providers. In fiscal year 2009, we believe that we generated over ten million leads for our advertisers. We operate in over 550 targeted markets which may overlap geographically across the U.S. and Canada, and have a monthly print and online reach of over 30 million potential consumers seeking to buy, rent or renovate their homes. The predominant content in our publications is advertisements, and our two largest publications are 100% advertisement based. In the resale home market, our flagship brand, TREB, is the largest real estate advertising publication in North America. In the leasing market, we provide residential and commercial leasing listings, primarily through Apartment Finder and Black’s Guide. In the home improvement market, we are the largest publisher of local and regional design magazines for the luxury market, including Kansas City Homes & Gardens, Atlanta Homes & Lifestyles, Colorado Homes & Lifestyles, Mountain Living and New England Home. We believe that our focus on the three largest and most diversified areas of the housing market can help lessen our exposure to a downturn in any specific area.

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We distribute our printed publications through an extensive rack distribution network, comprised of high traffic locations in areas frequented by our target consumers. In addition, we maintain more than 30,000 uniquely shaped proprietary sidewalk distribution boxes. For those products targeting affluent consumers and businesses, we utilize sophisticated database management and customer acquisition tools in order to develop highly targeted direct mail distribution. We also distribute all of our content — including our database of more than 1.8 million homes and apartments — online to our advertisers. We maintain a proprietary online network which has over two million unique visitors each month. In addition, we distribute our content to over twenty online distribution partners, including Trulia and BobVila.com with a monthly reach of over 47 million online users. We believe our combined online and print distribution network, which is provided to advertisers at one all-inclusive cost, drives exceptional results for our advertisers.

We have two marketing channels through which we generate revenue, the Independent Distributor (“ID”) channel and the Direct channel. In our ID channel, the independent distributor is responsible for selling the advertising, collecting listings from agents/brokers and distributing publications in a specific geographic market. In our Direct channel, we sell the advertising, collect the listings from the agents/brokers, create and print the publications and distribute the publications. In fiscal year 2009, the ID channel and Direct channel accounted for 23.7% and 76.3% of our total consolidated revenue, respectively.

As of March 29, 2009, we had 821 employees, 381 of which were located at our corporate headquarters and production facility in Lawrenceville, Georgia, a suburb of Atlanta.

We believe the key drivers of our financial performance are:

·   advertising volume;

·   expansion into other local real estate markets;

·   strong brand recognition; and

·   per unit cost to produce our publications.

Business Trends

External real estate market conditions continue to be in flux. Our management team focuses on several key indicators, which include annual sales volume of existing homes and the months of supply of unsold homes; the Market Tightness Index compiled by the National Multi Housing Council, the Remodeling Market Index compiled by the National Association of Home Builders, and interest rates and the growth in consumer debt.

·   Sales volume of existing homes and months of supply of unsold homes – Indicators for the resale and new home markets experienced significant weakness throughout our fiscal year 2009.  Although the housing data has shown some improvement recently, as evidenced by a 6.7% increase in the Pending Home Sales Index in April 2009, activity levels remain below prior year levels.  The inventory of unsold existing homes stood at 10.2 months in April 2009, down from 11.3 months in the prior year.  April 2009 sales of existing homes fell to a 4.7 million annual sales rate from an annual rate of 4.9 million in April 2008. Approximately 45% of current year transactions are foreclosures or other distressed property sales.  The median price of an existing home sold in April 2009 was down more than 15% compared to April of the prior year.  The annualized rate of new home sales in April 2009 was 352,000, a decline of 181,000 homes or 34% from the prior year.  The months supply of inventory of new homes decreased from 10.4 months in April 2008 to 10.1 months in April 2009, while at the same time the median price of a new home declined by over 11%.  We experienced a significant decline in our TREB business during fiscal year 2009, including in our fiscal fourth quarter.  Although we get some benefit from the geographic diversity of our TREB markets and the fact that real estate is a very local business, the current housing downturn and dislocation in the mortgage finance market are impacting all regions of the United States and the overwhelming majority of our TREB books.

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·  The Market Tightness Index – The National Multi Housing Council’s (“NMHC”) Market Tightness Index in April 2009 stood at 16, an increase from 11 in January 2009 but down from an index of 44 in April 2008. A reading above 50 indicates that markets are experiencing higher occupancy rates and higher rental rates.  The national vacancy rate for investment-grade apartments stood at 7.6% in March 2009.  Same store rents for professionally managed apartments declined by 2.8%, the biggest decline in 15 years.  Multi-family permits, starts and completions in the first quarter of calendar year 2009 were down compared to the prior calendar year by 49%, 52% and 17%, respectively.  As a result, our expectation is that there will not be a meaningful increase in apartment inventories in the coming twelve months.  We continued to record growth for Apartment Finder during fiscal year 2009, however the rate of growth slowed in the fourth quarter as market conditions weakened.

·   The Remodeling Market Index – The National Association of Home Builders (“NAHB”) Remodeling Market Index rose in the first quarter of calendar year 2009 to 34.5 from a reading of 25.5 in the fourth quarter of calendar year 2008.  The index had declined from 41.8 in the first quarter of calendar year 2008 to the 25.5 level in the fourth quarter of the same year reflecting a material decline in the level of remodeling activity.  The index measures remodelers’ perception of market demand for current and future residential remodeling projects, which are a key driver for our home design and improvement titles.  Any index reading over 50 indicates that the majority of remodelers view market conditions as improving.  Although the interest rate environment remains favorable, financing for home improvement projects is compromised by lenders tightening credit standards for mortgages and home equity lines of credit.  The continuing decline in home values has reduced home equity levels and negatively impacted the willingness of consumers to invest in home remodeling and improvement projects.  We had a meaningful decline in the revenue generated by our home design and home improvement titles in fiscal year 2009, especially in the fourth quarter.

Revenue

Our principal revenue earning activity is related to the sale of online and print advertising by both ID as well as direct sales to customers through Company-managed distribution territories.  Independent distributors are contracted to manage certain distribution territories on behalf of NCI.  We maintain ownership of all magazines and distribution territories.  Revenue recognition for print and online products are consistently applied within Company-managed and ID-managed distribution territories as described below.  These revenue arrangements are typically sold as a bundled product to customers and include a print ad in a publication as well as an online advertisement.  We bill our customers a single negotiated price for both elements.  In accordance with EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, we separate our deliverables into units of accounting and allocate consideration to each unit based on relative fair values.  We recognize revenue for each unit of accounting in accordance with SEC Staff Accounting Bulletin Number 104, Revenue Recognition.  Paid magazine subscriptions are recorded as unearned revenue when received and recognized as revenue over the term of the subscription.

Costs

Operating expenses include cost of sales; depreciation and amortization; and selling, general and administrative expenses (“SG&A”). Cost of sales include all costs associated with our Georgia production facility, our outsourced printing which are the costs we pay to third party printers to print books not manufactured in our Georgia production facility, our field sales operations, field distribution operations, online operations and bad debt. SG&A include all corporate departments, corporate headquarters, and the management of the publications.

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Our operating expense base, excluding the noncash impairment loss, consists of almost 75% fixed costs. These expenses relate to our production facility in Georgia, our national distribution network and our sales management infrastructure. The remaining 25% of operating expenses are variable and relate to paper, ink, sales commissions, performance-based bonuses, bad debt and third party production expenses. Costs related to our workforce are the largest single expense item, accounting for almost 38% of our total operating expense base. The second largest expense item, which accounts for approximately 18% of our total expense base, is the costs associated with producing our publications. We expect to be able to continue to manage our expense growth to levels consistent with past years.

Depreciation and Amortization

Depreciation costs of computer, equipment and software relate primarily to the depreciation of our computer hardware and software developed for internal use or purchased, as well as property, plant and equipment.  The depreciation and amortization of equipment and software associated with production is shown separately from our cost of sales in our statement of operations.  The amounts of depreciation and amortization expense related to production equipment and software for the fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007 were $5.2 million, $5.1 million and $9.5 million, respectively.  Depreciation and amortization expense related to nonproduction equipment and software are shown separately from the selling, general and administrative expenses in our statement of operations.  The amounts of depreciation and amortization expense related to nonproduction equipment and software for the fiscal years ended March 29, 2009, March 30, 2008, and March 25, 2007 were $1.8 million, $1.8 million and $3.4 million, respectively.  Depreciation for computer, equipment and software as well as property, plant and equipment is calculated on a straight-line basis over the expected useful life of the related asset class. Leasehold improvements and leased assets are amortized over the shorter of their estimated useful life or lease term.

Amortization costs relate to the amortization of intangible assets.  Our two largest intangible assets are our independent distributor agreements and trademarks/trade names.  The value and expected useful lives of our larger intangible assets (trademarks, trade names, independent distributors and advertiser lists) were determined by management by identifying the remaining useful life of the components of each asset combined with a reasonable attrition rate and a reasonable expectation for increase in revenue by each component.  Certain markets experience a lower attrition rate.  This has contributed to intangible lives in excess of 15 years.  Amortization is calculated on a straight-line basis over the expected useful life of the intangible asset.

Interest Income and Interest Expense

Interest income consists primarily of interest income earned on our cash balances and interest earned on notes receivable. Interest expense consists of interest on outstanding indebtedness, interest on capital leases, amortization of deferred financing costs and amortization of debt discounts.

Income Taxes

The following table sets forth the income tax benefit and effective tax rate for the fiscal years ended March 29, 2009 and March 30, 2008:

	Fiscal Year Ended
(Dollars in thousands)	March 29, 2009			March 30, 2008
Income tax benefit	$	14,418		$	3,047
Effective tax rate		10.3	%		33.0	%

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Income tax benefit consists of current and deferred income taxes.  The difference in effective income tax rates is due primarily to the impact of the noncash goodwill impairment charges, which were recorded in the third and fourth quarters of fiscal year 2009 in addition to nondeductible expenses relative to the level of net loss before taxes between the two periods partially offset by a deduction related to domestic manufacturing activities.  Also, we have nondeductible expenses related to meals and entertainment and certain interest expenses related to senior subordinated debt.  We are subject to taxation in the United States of America (for federal and state) and Canada.

Discontinued operations

We reported income before taxes of $0.015 million from discontinued operations for the fiscal year ended March 25, 2007.  The sale of the Corporate Choices magazine during the fiscal year ended March 25, 2007 resulted in a write-down of $0.21 million, net of income tax benefit of $0.08 million, included in the loss on sale from discontinued operations as discussed in Note 7 of the notes to the consolidated financial statements.

Comparison of Fiscal Year Ended March 29, 2009 to the Fiscal Year Ended March 30, 2008

The following table sets forth a summary of our operations and its percentages of the total consolidated revenue (in thousands) for fiscal years 2009 and 2008 from our three business areas. These three areas are: (i) resale and new sales; (ii) rental and leasing; and (iii) remodeling and home improvement. The resale and new sales area includes The Real Estate Book (“TREB”), New Home Finder, Unique Homes, Enclave and By Design. Our rental/leasing area includes Apartment Finder, Mature Living Choices, and Black’s Guide. Our remodeling and home improvement area includes all of our home & design and home improvement publications.

	Fiscal Year Ended
	March 29, 2009						March 30, 2008
(Dollars in thousands)	Amount			%			Amount		%
Resale and new sales	$	77,835			42.9	%	$	117,369		52.5	%
Rental and leasing		79,149			43.7	%		74,038		33.1	%
Remodeling and home improvement		24,232			13.4	%		32,319		14.4	%
Total revenue		181,216			100.0	%		223,726		100.0	%
Costs and expenses:
Cost of sales (including production depreciation and software amortization)		133,137			73.4	%		155,285		69.4	%
Selling, general and administrative (including nonproduction depreciation and software amortization)		22,446			12.4	%		26,186		11.7	%
Amortization of intangibles		17,025			9.4	%		17,151		7.7	%
Impairment loss		119,522			47.1	%		—		—
(Loss) income from operations	$	(110,914	)		(42.3	)%	$	25,104		11.2	%

For fiscal year 2009, total revenue was $181.2 million, a decrease of $42.5 million, or 19.0%, from $223.7 million in fiscal year 2008.  Our resale and new sales area declined by $39.6 million or 33.7% from $117.4 million in fiscal year 2008 to $77.8 million in fiscal year 2009.  Our rental and leasing showed year-over-year revenue growth of $5.1 million or 6.9% from $74.0 million in fiscal year 2008 to $79.1 million in fiscal year 2009.  Our remodeling and home improvement area decreased by $8.1  million or 25.1% from $32.3 million in fiscal year 2008 to $24.2 million in fiscal year 2009.  The declines in the resale and new sales area and the remodeling and home improvement area were due to the weak economic conditions in the real estate markets.

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Revenue from TREB accounted for $54.4 million, or 69.9%, of the resale and new sales area revenue in fiscal year 2009 compared to $86.5 million, or 73.7%, in fiscal year 2008. The TREB revenue showed a fiscal year-over-year decline of $32.1 million, or 37.1%. The decline was driven by a reduction in the number of advertisers and an accompanying drop in advertising page count as well as a reduction in the number of publications. The ID channel accounted for $37.6 million, or 69.1%, of total TREB sales in fiscal year 2009 compared to $57.5 million, or 66.7%, in fiscal year 2008. The TREB Direct channel generated $16.8 million, or 30.9%, of total TREB sales in fiscal year 2009 compared to $28.8 million, or 33.3% in fiscal year 2008. The decline of the Direct channel in fiscal year 2009 was the result of a reduction in ad page volume and some market consolidations.  Likewise, the ID channel drop in fiscal year 2009 was primarily due to page volume shrinkage and a reduction in the number of active markets. A second key driver of the resale and new sales area was the performance of Unique Homes and Enclave which together posted revenue of $5.6 million in fiscal year 2009 compared to $8.8 million in fiscal year 2008.  The slowdown in the volume of transactions in the luxury market reduced real estate agents marketing budgets which resulted in ad page decline for these publications.  Also, two Enclave markets were closed during fiscal year 2009.  New Home Finder posted revenue of $5.7 million in fiscal year 2009 compared to $9.1 million in fiscal year 2008.  The decline of $3.4 million or 37.4% was due to a decrease in the number of advertisers and a drop in advertising page count as a result of the economic downturn in the real estate market, as well as the closure of two markets in fiscal year 2009.

Apartment Finder accounted for $74.6 million, or 94.3%, of the revenue of the rental and leasing area in fiscal year 2009 compared to $67.6 million or 91.3% in fiscal year 2008. Apartment Finder posted fiscal year-over-year revenue growth of $7.0 million, or 10.4%. The growth was the result of the increase in the advertiser base in our existing publications, opening new markets and the full year impact of our acquisitions completed during fiscal year 2008. We generated $2.0 million in revenue in fiscal year 2009 from acquisitions made during fiscal year 2008.  Black’s Guide, which accounted for 3.8% of the revenue for the rental and leasing area in fiscal year 2009, had revenue of $3.0 million, which was down $0.8 million or 21.1% from $3.8 million in fiscal year 2008. The decline in Black’s Guide revenue was the result of reducing the number of markets from 16 to 8 to maximize profitability.

Revenue for our remodeling and home improvement area in fiscal year 2009 was $24.2 million, which was a decrease of $8.1 million or 25.1% compared to fiscal year 2008 revenue of $32.3 million. The decline was the result of advertisers reducing their marketing expenditures in response to the deteriorating conditions in the job market, stock market and consumer confidence that began in October 2008. Our publications in this area include: Kansas City Homes & Gardens, Accent Home & Garden, At Home In Arkansas, Relocating in Las Vegas, New England Home, Relocating in St. Louis, regional Home Improvement magazines, and the Homes & Lifestyles magazines.

Cost of sales. Cost of sales for fiscal year 2009 was $128.0 million, which represents a decrease of $22.2 million, or 14.8%, compared to $150.2 million in fiscal year 2008. Labor and related expenses were $55.2 million compared to $66.7 million in fiscal year 2008, a decrease of $11.5 million or 17.2%. Labor and related expenses of our production facility in Georgia were $14.7 million compared to $18.4 million in fiscal year 2008. Such decrease was incurred in conjunction with a drop in advertising page and book volume and reductions in headcount. The total 2009 year-over-year non-commission labor expense growth from the acquisitions completed during fiscal year 2008 was $0.7 million.  The expense for paper during fiscal years 2009 and 2008 was $16.4 million and $19.8 million, respectively, that was a decrease of $3.4 million or 17.2%. Other costs of the production facility in fiscal year 2009 were $6.3 million compared to $7.7 million in fiscal year 2008, a decrease of $1.4 million or 18.2%. Outside production expenses decreased to $8.2 million in fiscal year 2009 from $10.1 million in fiscal year 2008. The decrease of $1.9 million or 18.8% was due to a decline in page counts and press quantities for our remodeling and home improvement titles which are not printed in our Lawrenceville facility, as well as the transfer of Apartment Finder and New Home Finder books from external printers to our Lawrenceville facility.

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Production depreciation and software amortization expense. Production depreciation and amortization expense was $5.2 million in fiscal year 2009, an increase of $0.1 million, or 2.0%, from $5.1 million in fiscal year 2008.  The increase reflects computer software and other assets purchased in fiscal year 2009 offset by computer software assets fully depreciated during fiscal year 2009.

Selling, general and administrative expenses. SG&A expenses were $20.6 million in fiscal year 2009 compared to $24.4 million in fiscal year 2008, a decrease of $3.8 million, or 15.6%. Labor and related expenses were $10.6 million in fiscal year 2009 and $13.4 million in fiscal year 2008, a decrease of $2.8 million, or 20.9%. The decrease in labor and related expenses reflects a reduction in headcount during fiscal year 2009 based on cost reduction initiatives. Legal fees and professional fees decreased by $0.7 million or 41.2% to $1.0 million in fiscal year 2009 compared to $1.7 million in fiscal year 2008.

Nonproduction depreciation and software amortization expense.  Depreciation expense and software amortization related to nonproduction equipment was flat at $1.8 million in fiscal year 2009 compared to fiscal year 2008.

Amortization of intangibles. Amortization expense for fiscal year 2009 was $17.0 million, which was a decrease of $0.2 million, or 1.2%, compared to $17.2 million in fiscal year 2008. The decrease in amortization expense was primarily related to the intangible assets fully amortized during fiscal year 2009.

 Gross Profit. Our gross profit decreased by $20.3 million or 29.7% from $68.4 million in the fiscal year 2008 to $48.1 million in fiscal year 2009. The decrease was mainly related to the decline in revenues of $42.5 million in fiscal year 2009 compared to fiscal year 2008, partially offset by a decrease in the cost of sales of $22.2 million. The gross profit percentage for fiscal year 2009 was 26.5% compared to 30.6% in the prior year. The decrease was mainly attributable to the impact of fixed costs on our cost of sales including an increase in bad debt expense of $1.6 million or 50.7% in fiscal year 2009 compared to the prior fiscal year as a result of lower collection rates on amounts due from our customers in fiscal year 2009 compared to fiscal year 2008.

Net interest expense. Net interest expense for fiscal year 2009 was $29.0 million, a decrease of $5.4 million or 15.7% compared to $34.4 million in fiscal year 2008.  The decrease was the result of the decline in the interest rate on our term loan facility and the reduction in the balance of our term loan facility as a result of principal payments of $5.7 million made during fiscal year 2009.

Impairment loss.  As of December 7, 2008, we determined that a triggering event under SFAS 142 had occurred and as a result, we performed an assessment of goodwill for impairment. Our reporting units are the Resale and New Sales unit, the Rental and Leasing unit and the Remodeling and Home Improvement unit. Based on the results of the SFAS 142 assessment, we determined that there was an indication of impairment in the Resale and New Sales unit and the Remodeling and Home Improvement unit. Accordingly, we recorded an estimated noncash impairment charge based on a preliminary assessment in the amount of $85.4 million in our statements of operations for the three periods and nine periods ended December 7, 2008. The step two analysis was completed and resulted in an additional noncash impairment charge of $6.6 million that was recorded in the fourth quarter of fiscal year 2009. During the fourth quarter of fiscal year 2009, we completed our annual impairment analysis due to continued economic declines. The impairment analysis resulted in an additional impairment charge of $27.5 million in the fourth quarter of fiscal year 2009.  The amounts of the recorded impairment charges during fiscal year 2009 for the Resale and New Sales unit and the Remodeling and Home Improvement unit were $109.2 million and $10.3 million, respectively. The impairment loss relates primarily to the deteriorating global economic conditions and the downturn in the resale and new home markets.

Net loss. Due to the factors described above, we reported a net loss of $125.4 million in fiscal year 2009, a decrease of $119.2 million from a net loss of $6.2 million in fiscal year 2008.  Excluding the impairment loss of $119.5 million, our net loss decreased by $0.3 million in fiscal year 2009 compared to fiscal year 2008.

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Comparison of Fiscal Year Ended March 30, 2008 to the Fiscal Year Ended March 25, 2007

The following table sets forth a summary of our operations and its percentages of total consolidated revenue (in thousands) for fiscal years 2008 and 2007 from our three business areas. These three areas are: (i) resale and new sales; (ii) rental and leasing; and (iii) remodeling and home improvement. The resale and new sales area includes The Real Estate Book (“TREB”), New Home Finder, Unique Homes, Enclave and By Design. Our rental/leasing area includes Apartment Finder, Mature Living Choices, and Black’s Guide. Our remodeling home improvement area includes all of our home & design and home improvement publications. The results of operations related to our discontinued operations (discussed in Note 7 of our consolidated financial statements) have been omitted from the table below.

	Fiscal Year Ended
	March 30, 2008					March 25, 2007
(Dollars in thousands)	Amount		%			Amount		%
Resale and new sales	$	117,369		52.5	%	$	120,579		59.2	%
Rental and leasing		74,038		33.1	%		59,159		29.0	%
Remodeling and home improvement		32,319		14.4	%		24,001		11.8	%
Total revenue		223,726		100.0	%		203,739		100.0	%
Costs and expenses:
Cost of sales (including production depreciation and software amortization)		155,285		69.4	%		144,293		70.8	%
Selling, general and administrative (including nonproduction depreciation and software amortization)		26,186		11.7	%		25,993		12.8	%
Amortization of Intangibles		17,151		7.7	%		15,411		7.5	%
Income from operations	$	25,104		11.2	%	$	18,042		8.9	%

For fiscal year 2008, total revenue was $223.7 million, an increase of $20.0 million, or 9.8%, from $203.7 million in fiscal year 2007.

Our resale and new sales area declined by $3.2 million or 2.7% from $120.6 million in fiscal year 2007 to $117.4 million in fiscal year 2008.  Our rental and leasing showed a year-over-year revenue growth of $14.8 million or 25.0% from $59.2 million in fiscal year 2007 to $74.0 million in fiscal year 2008. Our remodeling and home improvement area increased by $8.3 million or 34.6% from $24.0 million in fiscal year 2007 to $32.3 million in fiscal year 2008.  The decline in the resale and new sales area was due to the decrease in the advertising page count.

Revenue from TREB accounted for $86.5 million, or 73.7%, of the resale and new sales area in fiscal year 2008 compared to $98.8 million, or 81.9%, in fiscal year 2007. The TREB revenue showed a year-over-year decline of $12.3 million, or 12.4%. The decline was driven by a reduction in the number of advertisers and an accompanying drop in advertising page count. The ID channel accounted for $57.5 million, or 66.7%, of total TREB sales in fiscal year 2008 compared to $64.9 million, or 65.7%, in fiscal year 2007. The TREB Direct sales channel generated $28.8 million, or 33.3%, of total TREB sales in fiscal year 2008 compared to $33.8 million, or 34.2%, in fiscal year 2007. The decline of the Direct channel in fiscal year 2008 was the result of a reduction in ad page volume and some market consolidations.  Likewise, the ID channel drop in fiscal year 2008 was primarily due to page volume shrinkage and a reduction in the number of active markets. A second key driver of the resale and new sales area was the performance of Unique Homes and Enclave which together posted revenue of $8.8 million in fiscal year 2008 compared to $10.0 million in fiscal year 2007.  The slowdown in the volume of transactions in the luxury market reduced real estate agents marketing budgets which resulted in ad page decline for these publications.  New Home Finder posted revenue of $9.1 million in fiscal year 2008 compared to $8.4 million in fiscal year 2007.  The growth of $0.7 million or 8.3% was due to an increase in yield per page and the launch of a new market.

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Apartment Finder accounted for $67.6 million, or 91.3%, of the revenue of the rental and leasing area in fiscal year 2008 compared to $51.4 million or 86.9% in fiscal year 2007. Apartment Finder posted year-over-year revenue growth of $16.2 million, or 31.5%. The growth was the result of the increase in the advertiser base in our existing publications, opening new markets and strategic acquisitions. We generated $8.7 million in revenue in fiscal year 2008 from acquisitions made during fiscal years 2007 and 2008.  Black’s Guide, which accounted for 5.1% of the revenue for the rental and leasing area in fiscal year 2008, had revenue of $3.8 million, which was down $1.1 million or 22.4% from $4.9 million in fiscal year 2007. The decline in Black’s Guide revenue is the result of reducing the number of markets from 16 to 9 to maximize profitability.

Revenue for our remodeling and home improvement area in fiscal year 2008 was $32.3 million, which was an increase of $8.3 million or 34.6% compared to fiscal year 2007 revenue of $24.0 million. During fiscal year 2008, we generated $6.4 million in revenue from acquisitions made during fiscal years 2007 and 2008.  Our publications in this area include: Kansas City Homes & Gardens, Accent Home & Garden, At Home In Arkansas, Relocating in Las Vegas, New England Home, Relocating in St. Louis, regional Home Improvement magazines, and the Homes & Lifestyles magazines.

Cost of sales. Cost of sales for fiscal year 2008 was $150.2 million, which represented an increase of $15.5 million, or 11.5%, compared to $134.7 million in fiscal year 2007. Labor and related expenses were $66.7 million compared to $61.9 million in fiscal year 2007. Labor related to our production facility in Georgia was $18.4 million compared to $19.0 million in fiscal year 2007. Such decrease was incurred in conjunction with the drop in the advertising page and book volume. The expense for paper in each of fiscal years 2008 and 2007 was $19.8 million. Other costs of the production facility in fiscal year 2008 were $7.7 million compared to $8.0 million in fiscal year 2007. Outside production expenses increased to $10.1 million in fiscal year 2008 from $7.9 million in fiscal year 2007. This increase was due to the acquisitions of, KC New Homes Journal, Dallas Home Improvement, Accent Home and Garden, Original Apartment Magazine, New England Home and Home by Design. These magazines are printed externally due to their size and frequency.

Production depreciation and software amortization expense. Production depreciation and amortization expense was $5.1 million in fiscal year 2008, a decrease of $4.4 million, or 46.3%, from $9.5 million in fiscal year 2007.  The decline reflects software and leased computer assets fully depreciated during the last quarter of fiscal year 2007.

Gross Profit. Our gross profit increased by $9.0 million or 15.2% from $59.4 million in the fiscal year 2007 to $68.4 million in the fiscal year 2008. The increase was mainly related to the increase in revenues of $20.0 million in fiscal year 2008 compared to fiscal year 2007 and decrease in production depreciation of $4.4 million  partially offset by an increase in the cost of sales of $15.5 million . The gross profit percentage for fiscal year 2008 was 30.6% compared to 29.2% in the prior year. The increase was mainly attributable to the increase in our revenues as a result of the new acquisitions completed in fiscal year 2008.

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Selling, general and administrative expenses. SG&A expenses were $24.4 million in fiscal year 2008 compared to $22.6 million in fiscal year 2007, an increase of $1.8 million, or 8.0%. Labor and related expenses were $13.4 million in fiscal year 2008 and $13.0 million in fiscal year 2007, an increase of $0.4 million, or 3.1%. The increase in labor related expenses was primarily attributable to acquisitions completed during fiscal years 2008 and 2007. Legal fees increased to $1.3 million in fiscal year 2008 compared to $0.7 million in fiscal year 2007.  The increase of $0.6 million was due primarily to two legal actions, the first involved intellectual property rights for which the trial was pending and the second was trademark infringement which was settled.  We also incurred increased expenditures for advertising and marketing as we continued to expand our presence in the marketplace.

Nonproduction depreciation and software amortization expense.  Depreciation expense and software amortization was $1.8 million in fiscal year 2008 compared to $3.4 million in fiscal year 2007. The decline of $1.6 million or 47.1% reflects software and leased computer assets that were fully depreciated during the last quarter of fiscal year 2007.

Amortization of intangibles. Amortization expense for fiscal year 2008 was $17.2 million, which was an increase of $1.8 million, or 11.7%, compared to $15.4 million in fiscal year 2007. The increase in amortization expense was related to the amortizable intangible assets of $29.6 million acquired in connection with our acquisitions of the Apartment Community Guide, Pittsburgh Apartment Source, Dallas Home Improvement, Accent Home and Garden, Original Apartment Magazine, Tucson Apartment Source, New England Home, Relocating in St. Louis, The Greater Jacksonville Apartment Guide, By Design Publishing, DGP Apartment Publications of Louisiana, Apartment Rental Source and the Fredericksburg Apartment Finder’s Guide.

Net interest expense. Net interest expense for fiscal year 2008 was $34.4 million, an increase of $5.7 million or 19.9% compared to $28.7 million in fiscal year 2007.  The increase reflects additional borrowings against our term loan facility and the write-off of $3.7 million of debt issuance costs associated with the extinguishment of our prior term loan facility which was recorded to interest expense during the second quarter of fiscal year 2008.

Net loss.  Due to the factors described above, we reported a net loss of $6.2 million in fiscal year 2008, a decrease of $0.3 million from a net loss of $5.9 million in fiscal year 2007.

Liquidity and Capital Resources

The following table summarizes our net decrease in cash and cash equivalents:

(Dollars in thousands)	Fiscal 2009			Fiscal 2008			Fiscal 2007
Net cash provided by operating activities	$	9,749		$	17,754		$	17,645
Net cash used in investing activities		(7,718	)		(39,271	)		(30,297	)
Net cash (used in) provided by financing activities		(6,162	)		18,895			5,572
Net decrease in cash & cash equivalents	$	(4,131	)	$	(2,622	)	$	(7,080	)

Overview.  Historically, our primary source of liquidity has been cash flow from operations.  We also have the ability to incur indebtedness under our senior secured revolving credit facility.  At the end of fiscal year 2009, our cash on hand was $2.6 million compared to $6.7 million and $9.3 million at the end of fiscal years 2008 and 2007, respectively. The decrease of $4.1 million in fiscal year 2009 compared to fiscal year 2008 was related to the excess cash flow payment made during fiscal year 2009 under our new credit facility.  The decrease in our cash on hand of $2.6 million in fiscal year 2008 compared to fiscal year 2007 was due to amounts paid for acquisitions completed in fiscal year 2007 partially offset by borrowings under our new credit facility.

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Cash Flows From Operations.  Cash provided by operating activities was $9.7 million at the end of fiscal year 2009 and $17.8 million for fiscal 2008 year end. Our change in operating assets and liabilities was a use of $2.8 million of cash for fiscal year 2009 versus a use of $3.8 million for fiscal year 2008, mainly due to an increase in income tax receivable partially offset by a decrease in inventories.

Our net cash provided by operating activities in fiscal year 2008 increased by $0.2 million compared to fiscal year 2007, from $17.6 million in fiscal year 2007 to $17.8 million in fiscal year 2008. Our change in operating assets and liabilities in fiscal year 2008 was a use of cash of $3.8 million versus a source of $1.2 million in fiscal year 2007.  This increase in the use of cash was a result of an increase in our accrued compensation due to the additional fifth week in the last period of fiscal year 2008.

Cash Flows From Investing Activities.  Our principal cash investments are typically for purchases of property and equipment and for business acquisitions. In fiscal year 2009, net cash used in investing activities was $7.7 million, consisting of $6.0 million for the purchase of property, equipment and software and $1.7 million spent mainly in earn-out payments related to acquisitions completed in fiscal year 2008.  In fiscal year 2008, net cash used by investing activities was $39.3 million, consisting of $6.2 million for the purchase of property, equipment and software and $33.1 million for acquisitions consummated during fiscal year 2008.  In fiscal year 2007, net cash used by investing activities was $30.3 million, consisting of $7.1 million for the purchase of property, equipment and software and $23.1 million for the add-on acquisitions made during fiscal year 2007.

Cash Flows From Financing Activities.  Cash flows used in financing activities were $6.2 million during fiscal year 2009 compared to cash flows provided by financing activities of $18.9 million in fiscal year 2008.  The cash flows used in financing activities in fiscal year 2009 were mainly related to the excess cash flow payment under our new credit facility of $5.0 million that was made during the second quarter of fiscal year 2009.  The cash flows of $18.9 million provided by financing activities in fiscal year 2008 were related to proceeds obtained through a new term loan facility during the second quarter of fiscal year 2008.  As a result, we recorded in the same quarter $0.5 million of deferred charges for transaction fees and other related debt issuance costs. Additionally, approximately $3.7 million of deferred financing costs associated with the extinguishment of the existing term loan facility were charged to interest expense during the second quarter of fiscal year 2008.  Cash flows provided by financing activities were $18.9 million during fiscal year 2008 compared to $5.6 million in fiscal year 2007. The increase was principally due to proceeds obtained and recorded in fiscal year 2008 through a new term loan facility during the second quarter of fiscal year 2008.

Capital expenditures. In fiscal year 2009, we had cash capital expenditures of $6.0 million, comprised of $5.1 million for purchased and internally developed software, $0.5 million for distribution racks, $0.3 million for computer equipment and the remainder for machinery and equipment, furniture and other assets. In fiscal year 2008, we had cash capital expenditures of $6.2 million, comprised of $0.9 million for a new printing press, $3.7 million for purchased and internally developed software, $0.8 million for distribution racks and $0.4 million for machinery and equipment and the remainder for computer hardware, furniture and other assets. For fiscal year 2007, cash capital expenditures were $7.1 million comprised of $3.2 million for a new printing press, $2.0 million for purchased and internally developed software, $0.3 million for computer hardware, $1.0 million for distribution racks, and the remainder for machinery and equipment, furniture and other assets.

Refinancing

We intend to fund ongoing operations through cash generated by operations and borrowings under our revolving credit facility.

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On November 30, 2005, we refinanced our capital structure. The objective of the refinancing was to provide us with a long-term capital structure that is consistent with its strategy and preserve acquisition flexibility. The refinancing was completed through an offering of $175.0 million of Senior Notes and a senior secured credit facility comprised of a $50.0 million senior credit term loan facility maturing in 2012, a revolving credit facility with an availability of $35.0 million maturing in 2010 and an additional $75.0 million in uncommitted incremental term loans. The proceeds of the refinancing were used to repay the outstanding balances under the previous term loans, a previous revolving facility and $30.0 million of senior subordinated debt.

On July 20, 2007, we entered into a new senior secured term loan facility (the “new term loan facility”) for an aggregate principal amount of $76.6 million and a new senior secured revolving loan facility (the “new revolving loan facility”) for an amount up to $35.0 million (the new term loan facility together with the new revolving loan facility, the “new credit facility”).  The proceeds of the new credit facility were used to repay all amounts outstanding under the existing credit facility (dated as of November 30, 2005) and fund acquisitions during our second quarter of fiscal year 2008. The new term loan facility and new revolving loan facility mature in 2012 and 2010, respectively.

The Notes and the guarantees are our and our future guarantors’ unsecured senior obligations. The Notes and the guarantees rank:

·   equally in right of payment to all of our and our future guarantors’ existing and future senior indebtedness, including indebtedness under our new senior secured credit facilities;

·   senior in right of payment to all of our and our future guarantors’ existing and future subordinated indebtedness;

·   structurally junior to the existing and future indebtedness and other liabilities of any of our subsidiaries that is not a guarantor;

·   effectively junior in right of payment to all of our secured indebtedness to the extent of the value of the assets securing such indebtedness.

We may redeem some or all of the Notes beginning on December 1, 2009 at the redemption prices listed below plus accrued and unpaid interest, if any, up to the date of redemption.

Prior to December 1, 2009, the Notes are redeemable at our option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest, if any, up to the date of redemption.

In addition, on or prior to December 1, 2008, we had the option to redeem up to 35% of the aggregate principal amount of the Notes with the net proceeds of certain equity offerings, at a redemption price equal to 110.75% of their principal amount, plus accrued and unpaid interest, if any, to the date of redemption.

If we experience a change of control, we will be required to make an offer to repurchase the Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.

Our Senior Notes will mature in 2013. Interest is payable semi-annually in arrears on June 1 and December 1. The Notes will be redeemable in the circumstances and at the redemption prices described in the indenture agreement. The indenture governing the notes and the senior secured term loan facility contains numerous covenants including, among other things, restrictions on our ability to incur or guarantee additional indebtedness or issue disqualified or preferred stock; pay dividends or make other equity distributions; repurchase or redeem capital stock; make investments or other restricted payments; sell assets or consolidate or merge with or into other companies; incur liens; enter into sale/leaseback transactions; create limitations on the ability of our restricted subsidiaries to make dividends or distributions to us; and engage in transactions with affiliates.

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The Senior Notes are redeemable, in whole or in part, at any time prior to December 1, 2009 at a price equal to their principal amount plus any accrued interest and any “make-whole” premium, which is designed to compensate the investors for early payment of their investment. The premium is the greater of (i) 1.00% of the principal amount of such Note and (ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such Note on December 1, 2009 plus (2) all required remaining scheduled interest payments due on such Note through December 1, 2009 (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate, over (B) the principal amount of such note on such redemption date. The redemption prices expressed as a percentage of the principal amount, plus accrued and unpaid interest to the redemption date for the 12-month period commencing on December 1 follow:

	Optional
	Redemption
Period	Percentage
2009		105.375	%
2010		102.688	%
2011 and thereafter		100.000	%

Borrowings under our senior secured credit facilities bear interest, at our option, at either adjusted LIBOR plus an applicable margin or the alternate base rate plus an applicable margin. The applicable margin with respect to borrowings under our senior secured revolving credit facility is subject to adjustments based upon a leverage-based pricing grid. Our senior secured revolving credit facility requires us to meet maximum leverage ratios and minimum interest coverage ratios and includes a maximum capital expenditures limitation. In addition, the new senior secured revolving credit facility contains certain restrictive covenants which, among other things, limit our ability to incur additional indebtedness, pay dividends, incur liens, prepay subordinated debt, make loans and investments, merge or consolidate, sell assets, change our business, amend the terms of our subordinated debt and engage in certain other activities customarily restricted in such agreements. It also contains certain customary events of defaults subject to grace periods as appropriate. We were in compliance with all debt covenants as of March 29, 2009.

Future principal debt payments are expected to be paid out of cash flows from operations, borrowings under our revolving credit facility and the proceeds of future refinancing of our debt.

Our ability to make scheduled payments of principal, or to pay the interest or additional interest, if any, on, or to refinance our indebtedness, or to fund planned capital expenditures will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based upon the current level of operations, we believe that cash flow from operations and available cash, together with borrowings available under our new senior secured credit facilities, will be adequate to meet our future liquidity needs throughout fiscal year 2010. Our assumptions with respect to future costs may not be correct, and funds available to us from the sources discussed above may not be sufficient to enable us to service our indebtedness, including the Notes, or cover any shortfall in funding for any unanticipated expenses. In addition, to the extent we make future acquisitions, we may require new sources of funding including additional debt, equity financing or some combination thereof. We may not be able to secure additional sources of funding on favorable terms or at all.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial position and results of operations is based upon financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to the allowance for bad debts, the recoverability of long-term assets such as intangible assets, depreciation and amortization periods, income taxes, commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

Principles of Consolidation and Fiscal Year End

We and our consolidated entities report on a 52-53 week accounting year. Our fiscal year ended March 29, 2009 includes 52 weeks.  The consolidated financial statements included elsewhere in this annual report include our financial statements and our wholly-owned subsidiaries for the fiscal year ended March 29, 2009, the fiscal year ended March 30, 2008, and the fiscal year ended March 25, 2007.  All significant intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

Our principal revenue earning activity is related to the sale of online and print advertising by both independent distributors as well as direct sales to customers through the distribution territories managed by us. These revenue arrangements are typically sold as a bundled product to customers and include a print advertisement in a publication as well as an online advertisement. We bill the customer a single negotiated price for both elements. In accordance with Emerging Issues Task Force (“EITF”) 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, we separate our deliverables into units of accounting and allocate consideration to each unit based on relative fair values. We recognize revenue for each unit of accounting in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition.

Print

Print revenues are derived from sale of advertising pages in our publications. We sell a bundled product to our customers that includes a print advertisement as well as a standard online advertisement. The customer can also purchase premium placement advertising pages such as front cover and back cover. Revenue for print advertisement sales, including the premium placement advertising pages, is recognized when the publications are delivered and available for consumer access.

Online

Online revenues are derived from the sale of advertising on our various websites. We sell a bundled product to our customers that includes a print advertisement in our publications as well as a standard online advertisement. The customer is permitted to purchase premium online advertisements whereby it can include additional data items such as floor plans, multiple photos and neighborhood information, and also secure premium placement in search results. Revenue for online sales, including the premium online advertisements, is recognized ratably over the period the online advertisements are maintained on the website.

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Unearned Revenue

We have historically billed our customers a few days before shipment. We have been recording the pre-billed amounts in unearned revenue to account for the timing differences and recognize revenue in the proper period. During the fourth quarter of fiscal year 2009, we have evaluated our accounting related to pre-billings and concluded that the appropriate accounting treatment would be to not record these amounts as accounts receivable and unearned revenue.  The prior periods accounting treatment resulted in an overstatement of accounts receivable and unearned revenue in the consolidated balance sheets of previously reported financial statements. We have performed an analysis and concluded that the error has no impact on our consolidated statements of operations, cash flows or stockholders’ equity in any of the periods presented in our annual or quarterly reports filed with the SEC. We have concluded that this error is not material. We have revised the pre-billed amounts for the fiscal year ended March 30, 2008 as follows:

(Dollars in thousands)	Accounts Receivable, net of allowance for bad debt March 30, 2008		Unearned revenue March 30, 2008		Total assets March 30, 2008
Previously reported	$	21,361	$	9,664	$	521,914
Adjustments		6,969		6,969		6,969
As adjusted	$	14,392	$	2,695	$	514,945

Although we do not believe the error in fiscal year 2008 is material to our balance sheet, we have decided to revise the fiscal year 2008 presentation to conform to fiscal year 2009.

We receive cash deposits from customers for certain publications prior to printing and upload of online advertising. These deposits are recorded as unearned revenue.

Prepaid subscriptions are recorded as unearned revenue when received and recognized as revenue over the term of the subscription.

Trade Accounts Receivable

Accounts receivable consist primarily of amounts due from advertisers in our operated markets and independent distributors.

We grant credit without collateral to many of our customers. Substantially all trade accounts receivable are comprised of accounts related to advertising displayed in our various real estate publications. Management believes credit risk with respect to those receivables is limited due to the large number of customers and their dispersion across geographic areas, as well as the distribution of those receivables among our various publication products.

We use the allowance method of reserving for accounts receivable estimated to be uncollectible. The allowance is calculated by applying a risk factor to each aging category.

Goodwill

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and other Intangible Assets” (“SFAS No. 142”), goodwill and other intangible assets with indefinite lives are no longer amortized. Instead, a review for impairment is performed at least annually or more frequently if events and circumstances indicate impairment might have occurred. Intangible assets with indefinite lives are tested by comparing the fair value of the asset to its carrying value. If the carrying value of the asset exceeds its fair value, impairment is recognized. Goodwill is tested at the reporting unit level using a two-step process. The first step is a screen for potential impairment. In this process, the fair value of a reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is considered not impaired and no further testing is required.  If the carrying value of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, the second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill and determine the amount of the impairment of goodwill.  Determining the implied fair value of goodwill requires valuation of a reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination.

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SFAS 142 requires that the impairment review of goodwill and other intangible assets not subject to amortization be based on estimated fair values. We utilize the discounted cash flow approach to estimate the fair value of its reporting units and its indefinite-lived intangible assets. The discounted cash flow approach requires assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates. An impairment loss would generally be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.

As a result of continued declines in our consolidated operating income during fiscal year 2009 and the current fair market value of our outstanding debt, we determined that a triggering event under SFAS 142 had occurred as of December 7, 2008. We performed an assessment of goodwill for impairment as of December 7, 2008 on all of our reporting units using the discounted cash flow approach. Our reporting units are the Resale and New Sales unit, the Rental and Leasing unit and the Remodeling and Home Improvement unit. The discount rate was adjusted from 11.7% in the analysis performed in the prior fiscal year to 13% in the current analysis. The assumptions were based on the current economic environment and credit market conditions. Based on the results of the SFAS 142 assessment, it was determined that there was an indication of impairment in the Resale and New Sales unit and the Remodeling and Home Improvement unit. The Rental and Leasing operating unit showed a fair value that is 12.8% and 13.2% higher than its carrying value at March 29, 2009 and December 7, 2008, respectively. As of December 7, 2008, the carrying amounts of goodwill associated with the Resale and New Sales unit, the Rental and Leasing unit and the Remodeling and Home Improvement unit were $194.6 million, $94.5 million and $18.7 million, respectively. In accordance with paragraph 22 of SFAS 142, we recorded an estimated noncash impairment charge based on a preliminary assessment in the amount of $85.4 million, determined using a discount rate of 12.5% which was later revised to 13%, in our statements of operations for the three periods and nine periods ended December 7, 2008. The step two analysis was completed and resulted in an additional noncash impairment charge of $6.6 million that was recorded in the fourth quarter of fiscal year 2009.

During the fourth quarter of fiscal year 2009, we completed our annual impairment analysis.  Due to continued economic declines, the impairment analysis resulted in an additional impairment charge of $27.5 million in the fourth quarter of fiscal year 2009.  The amounts of the recorded impairment charges during fiscal year 2009 for the Resale and New Sales unit and the Remodeling and Home Improvement unit were $109.2 million and $10.3 million, respectively. The impairment loss relates primarily to the deteriorating global economic conditions and the downturn in the resale and new home markets. A change in the economic conditions or other circumstances influencing the estimate of future cash flows or fair value could result in future impairment charges of goodwill or intangible assets with indefinite lives.  Based on our assessment, there was no indication of impairment in the Rental and Leasing reporting unit.  In addition, we assessed our indefinite-lived intangible assets and determined there was no indication of impairment.

Impairment of Long-Lived Assets

We assess the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever adverse events or changes in circumstances indicate that impairment may have occurred. If the future, undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets, an impairment has been incurred and a loss is recognized to reduce the carrying value of the long-lived assets to fair value, which is determined by discounting estimated future cash flows.  We recognized an impairment loss during fiscal year 2007 resulting from the divesture of Corporate Choices as discussed in Note 7 in the notes to the consolidated financial statements.

As a result of continued declines in our consolidated operating income during fiscal year 2009, in addition to the current fair market value of our outstanding debt, we determined that we had a triggering event in the fourth quarter of fiscal year 2009 and performed, as of March 29, 2009, an assessment of our long-lived assets under SFAS 144. As a result, we concluded that our long-lived assets were not impaired as of March 29, 2009.

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In addition to the recoverability assessment, we routinely review the remaining estimated lives of our long-lived assets. Any reduction in the useful life assumption will result in increased depreciation and amortization expense in the period when such determinations are made, as well as in subsequent periods.

As a result of continued declines in our consolidated operating income during fiscal year 2009, in addition to the current fair market value of our outstanding debt, we determined that we had a triggering event in the fourth quarter of fiscal year 2009 and performed, as of March 29, 2009, an assessment of our long-lived assets under SFAS 144. As a result, we concluded that our long-lived assets were not impaired as of March 29, 2009.

Intangible Assets

Intangible assets consist of the values assigned to a consumer database, independent distributor agreements (“IDA”), advertising lists, trade names, trademarks, and other intangible assets. Amortization of intangible assets is provided utilizing the straight-line method over the estimated useful lives.

Income Taxes

Deferred taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

Claims and Legal Proceedings

In the normal course of business, we are a party to various claims and legal proceedings. We record a reserve for these matters when an adverse outcome is probable and we can reasonably estimate our potential liability. Although the ultimate outcome of these matters is currently not determinable, we do not believe that the resolution of these matters in a manner adverse to our interest will have a material effect on our financial position, results of operations or cash flows for an interim or annual period.

Contractual Obligations

The following table summarizes our financial commitments as of March 29, 2009:

	Payments Due by Period
			Less Than		1 to		3 to		More Than
	Total		1 Year		3 Years		5 Years		5 Years
(Dollars in thousands)
Long-term debt:
Variable rate bank debt	$	70,718	$	2,351	$	1,532	$	66,835	$	—
Fixed rate Subordinated Note		40,938		—		—		40,938		—
Fixed rate Senior Notes		175,000		—		—		175,000		—
Future interest payments(1)		128,880		27,924		57,266		43,690		—
Capital lease obligations		665		342		321		2		—
Operating lease obligations		10,355		4,375		5,342		612		26
Total contractual obligations(2)	$	426,556	$	34,992	$	64,461	$	327,077	$	26

(1)	This line item is comprised of fixed and variable interest rates on the debt balances as of March 29, 2009 and future interest payments on our current capital leases. For the variable rate portion, we have assumed that the effective interest rate as of March 29, 2009 will remain consistent over the remaining life of the variable rate bank debt.
(2)	Deferred tax liabilities as of March 29, 2009 which amounted to $27,294 (in thousands) are omitted from the table as we are not able to estimate the periods in which they reverse.

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Recent Accounting Pronouncements

In May 2009, The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 165, Subsequent Events (“SFAS 165”). This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This Statement is effective for interim and annual periods ending after June 15, 2009 and as such, we will adopt this standard in the first quarter of fiscal year 2010. We are currently assessing the impact of the adoption of SFAS 165, if any, on our financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for non-governmental entities. SFAS 162 is effective for interim and annual periods ending after September 15, 2009 and as such we will adopt this standard in the third quarter of fiscal year 2010. We are currently assessing the impact of the adoption of SFAS 162 on our financial position, results of operations, or cash flows.

In April 2008, the FASB issued FASB staff position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and as such, we will adopt FSP FAS 142-3 in the first quarter of fiscal year 2010. Early adoption is prohibited. We are currently evaluating the impact, if any, that FSP FAS 142-3 will have on our financial position, results of operations, or cash flows.

In March 2008, the FASB issued SFASNo. 161, "Disclosures about Derivative Instruments and Hedging Activities", which amends the disclosure requirements of SFAS 133. SFAS 161 provides an enhanced understanding about how and why derivative instruments are used, how they are accounted for and their effect on an entity’s financial position, performance and cash flows. SFAS 161, which is effective for the first interim period beginning after November 15, 2008, will require additional disclosure in future filings. We adopted this standard in the fourth quarter of fiscal 2009 and the adoption did not have any material impact on our financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 ad as such, we will adopt this standard in the first quarter of fiscal year 2010.  Based on our current operations, we do not believe that SFAS 160 will have a significant impact on our financial position, results of operations or cash flows.

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In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and, as such, we will adopt this standard in the first quarter of fiscal year 2010. The provisions are effective for us for business combinations on or after March 30, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without being required to apply complex hedge accounting provisions. The provisions of SFAS No. 159 are effective as of the beginning of fiscal years that start after November 15, 2007 (for us, March 31, 2008). We adopted SFAS No. 159 on March 31, 2008 and the adoption did not have any material impact on our financial position, results of operations or cash flows.

Effective March 26, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”). FIN 48 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlements. Upon adoption, we did not have any material uncertain tax positions to account for as an adjustment to our opening balance of retained earnings on March 26, 2007. In addition, as of March 29, 2009, we did not have any material unrecognized tax benefits.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements.

SFAS 157, among other things, requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the company’s market assumptions. The effective date was for fiscal years beginning after November 15, 2007.

SFAS No. 157 establishes a three-tiered hierarchy to prioritize inputs used to measure fair value. Those tiers are defined as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

- Level 3 inputs are unobservable inputs for the asset or liability.

The highest priority in measuring assets and liabilities at fair value is placed on the use of Level 1 inputs, while the lowest priority is placed on the use of Level 3 inputs.

This statement also expands the related disclosure requirements in an effort to provide greater transparency around fair value measures.

In February 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We will adopt FSP FAS 157-2 in the first quarter of fiscal year 2010.

As of March 31, 2008, we adopted SFAS No. 157 and the adoption did not have a material impact on our financial position, results of operations, or cash flows. We are still evaluating the impact of the items deferred by FSP FAS 157-2.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 7A.                      Quantitative and Qualitative Disclosure About Market Risk

The principal market risk (i.e. the risk of loss arising from adverse changes in market rates and prices) to which we are exposed is fluctuation in interest rates on debt. We had no material foreign currency option contracts or any market risk contracts solely for trading purposes at March 29, 2009.

The following risk management discussion and the estimated amounts generated from analytical techniques are forward-looking statements of market risk assuming certain market conditions occur. Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets.

Interest Rates

Currently, we do not hedge exposure on our variable rate debt from interest rate fluctuations.

The following table estimates the increase (decrease) to cash flow from operations if interest rates were to fluctuate by 100 or 50 basis points, or BPS (where 100 basis points represents one percentage point), for a twelve-month period. The analysis is based on our variable rate debt, as of March 29, 2009, which consists of $70.7 million in term loans and a $35.0 million revolver. Effective May 4, 2009, we executed a third amendment to our Revolving Loan Credit Agreement that reduces the revolver commitment from $35.0 million to $15.0 million.  For purposes of this analysis, we have assumed that the revolver is fully drawn and we have not hedged any interest rate risk. The Senior Notes and our existing senior subordinated note have a fixed rate and, therefore, have been excluded from this analysis.

(Dollars in thousands)	Interest Rate Decrease				Interest Rate Increase
	100 BPS		50 BPS		50 BPS			100 BPS
Senior secured credit facilities	$	1,057	$	529	$	(529	)	$	(1,057	)

Inflation

During fiscal year 2009, we experienced an increase of approximately 7% in the price we pay for paper.  This was less than the price increase in the overall paper market as we benefitted from locking in prices with our vendors.  We expect paper prices to be basically flat in fiscal year 2010, however our annual paper expense will decline by approximately $1.5 million due to lower volumes and changes in paper grades.  In fiscal year 2009, we experienced an increase in the cost of fuel.  The increase in fuel prices impacts the amount we spend to run our fleet of trucks, the pricing from outside freight companies that we use and the amounts that we pay independent contractors in local markets to distribute our publications. During fiscal year 2009, we spent $1.2 million, $1.8 million and $4.0 million, respectively, on these functions. An increase of 10% in these costs due to higher fuel prices would result in an additional $0.7 million in annual operating costs.

38

Item 8.  Financial Statements and Supplementary Data

	Page(s)
Reports of Independent Registered Public Accounting Firm		40
Consolidated Financial Statements
Consolidated Balance Sheets		41
Consolidated Statements of Operations		42
Consolidated Statements of Stockholders’ Equity		43
Consolidated Statements of Cash Flows		44
Notes to Consolidated Financial Statements		46
For supplemental quarterly financial information, see “Note 19. Selected Quarterly Financial Data (unaudited)” of the Notes to Consolidated Financial Statements.

39

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Network Communications, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Network Communications, Inc. and its subsidiaries at March 29, 2009 and March 30, 2008, and the results of their operations and their cash flows for each of the three years in the period ended March 29, 2009 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  These financial statements and financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP

Atlanta, Georgia

June 18, 2009

40

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 29, 2009			March 30, 2008
ASSETS
Current assets
Cash and cash equivalents	$	2,584,740		$	6,715,837
Accounts receivable, net of allowance for doubtful accounts of $3,948,260 and $2,793,357, respectively		12,063,799			14,391,932
Inventories		2,849,917			4,187,195
Prepaid expenses and deferred charges		3,332,139			3,599,615
Deferred tax assets		1,595,511			1,072,699
Income tax receivable		3,292,455			941,453
Other current assets		59,487			45,012
Total current assets		25,778,048			30,953,743
Property, equipment and computer software, net		23,658,481			24,317,414
Goodwill		188,531,513			306,518,991
Deferred financing costs, net		5,959,080			7,425,819
Intangible assets, net		128,512,560			145,421,474
Other assets		417,378			307,408
Total noncurrent assets		347,079,012			483,991,106
Total assets	$	372,857,060		$	514,944,849
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,459,301		$	7,005,184
Accrued compensation, benefits and related taxes		1,503,679			2,377,632
Customer deposits		964,022			1,317,031
Unearned revenue		1,332,484			2,694,785
Accrued interest		6,682,405			6,747,765
Other current liabilities		383,004			1,215,707
Current maturities of long-term debt		2,350,941			5,726,789
Current portion of capital lease obligations		342,192			386,404
Total current liabilities		20,018,028			27,471,297
Long-term debt, less current maturities		282,693,343			280,198,405
Capital lease obligations, less current portion		322,269			317,778
Deferred tax liabilities		27,294,034			38,680,999
Other long-term liabilities		—			230,000
Total liabilities		330,327,674			346,898,479
Commitments and contingencies (Note 15)
Stockholders’ Equity
Common Stock, $0.001 par value, 100 shares authorized, issued and outstanding		—			—
Additional paid-in capital (including warrants of $533,583 at March 29, 2009 and March 30, 2008)		194,579,776			194,579,776
Accumulated deficit		(151,931,512	)		(26,520,887	)
Accumulated other comprehensive loss, net of tax		(118,878	)		(12,519	)
Total stockholders’ equity		42,529,386			168,046,370
Total liabilities and stockholders’ equity	$	372,857,060		$	514,944,849

The accompanying notes are an integral part of these consolidated financial statements.

41

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal Year Ended March 29, 2009			Fiscal Year Ended March 30, 2008			Fiscal Year Ended March 25, 2007
Sales	$	181,215,667		$	223,726,501		$	203,739,159
Cost of sales (exclusive of production depreciation and software amortization  expense shown separately below)		127,960,915			150,200,115			134,749,349
Production depreciation and software amortization		5,176,506			5,085,063			9,544,023
Gross profit		48,078,246			68,441,323			59,445,787
Selling, general and administrative expenses		20,626,684			24,398,747			22,640,102
Nonproduction depreciation and software amortization		1,818,773			1,786,644			3,353,306
Amortization of intangibles		17,024,653			17,151,128			15,410,822
Impairment loss		119,522,033			—			—
Operating (loss) income		(110,913,897	)		25,104,804			18,041,557
Other income (expense)
Interest and dividend income		169,948			336,931			375,721
Interest expense		(29,162,084	)		(34,736,179	)		(29,123,819	)
Unrealized loss on derivatives		—			—			(6,483	)
Other income		77,045			69,855			55,206
Total other expense		(28,915,091	)		(34,329,393	)		(28,699,375	)
Loss from continuing operations before benefit from income taxes		(139,828,988	)		(9,224,589	)		(10,657,818	)
Income tax benefit		(14,418,363	)		(3,046,876	)		(4,830,920	)
Net loss from continuing operations		(125,410,625	)		(6,177,713	)		(5,826,898	)
Discontinued operations (Note 7)
Income from discontinued operations of $14,821, net of applicable income tax expense of $6,077		—			—			8,744
Loss on disposal of discontinued operations of $205,216 net of applicable income tax benefit of $84,139		—			—			(121,077	)
Net loss	$	(125,410,625	)	$	(6,177,713	)	$	(5,939,231	)

The accompanying notes are an integral part of these consolidated financial statements.

42

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common StockStockAmount				Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss)/Income			Total
Balance at March 26, 2006		100	$	—	$	194,475,028		$	(14,403,943	)	$	—		$	180,071,085
Capitalization from parent		—		—		147,374			—			—			147,374
Comprehensive loss:
Net loss		—		—		—			(5,939,231	)		—			(5,939,231	)
Foreign currency translations adjustments, net of tax		—		—		—			—			(76,203	)		(76,203	)
Comprehensive loss		—		—		—			—			—			(6,015,434	)
Balance at March 25, 2007		100	$	—	$	194,622,402		$	(20,343,174	)	$	(76,203	)	$	174,203,025
Repurchase of common stock		—		—		(42,626	)		—			—			(42,626	)
Comprehensive loss:		—		—		—			—			—			—
Net loss		—		—		—			(6,177,713	)		—			(6,177,713	)
Foreign currency translations adjustments, net of tax		—		—		—			—			63,684			63,684
Comprehensive loss		—		—		—			—			—			(6,114,029	)
Balance at March 30, 2008		100	$	—	$	194,579,776		$	(26,520,887	)	$	(12,519	)	$	168,046,370
Comprehensive loss:
Net loss		—		—		—			(125,410,625	)		—			(125,410,625	)
Foreign currency translations adjustments, net of tax		—		—		—			—			(106,359	)		(106,359	)
Comprehensive loss		—		—		—			—			—			(125,516,984	)
Balance at March 29, 2009		100	$	—	$	194,579,776		$	(151,931,512	)	$	(118,878	)	$	42,529,386

The accompanying notes are an integral part of these consolidated financial statements.

43

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended March 29, 2009			Fiscal Year Ended March 30, 2008			Fiscal Year Ended March 25, 2007
Cash flows from operating activities
Net loss	$	(125,410,625	)	$	(6,177,713	)	$	(5,939,231	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property, equipment and computer software		6,995,279			6,871,707			12,897,329
Impairment loss		119,522,033			—			—
Amortization of intangible assets		17,024,653			17,151,128			15,410,822
Amortization of deferred financing costs		1,466,739			5,367,177			2,053,950
Amortization of debt discount for pay-in-kind senior subordinated debt and senior notes		354,349			354,349			354,350
Interest expense for pay-in-kind senior subordinated debt		4,491,530			4,051,231			3,554,248
Unrealized loss on derivatives		—			—			6,483
Deferred income taxes		(11,909,777	)		(6,160,905	)		(9,782,023	)
Loss on sale of equipment		34,360			82,456			37,183
Loss on sale of discontinued operations		—			—			205,216
Changes in operating assets and liabilities, net of acquired businesses:
Accounts receivable		2,283,126			2,459,319			(4,906,575	)
Inventories		1,337,277			(970,691	)		298,117
Prepaid expenses and deferred charges		267,476			436,465			(1,113,050	)
Income tax receivable/payable		(2,351,002	)		(483,136	)		1,542,955
Other current assets and other assets		(124,445	)		(918	)		450,837
Accounts payable		(744,278	)		(2,781,931	)		2,672,610
Accrued compensation, benefits and related taxes		(873,953	)		(3,053,109	)		(520,823	)
Other current liabilities and other liabilities		(2,613,374	)		608,515			422,343
Net cash provided by operating activities		9,749,368			17,753,944			17,644,741
Cash flows from investing activities
Purchase of property, equipment and computer software		(6,035,346	)		(6,185,271	)		(7,144,016	)
Acquisitions of businesses, net of cash acquired		(1,727,283	)		(33,105,537	)		(23,253,264	)
Proceeds from sale of assets		44,000			19,372			100,000
Net cash used in investing activities		(7,718,629	)		(39,271,436	)		(30,297,280	)

The accompanying notes are an integral part of these consolidated financial statements.

44

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

	Fiscal Year Ended March 29, 2009			Fiscal Year Ended March 30, 2008			Fiscal Year Ended March 25, 2007
Cash flows from financing activities
Proceeds from  revolving facility		4,000,000			4,500,000			10,000,000
Payment on revolving facility		(4,000,000	)		(11,500,000	)		(3,000,000	)
Proceeds from term loan facilities		—			30,000,000			—
Payments on term loan facilities		(5,726,789	)		(3,055,688	)		(500,000	)
Repurchase of common stock		—			(42,626	)		—
Equity capitalization		—			—			147,374
Payments on capital leases		(435,047	)		(514,209	)		(685,556	)
Payments of debt issuance costs		—			(492,231	)		(389,531	)
Net cash (used in) provided by financing activities		(6,161,836	)		18,895,246			5,572,287
Net decrease in cash		(4,131,097	)		(2,622,246	)		(7,080,252	)
Cash at beginning of fiscal year		6,715,837			9,338,083			16,418,335
Cash at end of fiscal year	$	2,584,740		$	6,715,837		$	9,338,083
Supplemental disclosure
Cash paid during the fiscal year for:
Interest	$	22,914,826		$	24,828,860		$	23,344,945
Income taxes	$	361,693		$	3,713,887		$	3,330,086
Acquisition of businesses:
Fair value of assets acquired	$	—		$	33,135,103		$	23,289,358
Less liabilities assumed		—			317,156			36,094
Total purchase price		—			32,817,947			23,253,264
Deferred purchase price		1,727,283			287,590			—
Cash paid for acquisitions of businesses	$	1,727,283		$	33,105,537		$	23,253,264
Noncash investing and financing activities
Acquisition of assets through capital lease	$	395,328		$	469,328		$	256,557

The accompanying notes are an integral part of these consolidated financial statements.

45

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      Organization and Basis of Presentation

Network Communications, Inc. (“NCI”), and its wholly-owned subsidiaries, NCID, LLC and other entities and Network Publications Canada, Inc. (“NCI-Canada”) (collectively “the Company”), has its principal management, administrative and production facilities in Lawrenceville, GA. The Company is a publisher, producing The Real Estate Book (“TREB”), which is distributed in over 375 markets, the District of Columbia, Puerto Rico, Virgin Islands and Canada. It also produces the Apartment Finder, New Home Finder, Mature Living Choices, Unique Homes Magazine, Enclave Magazine, Black’s Guide, Kansas City Homes and Gardens, New England Home, Home by Design, regional Home and Lifestyle magazines, home improvement magazines and other publications. Revenue is generated from advertising displayed in these print publications and on-line versions of such publications. The combined online and print distribution provides a unique advantage in reaching real estate and home design consumers. Advertisers may also purchase enhanced print or online listings for an additional fee. Each market is operated either by an independent distributor assigned a particular market or by the Company. NCI is a wholly-owned subsidiary of Gallarus Media Holdings, Inc. (“GMH”) which is a wholly-owned subsidiary of GMH Holding Company (“GMHC”). GMH was incorporated on May 21, 2002 to acquire the outstanding stock of NCI and NCI-Canada. GMHC holds all the equity issued to the Company’s investors - CVC, certain members of management and other external investors. Citigroup Venture Capital Equity Partners, L.P. (“CVC”) is a private equity fund managed by Citigroup Venture Capital Ltd.  Effective September 2006, CVC spun off from its former owner, Citigroup.  The new entity has been renamed Court Square Capital Partners.

On January 7, 2005, the majority of GMHC stock was acquired by Court Square Capital Partners (“Court Square”).  Court Square has a history of acquisitions in the media and publishing segment. Court Square was attracted to the Company and entered into a transaction to acquire NCI based on its position in local real estate media, its historic and projected organic revenue growth, its cash flow characteristics, its senior management team, and its ability to serve as a platform to expand into the local media market categories other than real estate.  As a result of their acquisition of GMHC, NCI’s ultimate parent, Court Square and its affiliates, own approximately 89% of GMHC’s outstanding capital stock. By virtue of their stock ownership, Court Square has significant influence over the Company’s management and will be able to determine the outcome of all matters required to be submitted to the stockholders for approval.

46

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.      Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements represent the consolidated statements of the Company and its wholly owned subsidiaries. The Company and its consolidated entities report on a 52-53 week accounting year which includes 13 four-week periods. Financial quarters 1, 2 and 3 each include 12 weeks; financial quarter 4 includes 16 or 17 weeks as NCI’s fiscal year ends on the last Sunday of March of each year. The fourth quarter of fiscal year ended March 29, 2009 consists of sixteen weeks.  The consolidated financial statements include the financial statements of the Company for the fiscal year ended March 29, 2009, the fiscal year ended March 30, 2008, and the fiscal year ended March 25, 2007.  All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

For the purpose of the statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of March 29, 2009 or March 30, 2008.

Trade Accounts Receivable

Accounts receivable consists primarily of amounts due from advertisers in Company-operated markets and Independent Distributors (“ID”). The Company uses the allowance method of reserving for accounts receivable estimated to be uncollectible.

Concentrations of Credit Risk

The Company maintains substantially all cash and cash equivalent balances in one financial institution. The Federal Deposit Insurance Corporation insures the balances up to $250,000.  Management monitors the soundness of this financial institution and feels the Company’s risk is not significant.

The Company grants credit without collateral to many of its customers. Substantially all trade accounts receivable are comprised of accounts related to advertising displayed in various real estate publications, home and design magazines and online advertising sales. Management believes credit risk with respect to those receivables is limited due to the large number of customers and their dispersion across geographic areas, as well as the distribution of those receivables among the various publication products of the Company.

Prepaid Expenses and Deferred Charges

The Company prints certain advertising publications and displays certain online advertising prior to the recognition of revenue. See “Revenue Recognition” discussion below. Deferred charges include the production cost related to unearned and unrecognized revenue on online ads and advertising publications billed but not shipped.

Inventories

Inventories of direct production materials, principally paper and ink, as well as resale items are valued at the lower of cost or market, determined on the first-in, first-out (FIFO) basis. Items issued out of inventories are valued using the FIFO method.  The work-in-process inventory component includes material cost, direct labor costs and production overhead. An allowance for obsolete inventory was not deemed necessary at March 29, 2009 or March 30, 2008.

47

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, Equipment and Computer Software

In accordance with SFAS 141, Business Combinations, property, equipment and computer software was revalued to reflect the fair value acquired on the date of the most recent transaction, January 7, 2005. In valuing the assets acquired, the Company employed certain valuation techniques to develop the fair value of property, equipment and computer software in place at the date of the transaction. The valuation techniques included, but are not limited to: future expected cash flows; current replacement cost for the similar capacity equipment; and appropriate discount rates and growth rates.

The cost of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items are sold or retired, the related costs and any accumulated depreciation are removed from the accounts and any gain or loss is included in operations.

Depreciation and amortization of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:

Furniture and fixtures	5 years
Machinery and equipment	10 years
Transportation equipment	6 years
Computer software	2 years
Computer equipment	5 years

Leasehold improvements and leased assets are amortized over the shorter of their estimated useful lives or lease terms.

Depreciation and amortization expense associated with the fixed assets and software used to produce and deliver the Company’s advertising content has been included in the calculation of gross profit. All remaining depreciation and amortization of non-production equipment and software is included within selling, general and administrative expenses.

Software Development Costs

In accordance with AICPA Statement of Position (“SOP”) 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, the Company capitalizes qualifying costs of computer software. Costs incurred during the application development stage as well as upgrades and enhancements that result in additional functionality are capitalized. The internally developed software costs capitalized were $0.4 million and $0.5 million during the fiscal years ended March 29, 2009 and March 30, 2008, respectively. These capitalized software costs are included in “Property, equipment and computer software” in the consolidated balance sheets. Computer software is amortized utilizing the straight-line method over two years, the expected period of benefit. The net computer software costs capitalized were $0.8 million and $0.6 million at March 29, 2009 and March 30, 2008, respectively.

Deferred Financing Costs

Deferred financing costs are capitalized and amortized over the terms of the underlying obligation using the straight-line method, which approximates the effective interest method. Amortization of deferred financing costs included in interest expense was $1.5 million for the fiscal year ended March 29, 2009, $5.4 million for the fiscal year ended March 30, 2008, and $2.1 million for the fiscal year ended March 25, 2007.

In connection with the new credit facility entered into in the second quarter of fiscal year 2008, the Company recorded $0.5 million of deferred charges for transaction fees and other related debt issuance costs.  Additionally, approximately $3.7 million of deferred financing costs related to the extinguishment of the Company’s prior term loan facility was written off and charged to interest expense during the fiscal year ended March 30, 2008.

48

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible Assets

Intangible assets consist of the values assigned to a consumer database, Independent Distributor Agreements (“IDA”), advertiser lists, trade names, trademarks, and other intangible assets. The valuation and lives of the Company’s larger intangible assets (trademarks, trade names, independent distributors and advertiser lists) were determined by identifying the remaining useful life of the components of each asset combined with a reasonable attrition rate and a reasonable expectation for increase in revenue by each component. Certain markets experience a lower attrition rate. This has contributed to intangible lives in excess of 15 years. Amortization of definite-lived intangible assets is provided utilizing the straight-line method over the following estimated useful lives:

Advertiser lists	4-22  years
Consumer databases	4-17  years
Distribution network	5-10 years
Independent distributor agreements	15 years
Noncompete agreements	1-5 years
Trademarks/ Trade names	5-15 years
Subscriber lists	4-6 years

In addition, at March 29, 2009 and March 30, 2008, the Company has one trademark with an indefinite life.

Goodwill

The Company has recorded goodwill for the excess of cost of acquiring NCI and other businesses over the fair value amounts assigned to assets acquired and liabilities assumed. In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets, the Company tests goodwill for impairment at the end of the fiscal year, and will test for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at a reporting unit level. An impairment loss would generally be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined using the income approach. The Company has recognized an impairment of goodwill in the amount of $119.5 million in the fiscal year ended March 29, 2009. For further details, refer to Note 10.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. If the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets, an impairment has been incurred and a loss is recognized to reduce the carrying value of the long-lived assets to fair value, which is determined by discounting estimated future cash flows. The Company recognized an impairment loss in the fiscal year ended March 25, 2007 as discussed in Note 7.

As a result of continued declines in the Company’s consolidated operating income during fiscal year 2009, in addition to the current fair market value of the Company’s outstanding debt, the Company determined that it had a triggering event in the fourth quarter of fiscal year 2009 and performed, as of March 29, 2009, an assessment of its long-lived assets under SFAS 144. As a result, the Company concluded that its long-lived assets were not impaired as of March 29, 2009.

In addition to the recoverability assessment, the Company routinely reviews the remaining estimated lives of its long-lived assets. Any reduction in the useful life assumption will result in increased depreciation and amortization expense in the period when such determinations are made, as well as in subsequent periods.

49

NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income Taxes

Deferred taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

Advertising Costs

Advertising and marketing costs for the fiscal year ended March 29, 2009, the fiscal year ended March 30, 2008 and for the year ended March 25, 2007 were $1.7 million, $1.7 million, and $1.5 million, respectively.

Advertising Barter Transactions

The Company trades advertisements in its print magazines in exchange for rent, trade show advertising and other services. Revenue and related expenses from barter transactions are recorded at fair value in accordance with APB No. 29, “Accounting for Nonmonetary Transactions”, EITF No. 93-11, “Accounting for Barter Transactions Involving Barter Credits”, EITF No. 99-17, “Accounting for Advertising Barter Transactions”, and EITF 01-2, “Interpretations of APB No. 29”. Revenue from barter transactions is recognized in accordance with the Company’s revenue recognition policies. Expense from barter transactions is recognized as incurred. Revenue from barter transactions for the fiscal year ended March 29, 2009, the fiscal year ended March 30, 2008, and the fiscal year ended March 25, 2007 was approximately $1.9 million, $1.8 million, and $1.5 million, respectively, with equal related expense amounts in each year.

Foreign Currency Adjustments

The U.S. dollar is the functional currency of the Company’s operations. All foreign currency asset and liability amounts are remeasured into U.S. dollars at the end of each period. The Company translates the revenues and expenses of the foreign operations at a daily average rate prevailing for each month during the fiscal year.  The Company reflects the resulting translations adjustments in shareholders equity.  Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in operations in the period in which they occur. Aggregate foreign remeasurement adjustments included in operations totaled a gain of $0.01 million, $0.1 million, and $0.04 million, for the fiscal year ended March 29, 2009, the fiscal year ended March 30, 2008, and the fiscal year ended March 25, 2007, respectively.

Revenue Recognition and Unearned Revenue

Revenue recognition

The principal revenue earning activity of the Company is related to the sale of online and print advertising by both Independent Distributors (“ID”) as well as direct sales to customers through Company-managed distribution territories. Independent Distributors are contracted to manage certain distribution territories on behalf of NCI. The Company maintains ownership of all magazines and distribution territories. Revenue recognition for print and online products are consistently applied within Company-managed and ID-managed distribution territories as described below. These revenue arrangements are typically sold as a bundled product to customers and include a print ad in a publication as well as online advertisement. The Company bills the customer a single negotiated price for both elements. In accordance with EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, the Company separates its deliverables into units of accounting and allocates consideration to each unit based on relative fair values. The Company recognizes revenue for each unit of accounting in accordance with SEC Staff Accounting Bulletin Number 104, Revenue Recognition. Paid subscriptions are recorded as unearned revenue when received and recognized as revenue over the term of the subscription.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Print

Print revenues are derived from the sale of advertising pages in NCI’s publications. The Company sells a bundled product to its customers that includes a print advertisement as well as a standard online advertisement. The customer can also purchase premium placement advertising pages such as front cover and back cover. Revenue for print advertisement sales, including the premium placement advertising pages, is recognized when publications are delivered and available for consumer access.

Online

Online revenues are derived from the sale of advertising on NCI’s various websites. The Company sells a bundled product to its customers that includes a print ad in its publications as well as a standard online advertisement. The customer is also permitted to purchase premium internet advertisements whereby they can include additional data items such as floor plans, multiple photos and neighborhood information, and also secure premium placement in search results. Revenue for online sales, including the premium internet advertisements, is recognized ratably over the period the online advertisements are maintained on the website.

Unearned revenue

The Company has historically billed its customers a few days before shipment. The Company has been recording its pre-billed amounts in unearned revenue to account for the timing differences and recognize revenue in the proper period. During the fourth quarter of fiscal year 2009, the Company has evaluated its accounting related to pre-billings and concluded that the appropriate accounting treatment would be to not record these amounts as accounts receivable and unearned revenue.  The prior period accounting treatment resulted in an overstatement of accounts receivable and unearned revenue in the consolidated balance sheets of previously reported financial statements. The Company has performed an analysis and concluded that the error has no impact on its consolidated statements of operations, cash flows or stockholders’ equity in any of the periods presented in the Company’s annual or quarterly reports filed with the SEC. The Company has concluded that this error is not material. The Company has revised the pre-billed amounts for the fiscal year ended March 30, 2008 as follows:

(Dollars in thousands)	Accounts Receivable, net of allowance for bad debt March 30, 2008		Unearned revenue March 30, 2008		Total assets March 30, 2008
Previously reported	$	21,361	$	9,664	$	521,914
Adjustments		6,969		6,969		6,969
As adjusted	$	14,392	$	2,695	$	514,945

Although the Company does not believe the error in fiscal year 2008 is material to its balance sheet, it has decided to revise the fiscal year 2008 presentation to conform to fiscal year 2009.

The Company receives cash deposits from customers for certain publications prior to printing and upload of online advertising. These deposits are recorded as unearned revenue.

Prepaid subscriptions are recorded as unearned revenue when received and recognized as revenue over the term of the subscription.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative Instruments

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. This statement requires the recognition of all derivative instruments as either assets or liabilities in the balance sheet measured at fair value. The changes in fair value of derivative instruments will be recognized as gains or losses in the period of change. The Company did not elect to use hedge accounting for the derivative instruments entered into during fiscal years 2009, 2008 and 2007. Accordingly, the Company recognizes the change in fair value of the instruments in the statements of operations.

Fair Value of Financial Instruments

The fair values of the Company’s financial assets and liabilities at March 29, 2009 and March 30, 2008, equal the carrying values reported on the Consolidated Balance Sheets except for the New Senior Term loan facility, the10 ¾% Senior Notes and the Senior Subordinated Note. The fair values of the New Senior Term and Senior Notes are based on quoted market prices. The fair value of the New Senior Term loan was $42.4 million and $65.7 million as compared to the carrying amounts of $70.7 million and $76.4 million as of March 29, 2009 and March 30, 2008, respectively. The fair value of the Senior Notes was $24.7 million and $130.4 million as compared to the carrying amounts of $175.0 million and $175.0 million as of March 29, 2009 and March 30, 2008, respectively.  The Senior Subordinated Note does not trade in a market so the fair value is based on appropriate valuation methodologies including option model and liquidation analyses.  The fair value of the Senior Subordinated Note was $6.0 million and $28.0 million as compared to the carrying amounts of $40.9 million and $36.4 million as of March 29, 2009 and March 30, 2008, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting year and period. Actual results could differ from those estimates.

Segment Reporting

NCI is a publishing company producing publications serving the real estate and housing market. The Company follows the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and has one reportable business segment: publishing. The publishing segment consists of online and print advertising. Virtually all of the Company’s revenues and assets are based in the United States. The Chief Executive Officer (the chief operating decision maker) evaluates the performance of, and determines the amount of investment in the Company based on the results of operations on a consolidated basis.

Recent Accounting Pronouncements

In May 2009, The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 165, Subsequent Events (“SFAS 165”). This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This Statement is effective for interim and annual periods ending after June 15, 2009 and as such, the Company will adopt this standard in the first quarter of fiscal year 2010. The Company is currently assessing the impact of the adoption of SFAS 165, if any, on its financial position, results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for non-governmental entities. SFAS 162 is effective for interim and annual periods ending after September 15, 2009 and as such the Company will adopt this standard in the third quarter of fiscal year 2010. The Company is currently assessing the impact of the adoption of SFAS 162 on its financial position, results of operations, or cash flows.

In April 2008, the FASB issued FASB staff position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and as such, the Company will adopt FSP FAS 142-3 in the first quarter of fiscal year 2010. Early adoption is prohibited. The Company is currently evaluating the impact, if any, that FSP FAS 142-3 will have on its financial position, results of operations, or cashflows.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities", which amends the disclosure requirements of SFAS 133. SFAS 161 provides an enhanced understanding about how and why derivative instruments are used, how they are accounted for and their effect on an entity’s financial condition, performance and cash flows. SFAS 161, which is effective for the first interim period beginning after November 15, 2008, will require additional disclosure in future filings. The Company adopted this standard in the fourth quarter of fiscal year 2009 and the adoption did not have any material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 (“FAS 160”). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 is effective for fiscal years beginning on or after December 15, 2008 and as such the Company will adopt this standard in the first quarter of fiscal year 2010. Based on its current operations, the Company does not believe that FAS 160 will have a significant impact on its financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in the first quarter of fiscal year 2010. The provisions are effective for the Company for business combinations on or after March 30, 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without being required to apply complex hedge accounting provisions. The provisions of SFAS No. 159 are effective as of the beginning of fiscal years that start after November 15, 2007 (for the Company, March 31, 2008). The Company adopted SFAS No. 159 on March 31, 2008 and the adoption did not have any material impact on its financial position, results of operations or cash flows.

Effective March 26, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”). FIN 48 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlements. Upon adoption, the Company did not have any material uncertain tax positions to account for as an adjustment to its opening balance of retained earnings on March 26, 2007. In addition, as of March 29, 2009, the Company did not have any material unrecognized tax benefits.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements.

SFAS 157, among other things, requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the company’s market assumptions. The effective date was for fiscal years beginning after November 15, 2007.

SFAS No. 157 establishes a three-tiered hierarchy to prioritize inputs used to measure fair value. Those tiers are defined as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

- Level 3 inputs are unobservable inputs for the asset or liability.

The highest priority in measuring assets and liabilities at fair value is placed on the use of Level 1 inputs, while the lowest priority is placed on the use of Level 3 inputs.

This statement also expands the related disclosure requirements in an effort to provide greater transparency around fair value measures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In February 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

As of March 31, 2008, the Company adopted SFAS No. 157, and the adoption did not have a material impact on its financial condition, results of operations, or cash flows. The Company is still evaluating the impact of the items deferred by FSP FAS 157-2.

3.      Liquidity and capital resources

At March 29, 2009, the Company had cash of $2.6 million and a $35.0 million new revolving credit facility that was undrawn as further detailed in Note 13 – Long-Term Debt.  The Company executed an amendment to its new revolving loan facility effective May 4, 2009 that reduced the revolving loan facility commitment to $15.0 million as further explained in Note 20 – Subsequent Events.

The Company believes that based on its financial projections its liquidity, capital resources and cash flow from operations are sufficient to fund capital expenditures, working capital requirements, interest and principal payments on its debt and other anticipated expenditures in fiscal year 2010 and for the foreseeable future.

4.           Prepaid expenses and deferred charges

At March 29, 2009 and March 30, 2008 prepaid expenses and deferred charges consist of the following:

	March 29, 2009		March 30, 2008
Prepaid expenses	$	1,153,974	$	1,552,962
Deferred charges		2,178,165		2,046,653
	$	3,332,139	$	3,599,615

5.      Inventories

At March 29, 2009 and March 30, 2008 inventories consist of the following:

	March 29, 2009		March 30, 2008
Distribution products and marketing aids for resale	$	274,683	$	477,763
Production, paper and ink		2,057,004		2,527,987
Work-in-process		518,230		1,181,445
	$	2,849,917	$	4,187,195

An allowance for obsolete inventory was not deemed necessary at March 29, 2009 or March 30, 2008.

6.      Acquisitions

During fiscal years 2007, 2008 and 2009, the Company completed certain acquisitions as part of its overall strategy to expand its product offerings and geographical presence. NCI generally pays a premium over the fair value of the net tangible and identified intangible assets acquired to carry out the Company’s strategic initiatives and to ensure strategic fit with its current publications. The majority of NCI’s transactions are asset based in which the Company acquires the publishing assets associated with magazines that fit its predetermined criteria as a tuck under acquisition, an expansion of its geographical footprint or addition to market share in certain areas. The Company evaluates each magazine on an individual basis for fit with its organization based on its historical performance along with NCI’s expectations for growth. The strength of each criteria and the expected return on the Company’s investment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

are evaluated in developing the purchase price. Acquisitions in the media and publishing sector typically generate a significant amount of goodwill. The purchase price allocation is aggregated below for small business combinations in accordance with SFAS 141, in chronological order for fiscal years 2007 and 2008.  Acquisitions completed in fiscal year 2009 were insignificant individually and in the aggregate.  In fiscal year 2009, the Company paid $1.6 million for earn outs and other costs related to acquisitions completed in fiscal year 2008.

Allocation of purchase price

The application of purchase accounting under SFAS 141 requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date. The allocation process requires an analysis of acquired contracts, customer relationships, contractual commitments and legal contingencies to identify and record the fair value of all assets acquired and liabilities assumed. In valuing acquired assets and assumed liabilities, fair values are based on, but are not limited to: future expected cash flows; current replacement cost for similar capacity for certain fixed assets; market rate assumptions for contractual obligations; settlement plans for litigation and contingencies; and appropriate discount rates and growth rates.

Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses.  Goodwill resulting from the acquisitions discussed below was assigned to the Company’s one business segment. Amortization of goodwill and intangible assets acquired in conjunction with certain publication acquisitions are tax deductible. Goodwill is not amortizable for book purposes.  The deferred tax liabilities related to finite-lived intangible assets will be reflected as a tax benefit in the consolidated statements of operations in proportion to and over the amortization period of the related intangible assets.

During fiscal year 2007, the Company completed the following acquisitions:

On April 18, 2006, the Company acquired the publishing assets of Kansas City New Homes Journal from Communix Publishing.  The magazine is a new home publication.

On May 4, 2006, the Company acquired the publishing assets of The Apartment Community Guide from H&W Publishing, Inc.  The magazine is an apartment directory that serves the southeastern coast of Florida.

On June 6, 2006, the Company acquired the publishing assets of Pittsburgh Apartment Source from Fairfax Publishing, Inc.  The magazine is an apartment directory that serves the Pittsburgh area.

On June 26, 2006, the Company acquired the publishing assets of Dallas Home Improvement magazine from Design Guide Publishing, Ltd.  The magazine provides editorial and advertising focused on the home design, home renovation and home improvement sectors in the greater Dallas market.

On June 29, 2006, the Company acquired the publishing assets of Accent Home and Garden, a home and design magazine for New Hampshire.

On September 29, 2006, the Company acquired the publishing assets of The Original Apartment Magazine.  The four magazines are apartment directory publications that expand the NCI multi-family presence into the southern California market.

On January 17, 2007, the Company acquired the publishing assets of Tucson Apartment Showcase, a leading multifamily publication serving the Tucson, AZ area.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate purchase price for these acquisitions including transaction costs and earnouts was $23.3 million. The acquisitions were accounted for using the purchase method and, accordingly, the purchase price was allocated to the assets based on their estimated fair values on the date of acquisition. The aggregate purchase price for these acquisitions was allocated as follows:

(Dollars in thousands)	Fair Value at			Weighted-Average
	Purchase			Amortization
	Price			Period
Tangible assets
Current assets	$	52
Fixed assets		586
Total tangible assets		638
Liabilities assumed		(36	)
Intangible assets
Advertiser list		9,108		11 years
Distribution network		1,252		7 years
Subscriber list		8		4 years
Trademarks		2,756		12 years
Non-compete		1,170		5 years
Other intangibles		80		5 years
Goodwill		8,277
Total intangible assets		22,651
Total purchase price	$	23,253

During fiscal year 2008, the Company completed the following acquisitions:

On March 28, 2007, the Company acquired the New England Home magazine. The acquisition expands the Company’s Home and Design presence in the New England states.

On April 4, 2007, the Company acquired the Relocating in St. Louis magazine. The quarterly publication focuses on home and community products and services for the St. Louis area.

On May 10, 2007, the Company acquired The Greater Jacksonville Apartment Guide, an apartment directory serving communities in and around the Jacksonville, Florida area.

On July 31, 2007, the Company acquired the publishing assets of By Design Publishing, a provider of personal marketing products for real estate agents. The product lines acquired allow NCI to provide a broader menu of options for its real estate advertisers.

On August 30, 2007, the Company acquired the publishing assets of DGP Apartment Publications of Louisiana. The acquisition expands the Company’s multi-housing footprint into the state of Louisiana.

On November 28, 2007, the Company acquired the publishing assets of Apartment Rental Source magazine, a leading monthly apartment rental publication covering the greater Boston area. The acquisition expands the Company’s presence into the Southern New England region.

On December 5, 2007, the Company acquired the publishing assets of the Fredericksburg Apartment Finder’s Guide. The acquisition expands the Company’s presence into the state of Virginia.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate purchase price for these acquisitions including transaction costs and earnouts was $34.4 million. The acquisitions were accounted for using the purchase method and, accordingly, the purchase price was allocated to the assets based on their estimated fair values on the date of acquisition. The aggregate purchase price for these acquisitions was allocated as follows:

(Dollars in thousands)	Fair Value at			Weighted-Average
	Purchase			Amortization
	Price			Period
Tangible assets
Current assets	$	266
Fixed assets		570
Total tangible assets		836
Liabilities assumed		(77	)
Intangible assets
Advertiser list		11,554		9 years
Distribution network		303		10 years
Subscriber list		4		4 years
Amortizable trademarks		1,223		5 years
Unamortizable trademarks		1,900			—
Non-compete		2,686		5 years
Goodwill		14,389
Total intangible assets		32,059
Total assets		32,818
Deferred purchase price (1)		1,560
Total purchase price	$	34,378

(1) Paid in fiscal year 2009

Unaudited pro forma results of operations data for the fiscal years ended March 30, 2008 and March 25, 2007 as if NCI and the entities described above had been combined as of March 26, 2007 and March 27, 2006, follow. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may result in the future.

	Unaudited Pro Forma Results of Operations
(Dollars in thousands)	Fiscal Year Ended March 30, 2008			Fiscal Year Ended March 25, 2007
Sales	$	228,097		$	226,359
Loss from continuing operations before benefit from income taxes		(8,911	)		(10,524	)
Net loss	$	(5,976	)	$	(5,741	)

Other than the impairment incurred during fiscal year 2009, the Company is satisfied that no material changes in value had occurred in these acquisitions or other acquisitions since the acquisitions dates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.      Discontinued Operations

On July 28, 2006, the Company entered into an asset purchase agreement to sell its Corporate Choices magazine for $0.1 million.  The sale was consistent with the Company’s initiative to sustain business lines that fit the Company’s long-term strategic goals.   In accordance with the provisions of SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets, the results of operations of the Corporate Choices magazine for the fiscal year ended March 25, 2007 have been reported as discontinued operations in the accompanying consolidated statements of operations.  The net carrying value of assets, primarily accounts receivable and intangible assets, were adjusted to estimated selling price less costs to sell which resulted in a $0.21 million write down, net of income tax benefit of $0.08 million, included in the loss on sale from discontinued operations.

8.      Comprehensive loss

Comprehensive loss includes reported net loss, and foreign currency translation adjustments, net of tax. The following table shows NCI’s comprehensive loss for the fiscal year ended March 29, 2009 and March 30, 2008:

	Fiscal Year Ended
(Dollars in thousands)	March 29, 2009			March 30, 2008			March 25, 2007
Net loss	$	(125,411	)	$	(6,177	)	$	(5,939	)
Foreign currency translation adjustments, net of tax		(106	)		63			(76	)
Comprehensive loss	$	(125,517	)	$	(6,114	)	$	(6,015	)

Additional other comprehensive loss consists of foreign currency translation adjustments.  As of March 29, 2009 and March 30, 2008, accumulated other comprehensive loss was $0.1 million and $0.0 million, respectively.

9.      Property, Equipment and Computer Software

Property, equipment and computer software consist of the following:

	March 29, 2009			March 30, 2008
Owned
Leasehold improvements	$	3,053,294		$	3,022,360
Furniture and fixtures		2,994,769			2,974,536
Machinery and equipment		20,049,030			19,563,806
Transportation equipment		92,140			108,982
Computer equipment and software		36,995,728			31,613,519
Total owned property, equipment and computer software		63,184,961			57,283,203
Accumulated depreciation and amortization		(40,162,167	)		(33,636,451	)
Owned property, equipment and computer software, net	$	23,022,794		$	23,646,752
Capital Lease
Transportation equipment	$	556,167		$	556,167
Computer equipment		2,505,376			2,110,049
Machinery		72,689			72,689
Total capital leases		3,134,232			2,738,905
Accumulated depreciation and amortization		(2,498,545	)		(2,068,243	)
Capital leases, net	$	635,687		$	670,662

Total
Leasehold improvements	$	3,053,294		$	3,022,360
Furniture and fixtures		2,994,769			2,974,536
Machinery and equipment		20,121,719			19,636,495
Transportation equipment		648,307			665,149
Computer equipment and software		39,501,104			33,723,568
Total property, equipment and computer software		66,319,193			60,022,108
Accumulated depreciation and amortization		(42,660,712	)		(35,704,694	)
Property, equipment and computer software, net	$	23,658,481		$	24,317,414

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Depreciation and amortization expense for property, equipment and computer software totaled $7.0 million for the fiscal year ended March 29, 2009, $6.9 million for the fiscal year ended March 30, 2008 and $12.9 million for the fiscal year ended March 25, 2007.  Such amounts included $3.2 million, $3.2 million and $9.7 million related to the depreciation of computer equipment and software for the fiscal year ended March 29, 2009, the fiscal year ended March 30, 2008, and the fiscal year ended March 25, 2007, respectively. Amortization related to assets under capital leases was approximately $0.4 million for the fiscal year ended March 29, 2009, $0.6 million for the fiscal year ended March 30, 2008, and $0.8 million for the fiscal year ended March 25, 2007.

10.           Goodwill

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and other Intangible Assets” (“SFAS No. 142”), goodwill and other intangible assets with indefinite lives are no longer amortized. Instead, a review for impairment is performed at least annually or more frequently if events and circumstances indicate impairment might have occurred. Intangible assets with indefinite lives are tested by comparing the fair value of the asset to its carrying value. If the carrying value of the asset exceeds its fair value, impairment is recognized. Goodwill is tested at the reporting unit level using a two-step process. The first step is a screen for potential impairment. In this process, the fair value of a reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is considered not impaired and no further testing is required.  If the carrying value of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, the second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill and determine the amount of the impairment of goodwill.  Determining the implied fair value of goodwill requires valuation of a reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SFAS 142 requires that the impairment review of goodwill and other intangible assets not subject to amortization be based on estimated fair values. The Company utilizes the discounted cash flow approach to estimate the fair value of its reporting units and its indefinite-lived intangible assets. The discounted cash flow approach requires assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates.

As a result of continued declines in the Company’s consolidated operating income during fiscal year 2009 and the current fair market value of its outstanding debt, the Company determined that a triggering event under SFAS 142 had occurred as of December 7, 2008. The Company performed an assessment of goodwill for impairment as of December 7, 2008 on all of its reporting units using the discounted cash flow approach. The Company’s reporting units are the Resale and New Sales unit, the Rental and Leasing unit and the Remodeling and Home Improvement unit. The discount rate was adjusted from 11.7% in the analysis performed in the prior fiscal year to 13% in the current analysis. The assumptions were based on the current economic environment and credit market conditions. Based on the results of the SFAS 142 assessment, it was determined that there was an indication of impairment in the Resale and New Sales unit and the Remodeling and Home Improvement unit. As of December 7, 2008, the carrying amounts of goodwill associated with the Resale and New Sales unit, the Rental and Leasing unit and the Remodeling and Home Improvement unit were $194.6 million, $94.5 million and $18.7 million, respectively. In accordance with paragraph 22 of SFAS 142, the Company recorded an estimated noncash impairment charge based on a preliminary assessment in the amount of $85.4 million, determined using a discount rate of 12.5% which was later revised to 13%, in its statements of operations for the three periods and nine periods ended December 7, 2008. The step two analysis was completed and resulted in an additional noncash impairment charge of $6.6 million that was recorded in the fourth quarter of fiscal year 2009.

During the fourth quarter of fiscal year 2009, the Company completed its annual impairment analysis.  Due to continued economic declines, the impairment analysis resulted in an additional impairment charge of $27.5 million in the fourth quarter of fiscal year 2009.  The amounts of the recorded impairment charges during fiscal year 2009 for the Resale and New Sales unit and the Remodeling and Home Improvement unit were $109.2 million and $10.3 million, respectively. The impairment loss relates primarily to the deteriorating global economic conditions and the downturn in the resale and new home markets. A change in the economic conditions or other circumstances influencing the estimate of future cash flows or fair value could result in future impairment charges of goodwill or intangible assets with indefinite lives.  Based on the Company’s assessment, there was no indication of impairment in the Rental and Leasing reporting unit.  In addition, the Company assessed its indefinite-lived intangible assets and determined there was no indication of impairment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The total amount of goodwill on the Company’s books at March 29, 2009 and March 30, 2008 was $188.5 million and $306.5 million, respectively.

Balance, March 25, 2007	$	291,723,947
Fiscal year 2008 additions		14,795,044
Balance, March 30, 2008		306,518,991
Fiscal year 2009 additions		1,534,555
Impairment loss		(119,522,033	)
Balance, March 29, 2009	$	188,531,513

11.           Intangible Assets

Intangible assets consist of the following:

	March 29, 2009			March 30, 2008
Carrying Amount
Independent distributor agreements	$	68,000,000		$	68,000,000
Advertiser lists		43,731,010			43,642,610
Distribution network		7,008,014			6,980,676
Amortizable trademarks/trade names		50,657,523			50,657,523
Unamortizable trademarks/trade names		1,900,000			1,900,000
Consumer databases		13,715,000			13,715,000
Noncompete agreements		11,019,676			11,019,676
Subscriber lists		295,131			295,131
Other intangible assets		79,675			79,675
Total intangible assets	$	196,406,029		$	196,290,291
Accumulated Amortization
Independent distributor agreements	$	(19,266,398	)	$	(14,733,178	)
Advertiser lists		(15,373,182	)		(10,379,337	)
Distribution network		(2,898,303	)		(2,108,582	)
Amortizable trademarks/trade names		(14,744,496	)		(10,987,759	)
Consumer databases		(6,977,594	)		(5,555,471	)
Noncompete agreements		(8,394,223	)		(6,932,847	)
Subscriber lists		(196,109	)		(144,413	)
Other intangible assets		(43,164	)		(27,230	)
Total accumulated amortization		(67,893,469	)		(50,868,817	)
Intangible assets, net	$	128,512,560		$	145,421,474

Amortization expense was $17.0 million for the year ended March 29, 2009, $17.2 million for the year ended March 30, 2008, and $15.4 million for the year ended March 25, 2007.  Based on the current amount of intangible assets subject to amortization, the average estimated amortization expense is expected to be approximately $13.5 million for each of the fiscal years 2010 through 2014. As acquisitions and dispositions occur in the future, these amounts may vary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.           Accrued Compensation, Benefits and Related Taxes

Accrued expenses related to compensation, benefits and related taxes consist of the following:

	March 29, 2009		March 30, 2008
Accrued salaries	$	919,656	$	1,208,168
Accrued commissions/bonuses		447,443		603,528
Other		136,580		565,936
Total	$	1,503,679	$	2,377,632

13.           Long-term Debt

Long-term debt consists of the following:

	March 29, 2009			March 30, 2008
103/4 % Senior Notes, due December 1, 2013	$	175,000,000		$	175,000,000
Term loan facility					—
New Senior Term loan facility		70,717,523			76,444,312
Senior Subordinated Note		40,937,992			36,446,462
Total long-term debt		286,655,515			287,890,774
Less:
Unamortized discount on noncurrent Senior Notes and Senior Subordinated Note		(1,611,231	)		(1,965,580	)
Current maturities		(2,350,941	)		(5,726,789	)
Long-term debt, less current maturities	$	282,693,343		$	280,198,405

Senior Subordinated Debt

On January 7, 2005, GMH, as borrower, entered into a senior subordinated credit agreement (Parent Mezzanine Debt). The agreement provides GMH a loan of $25.0 million. The full amount of the loan was drawn on January 7, 2005 and recorded as a liability on the balance sheet as of March 27, 2005.

The loan bears interest on the unpaid principal balance amount thereof from the date made through maturity at a rate equal to 12% per annum. Interest is payable on June 30 and December 31. The interest is pay-in-kind, thus the unpaid accrued interest is added to the outstanding balance of the loan.

The maturity date for the Parent Mezzanine Debt is June 30, 2013. The principal of the loan and any accrued unpaid interest is due at maturity. There is no amortization of principal during the term of the loan. The principal can be paid in advance of the maturity date, however, there is a call premium ranging from 1% to 3% depending on when the prepayment is made.

During fiscal year 2009, $4.5 million had been added to principal for interest on the Parent Mezzanine Debt. As of March 29, 2009 the total principal added to the Parent Mezzanine Debt was $15.9 million on a cumulative basis.

In conjunction with the senior subordinated credit agreement for the Parent Mezzanine Debt, GMHC entered into a warrant agreement. The warrant agreement gives the lender of the Parent Mezzanine Debt the right to purchase 585,926.7 Class A common shares authorized by GMHC. The purchase rights represented by the warrant are exercisable through January 7, 2015. The warrant agreement contains certain provisions requiring an adjustment of exercise price and number of shares based on the occurrence of specific events (all as are defined in the warrant agreement and stock purchase warrant).

In accordance with Accounting Principles Board Opinion No. 14 (“APB 14”), Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, a valuation analysis was performed by management to determine the debt proceeds allocated to the warrants issued in connection with the senior subordinated debt. The valuation was based on market and financial data from comparable companies that were publicly traded. Revenue, EBITDA and total assets were compared to arrive at a base and a reasonable multiple for each measure. A liquidity discount was applied to arrive at NCI’s business enterprise valuation and subsequently, a fair market value for the total equity. The per share warrant value was indicated at $0.91 per share resulting in a total valuation of $0.53 million. The Company allocated $0.53 million to the warrants based on their relative fair value and recorded this amount as a debt discount and additional paid-in capital. The debt discount was amortized over the eight year life of the related debt.  The unamortized discount was $0.25 million at March 29, 2009.

The senior subordinated debt agreement contains restrictive provisions which include, but are not limited to, requiring the Company to maintain certain financial ratios and limits upon the Company’s ability to incur additional indebtedness, make certain acquisitions or investments, sell assets or make other restricted payments, including dividends. The Company is also required to calculate quarterly covenants for debt leverage ratios and interest coverage ratio.

The loan agreement allows the lender to accelerate repayment of the principal in the case of specific events of default outlined in the senior subordinated credit agreement. Management believes the Company currently has no risk with regards to events of default.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Refinancing

On November 30, 2005, the Company refinanced its existing capital structure. The objective of the refinancing was to provide the Company with a long-term capital structure that is consistent with its strategy and preserve acquisition flexibility. The refinancing was completed through an offering of $175 million of Senior Notes and a senior secured credit facility comprised of a $50.0 million senior credit term loan facility, a revolving credit facility with an availability of $35.0 million and (the “prior senior facility”) an additional $75.0 million in uncommitted incremental term loans. The transactions described in this paragraph are collectively referred to herein as the “Prior Refinancing”. The proceeds of the Prior Refinancing were used to repay the outstanding balances under the Term A, Term B, Term C and $30.0 million of the senior subordinated debt resulting in no extinguishment gain or loss.

103/4% Senior Notes

In November 2005, the Company completed the sale of $175.0 million of Senior Notes under Rule 144A of the Securities Act of 1933. The Senior Notes are unsecured senior obligations and rank equally with all other senior, unsecured and unsubordinated indebtedness. Interest on the Senior Notes is payable in arrears semi-annually on June 1 and December 1, commencing on June 1, 2006. The Senior Notes mature on December 1, 2013. The interest rate on the Senior Notes is 103/4 %.

The Senior Notes are governed by an indenture with Wells Fargo Bank, N.A., which acts as trustee. The indenture provides that the Company will not subject its property or assets to any mortgage or other encumbrance unless the Senior Notes are secured equally and ratably with other indebtedness that is secured by that property or assets. There is no sinking fund or mandatory redemption applicable to the Senior Notes. The Senior Notes are redeemable, in whole or in part, at any time prior to December 1, 2009 at a price equal to their principal amount plus any accrued interest and any “make-whole” premium, which is designed to compensate the investors for early payment of their investment. The premium is the greater of (i) 1.00% of the principal amount of such Note and (ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such Note on December 1, 2009 plus (2) all required remaining scheduled interest payments due on such Note through December 1, 2009 (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate, over (B) the principal amount of such note on such redemption date. The redemption prices expressed as a percentage of the principal amount, plus accrued and unpaid interest to the redemption date for the 12-month period commencing on December 1 follow:

	Optional
	Redemption
Period	Percentage
2009		105.375	%
2010		102.688	%
2011 and thereafter		100.000	%

The Senior Notes indenture contains a provision which allows the trustee or holders of at least 25% in principal of the Senior Notes to accelerate the Senior Notes upon a cross payment default (for payments at final maturity of the other indebtedness) or cross acceleration, in each case to other indebtedness in excess of $7.5 million.

The Senior Notes were issued at a discount of $2.29 million, which is being amortized as interest expense over the life of the Senior Notes. The unamortized discount was $1.4 million at March 29, 2009.

The Company was obligated to file an Exchange Offer Registration Statement with the SEC by July 28, 2006 and to use commercially reasonable efforts to cause the Exchange Offer Registration Statement to become effective by October 26, 2006. The Company filed its initial registration statement with the SEC on June 2, 2006 and was declared effective on August 4, 2006.

Senior Credit Facility

In conjunction with the Prior Refinancing, the Company entered into a term loan credit agreement with certain lenders for an aggregate principal amount of $50 million. The proceeds of the loan were used to repay all amounts outstanding under the prior credit agreement, amounts outstanding in respect of the senior subordinated notes (including accrued interest and applicable prepayment penalties) and to pay fees and expenses incurred in connection with the Refinancing.

On July 20, 2007, the Company refinanced the prior senior facility and entered into a new senior secured term loan facility (the “new term loan facility”) for an aggregate principal amount of $76.6 million and a new senior secured revolving loan facility (the “new revolving loan facility”) for an amount up to $35.0 million (the new term loan facility together with the new revolving loan facility, the “new credit facility”).  The proceeds of the new credit facility were used to repay all amounts outstanding under the prior senior facility (dated as of November 30, 2005) and fund acquisitions during the Company’s second quarter of fiscal year 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under the new credit facility, the Company, at its option, can borrow funds at an interest rate equal to the London Interbank Offered Rate (“LIBOR”) plus a margin or at the lender’s base rate (which approximates the Prime rate) plus a margin. Interest rates under the term facility are base rate plus a margin of 1.00% or LIBOR plus a margin of 2.00%. Interest rates under the revolving facility are base rate plus a margin ranging from 1.50% to 0.75% or LIBOR plus a margin ranging from 2.50% to 1.75%. The applicable margin payable by the Company on the revolving facility is determined by the Company’s senior secured leverage ratio, which is calculated quarterly.

The Company had $70.7 million outstanding under the new term loan facility with no availability to borrow at March 29, 2009. Also, as of the fiscal year end, the Company had no balance outstanding with $35.0 million available to borrow under the new revolving loan facility.  The effective interest rate on the balances outstanding under the new term loan was 3.9% at March 29, 2009.

The final repayment of any outstanding amounts under the new revolving loan facility is due November 30, 2010. The new term loan facility commences amortization in quarterly installments of $0.192 million beginning December 31, 2007 through November 30, 2012.

Under the new credit facility, the Company may obtain additional funding through Incremental Loan Commitments in an amount not to exceed $75.0 million. As of March 29, 2009, there were no borrowings against the Incremental Loan Facility.

The new credit facility is collateralized by substantially all of the assets of NCI and its subsidiaries. In addition, NCI’s subsidiaries are joint and several guarantors of the obligations. The loan agreement contains certain restrictive provisions which include, but are not limited to, requiring the Company to maintain certain financial ratios and limits upon the Company’s ability to incur additional indebtedness, make certain acquisitions or investments, sell assets or make other restricted payments, including dividends (as defined in the term loan credit agreement).

The Company’s new credit facility contains a subjective acceleration clause in which certain events of default, as detailed in the new senior credit facility agreement, will result in acceleration of the call date of the new senior credit facility. Management reviews these events on a regular basis and believes that the Company currently has no risk associated with these events.

In addition to providing fixed principal payment schedules for the new credit facility, the loan agreement also includes an Excess Cash Flow Repayment provision that requires repayment of principal based on the Company’s leverage ratio, EBITDA, working capital, debt service and tax payments. The Excess Cash Flow amount is calculated and paid annually with the repayment of principal allocated on a pro rata basis to the term and revolving loans. The Company had to make a payment of  $5.0 million under the Excess Cash Flow Repayment provision based on the fiscal year ended March 30, 2008 financial results.  This payment was made on June 27, 2008 and accordingly was included in the current maturities of long-term debt at March 30, 2008.  Based on the Company’s financial results for the fiscal year ended March 29, 2009 the Company expects to make a payment of approximately $1.6 million during fiscal year 2010 under the Excess Cash Flow Repayment Provision.  This payment is to be made on June 26, 2009 and accordingly, has been included in the current maturities of long term debt as of March 29, 2009. The Company is also required to pay an annual non-utilization fee equal to 0.50% of the unused portion of the revolving credit facility.

Aggregate minimum principal maturities on long-term debt follow:

(Dollars in thousands)
2010	$	2,351
2011		766
2012		766
2013		66,835
2014		215,938
	$	286,656

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company assumes that as amounts become due under the loan agreement the amounts needed for the payments will be obtained from the Company’s operating cash flow supplemented by borrowings under the revolving loan as needed.

The new revolving facility contains a cross default provision to other indebtedness in excess of $5.0 million whereby payment defaults on such other indebtedness result in cross default under the new revolving facility.  Covenant defaults under such other indebtedness do not result in a cross default under the new revolving facility until expiration of any relevant grace periods as set forth under such other indebtedness

The new term loan facility contains a cross default provision to other indebtedness in excess of $7.5 million whereby payment defaults or covenant defaults on such other indebtedness are, subject to certain exceptions, cure periods and grace periods as set forth in the new term loan facility agreement, cross defaults under the new term loan facility.

As of March 29, 2009, under the most restrictive covenants as defined in the new revolving loan facility, the Company was required to maintain a minimum interest coverage ratio, as defined in the new revolving loan agreement, of 1.50 to 1.00.  The maximum allowable senior secured debt leverage ratio, as defined in the new revolving loan agreement, is 2.00 to 1.00.  As of March 29, 2009, the Company was in compliance with all of the financial covenants of its new revolving loan agreement.

The Company executed a third amendment to its revolving loan agreement effective May 4, 2009 (discussed in Note 20 Subsequent Events).  The amendment adjusts the minimum interest coverage ratio and the maximum senior secured debt leverage ratio to 1.10 to 1.00 and 3.00 to 1.00, respectively.  The changes to the ratios are effective on March 30, 2009.

14.           Stockholders’ Equity

On January 7, 2005, NCI’s parent, GMH, a wholly-owned subsidiary of GMHC, was acquired by CVC for consideration of $383.9 million, adjusted as defined within the Agreement and Plan of Merger. GMHC was subsequently recapitalized to reflect 17,524,091 shares of series L common stock in the amount of $192.7 million, 1,079,863 shares of series A common stock in the amount of $1.1 million, term loans of $148.7 million and senior subordinated debt of $55.0 million. GMH recapitalized NCI with the proceeds from its common equity in the amount of $194.4 million, including the value allocated to the warrants. The funds received for capitalization have been recorded in the accompanying financial statements as Additional Paid-In Capital.

15.           Commitments and Contingencies

Operating Leases

The Company is obligated under noncancellable operating leases and leases for office space which expire at various dates through 2015. Certain of the leases require additional payments for real estate taxes, water and common maintenance costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Minimum lease payments due under noncancellable operating lease agreements with terms in excess of a year follow:

(Dollars in thousands)
2010	$	4,375
2011		3,091
2012		2,251
2013		557
2014		55
Thereafter		26
Total minimum operating lease payments	$	10,355

Rent expense for office space for the fiscal year ended March 29, 2009, for the fiscal year ended March 30, 2008, and the fiscal year ended March 25, 2007 amounted to $4.3 million, $4.1 million, and $4.0 million, respectively.

Capital Leases

The Company is obligated under capital leases for computer, equipment and transportation which expire at various dates through 2013.

Payments due under capital lease agreements with terms in excess of a year follow:

(Dollars in thousands)
2010	$	372
2011		230
2012		108
2013		2
Total minimum capital lease payments		712
Interest on capital leases		(47	)
Present value of minimum capital lease payments	$	665

Principal payments and interest payments for the year ended March 29, 2009, the year ended March 30, 2008, and the year ended March 25, 2007, amounted to $0.5 million, $0.5 million, and $0.7 million, respectively.

Employment Agreements

Two senior executives of the Company have employment agreements which terminate in January 2010. Pursuant to the agreements, the executives are entitled to annual base salaries and annual bonuses based on the Company’s EBITDA for each year. These agreements also provide for severance benefits equal to two years’ base salary and benefits upon termination of employment by the Company without cause.

Other

The Company is involved in various claims and lawsuits which arise in the normal course of its business. Management does not believe that any of these actions will have a material adverse effect on the Company’s financial position or results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16.           Income Taxes

For fiscal years 2009, 2008, and 2007, the benefit from income taxes related to loss from continuing operations, consists of the following:

	Fiscal Year     Ended        March 29, 2009			Fiscal Year     Ended      March 30, 2008			Fiscal Year    Ended       March 25, 2007
Federal
Current	$	(2,418,574	)	$	2,658,317		$	4,226,551
Deferred		(10,190,913	)		(5,355,558	)		(8,503,327	)
		(12,609,487	)		(2,697,241	)		(4,276,776	)
State
Current		(276,408	)		455,712			724,552
Deferred		(1,532,468	)		(805,347	)		(1,278,696	)
		(1,808,876	)		(349,635	)		(554,144	)
Income tax benefit	$	(14,418,363	)	$	(3,046,876	)	$	(4,830,920	)

The benefit from income tax differs from the amount that would be calculated applying the federal statutory rate of 35% (2009, 2008 and 2007) to loss before benefit from income taxes from continuing operations as follows:

	Fiscal Year    Ended     March 29, 2009			Fiscal Year     Ended     March 30, 2008			Fiscal Year     Ended      March 25, 2007
Expected income tax benefit	$	(48,940,146	)	$	(3,228,606	)	$	(3,730,236	)
State income taxes, net of federal benefit		(1,175,770	)		(222,706	)		(360,488	)
Deferred tax rate change		—			(82,765	)		(896,333	)
Permanent differences		469,078			487,201			402,215
Goodwill impairment		35,449,330			—			—
Other		(220,855	)		—			(246,078	)
Income tax benefit	$	(14,418,363	)	$	(3,046,876	)	$	(4,830,920	)

The Company’s deferred tax assets and liabilities consist of the following:

	Fiscal Year Ended March 29, 2009			Fiscal Year Ended March 30, 2008
Current:
Deferred tax assets (liabilities):
Allowance for doubtful accounts	$	1,510,209		$	1,068,459
Accumulated other comprehensive loss		73,637			4,789
Accrued compensation and benefits		11,665			(549	)
Net current deferred tax assets		1,595,511			1,072,699
Noncurrent:
Deferred tax assets (liabilities):
Pay-in-kind note interest		4,834,607			3,472,153
Intangible assets amortization		(28,805,279	)		(38,947,550	)
Property, equipment and depreciation		(3,323,362	)		(3,205,602	)
Net noncurrent deferred tax liabilities		(27,294,034	)		(38,680,999	)
Net deferred tax liabilities	$	(25,698,523	)	$	(37,608,300	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the existence of sufficient deferred tax liabilities, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

17.            Profit Sharing and 401(k) Plans

The Company has a Profit Sharing Plan for all employees. The Profit Sharing Plan is at the discretion of the Company and can be amended or terminated by the Company at any time.  For the fiscal years ended March 29, 2009 and March 30, 2008, there was no expense for the profit sharing plan as the Company chose not to fund the plan.  The expense for the profit sharing plan for the fiscal year ended March 25, 2007 was $1.1 million.

The Company sponsors a defined contribution plan pursuant to which employees can elect to defer a portion of their compensation for funding of retirement investments. The Company matches a certain percentage of the employee’s elected contribution, which is reported as an expense in the applicable payroll period. The Company contributed $1.0 million, $1.4 million, and $1.5 million, to the plan during the fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007, respectively.  Effective February 20, 2009, the Company suspended its 401(k) Plan matching.

18.            Related Party Transaction

In December 2004, the Company entered into a 10-year advisory agreement with CVC Management LLC (“CVC”), now known as Court Square Capital Partners (“CSC Management”), whereby the Company is to pay CVC in quarterly installments an annual fee, which is the greater of $0.21 million or 0.016% of the annual consolidated revenue, in exchange for advisory services. The Company was also to reimburse CVC for reasonable out-of-pocket expenses incurred in its performance of advisory services.

Under this agreement, the Company paid $0.05 million, $0.21 million and $0.23 million for the fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007, respectively.  The amounts accrued under this agreement as of March 29, 2009 and March 30, 2008, were $0.21 million and $0.05 million, respectively.

The Company retained TMG Public Relations (“TMG”) to perform public relations and marketing services on its behalf on a project-by-project basis.  TMG is owned by the spouse of Dan McCarthy, NCI’s Chairman and Chief Executive Officer. In each of fiscal years 2009, 2008, and 2007, the Company made payments to TMG of $0.22 million, $0.38 million and $0.64 million.  The Company accrued $0.02 million and $0.01 million for services rendered as of March 29, 2009 and March 30, 2008, respectively. The Company expects to continue to use the services of TMG during fiscal year 2010.

Effective July 31, 2007, the Company entered into an agreement with L & S Graphics, which is a digital printing company owned by Brandon Lee, one of the Company’s employees. The Company agreed to utilize L&S Graphics for all digitally printed materials related to the “By Design” products. The company was later renamed “Digital Lizard”. Under this agreement, the Company made payments of $1.95 million and $1.50 million during the fiscal years ended March 29, 2009 and March 30, 2008, respectively and accrued for $0.04 million and $0.08 million as of March 29, 2009 and March 30, 2008, respectively.

Effective July 31, 2007, the Company entered into a lease agreement with MB&K, LLC which is owned by the same company employee noted in the prior paragraph.  Under this agreement, the Company made payments of $0.14 million and $0.10 million during the fiscal years ended March 29, 2009 and March 30, 2008 and made no accruals as of March 29, 2009 and March 30, 2008 as the Company has met all its financial obligations under this agreement.

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NETWORK COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19.  Selected Quarterly Financial Data (unaudited)

Unaudited Interim Results

The accompanying unaudited interim financial results and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented.

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Fiscal year 2009
Sales	$	48,450		$	46,746		$	43,476		$	42,543
Gross profit		14,553			14,060			12,008			7,457
Operating income (loss)		4,329			4,920			(82,454	)		(37,709	)
Net loss	$	(1,566	)	$	(1,117	)	$	(80,769	)	$	(41,958	)

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Fiscal year 2008
Sales	$	53,498	$	56,013		$	54,455	$	59,761
Gross profit		16,972		18,436			18,076		14,957
Operating income		6,950		8,039			7,868		2,248
Net income (loss)	$	140	$	(1,882	)	$	568	$	(5,004	)

20.  Subsequent Events

On May 4, 2009, the Company amended the new revolving loan facility dated July 20, 2007. The amendment restated the applicable percentage as defined in the revolving credit agreement, increased the commitment fee from 0.50% to 0.75%, decreased the revolving credit commitment from $35.0 million to $15.0 million, decreased the permitted capital expenditures from $10.0 million to $6.0 million, and adjusted the interest coverage ratio and the senior secured coverage ratio on the revolving facility.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

 Evaluation of Disclosure Controls and Procedures

                As of the end of the fiscal year ended March 29, 2009, the Company’s management performed an evaluation with the participation of its Chief Executive Officer and Chief Financial Officer of the effectiveness of its “disclosure controls and procedures” (as defined in Securities Exchange Act of 1934 (the “Exchange Act”)) Rules 13a-15(e). Based upon that evaluation, NCI’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report (the “Evaluation Date”), the Company’s disclosure controls and procedures were ineffective because of the material weaknesses discussed below.  Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and include, without limitation, controls and procedures designed to ensure that information NCI is required to disclose in such reports is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

·   Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Internal control over financial reporting includes those written policies and procedures that:

·   Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets.

·   Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors.

·   Provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

An internal control material weakness is a deficiency, or aggregation of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Our management assessed the effectiveness of our internal control over financial reporting, as defined in Securities Exchange Commission Act Rule 13a-15(f) as of March 29, 2009 and this assessment identified the following material weaknesses in our internal control over financial reporting:

1.   Deficiencies in our IT environment due to untimely removal of network access for terminated employees.

2.   Deficiencies in maintaining adequate controls over certain key spreadsheets used in our financial reporting process including review of these spreadsheets.

Since the discovery of the material weaknesses in internal controls described above, management is strengthening the Company’s internal controls over financial reporting and is taking various actions to improve our internal controls including, but not limited to the following:

1.   Remediation efforts were made to ensure notification of IT upon the departure of employees for purposes of terminating their network access.  Testing of these remediation efforts is pending.

2.   Remediation efforts to ensure adequate controls over key spreadsheets are in progress by implementing review and password protection on the spreadsheets and formulas and maintaining historic data in a read only access as well as a formal review process.  Implementation and testing are pending.

In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.  Because of the material weaknesses described in the preceding paragraphs, management believes that, as of March 29, 2009, the Company’s internal control over financial reporting was not effective based on those criteria.

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  We were not required to have, nor have we engaged our independent registered public accounting firm to perform, an audit on our internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

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Item 9B. Other Information

There were no disclosures of any information required to be filed on Form 8-K during the fourth quarter of 2009 that were not filed.  

PART III

Item 10. Directors and Executive Officers of the Registrant

The following table sets forth certain information regarding our directors and executive officers. All directors hold office until the next annual meeting of stockholders, and until their successors are duly elected and qualified.

Name	Age		Position(s)
Daniel McCarthy		49	Chairman and Chief Executive Officer
Gerard Parker		46	Senior Vice President, Chief Financial Officer
Scott Dixon		54	Senior Vice President, NCI — President of Real Estate Area
Marcia Bollinger		51	Senior Vice President, NCI — President of Multi-Family Area
Stuart Christian		44	Senior Vice President — Production/Operations
Adam Japko		50	Senior Vice President, NCI — President of Home Design Area
Susan Deese		53	Senior Vice President and General Counsel
David F. Thomas		59	Director
Ian D. Highet		44	Director
Martin Maleska		65	Director
John Overbay		32	Director

Daniel McCarthy, Chairman and Chief Executive Officer. Since May 2002, Mr. McCarthy has served as our Chairman and CEO and as the Chairman and CEO of our ultimate parent, GMH Holding Company (“GMHC”), which was created in January 2005 to facilitate acquisition by CVC; previously the holding company was GMH. GMH was originally formed in 2002 in order to pursue acquisition opportunities in the media and information sectors. From 2000 to 2001, Mr. McCarthy served as President and CEO of Themestream, Inc. From 1998 to 2000, Mr. McCarthy served as President and CEO of PRIMEDIA Enthusiast Group. Prior to joining PRIMEDIA, Mr. McCarthy was President and CEO of Cowles Business Media. Prior to joining Cowles, Mr. McCarthy was Executive Vice President for Communications Trends, Inc.

Gerard Parker, Senior Vice President and Chief Financial Officer. Since he joined us in 2002, Mr. Parker has served as our Senior Vice President and Chief Financial Officer and has served as a director of GMHC since January 2005. From 1994 to 2002, Mr. Parker was Vice President and CFO of Primedia’s Consumer Guides division. Prior to joining Consumer Guides, Mr. Parker was Vice President, Business Development and Director, Strategic Planning with PRIMEDIA. Previously, Mr. Parker also worked at Macmillan Publishing, Salomon Brothers and Ernst & Young.

Scott Dixon, Senior Vice President NCI — President Real Estate Area. Mr. Dixon joined us in 1995 and served as Director of Business Operations until 1999. From 1999 to 2004, he was Vice President of Sales Operations. Since May 2004, he has served as our Senior Vice President and President of the Real Estate Area. Prior to joining us, from 1979 to 1994, Mr. Dixon was at Digital Equipment Corporation in a variety of managerial positions, including Product Business Planning Manager, District Business Manager, Industry Business Manager and Marketing Support Manager.

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Marcia Bollinger, Senior Vice President NCI — President Multi-Family Area. Since October 2008, Ms. Bollinger has served as our Senior Vice President and President of the Multi-Family Area.  From 2003 when she joined NCI thru October 2008, she was Senior Vice President of Multi Family publications.  Ms. Bollinger has chaired and served on over 200 local, state and national Apartment Association committees. Ms. Bollinger also served as the National Suppliers Council (NSC) Chairman, Vice-Chairman, and Secretary. Prior to joining us, from 1999 to 2003, Ms. Bollinger was employed at Homestore.com as National Director of Real Estate Sales Division. Prior to working at Homestore.com from 1983 to 1999, Ms. Bollinger was the Vice President and Regional Director for Consumer Guides, a division of PRIMEDIA, where she managed the apartment directory business in the central region of the United States.

Stuart Christian, Senior Vice President NCI — Production/Operations. Since January 2004, Mr. Christian has served as our Senior Vice President of Production/Operations and Information Technology. He joined us in 1991. From 1997 to 2004, Mr. Christian was Vice President of Operations with responsibility for the management of our prepress operations and production facility. He is responsible for the production of all of our publications as well as our information technology group.

Adam Japko, Senior Vice President NCI — President Home & Design Area. Since joining us in May 2005, Mr. Japko has served as our President of the home and design publications area. From 1999 to 2005, he was President and Chief Operating Officer for Pennwell Corporation’s Advanced Technology Division.

Susan Deese, Senior Vice President NCI and General Counsel. Since joining us in 1995, Ms. Deese has served as our General Counsel. Prior to joining us, Ms. Deese was employed as Legal Counsel for Cleo Inc., then at Gibson Greetings company.

David F. Thomas, Director. Mr. Thomas has been a director since January 2005. Mr. Thomas has also been director of GMHC since January 2005. He is the President of Court Square Capital Partners (“Court Square”). He joined Court Square in 1980 and has been a Managing Partner at Court Square since 2000. Previously, he held various positions with Citibank’s Transportation Finance and Acquisition Finance Groups. Prior to joining Citibank, Mr. Thomas was a certified public accountant with Arthur Andersen & Co. Mr. Thomas received degrees in finance and accounting from the University of Akron. He is a director of Auto Europe Group and New Market International.

Ian D. Highet, Director. Mr. Highet has been a director since January 2005. Mr. Highet has also been director of GMHC since December 2004. He is a Managing Partner at Court Square. He joined Court Square in 1998 after working as Vice President of Corporate Development at K-III Communications Corporation, a media holding company formed by Kohlberg Kravis Roberts & Co. Mr. Highet has been a partner at Court Square since 1998 and a Managing Partner since 2008. Mr. Highet received his Bachelor of Arts (cum laude) from Harvard College and his MBA from Harvard Business School. He is a director of Auto Europe Group and Compucom.

Martin Maleska, Director.  Mr. Maleska has been a director since March 2007.  Mr. Maleska is also a director of GMHC.  In 2005, Mr. Maleska organized Riverstone Partners to provide consulting and investment banking services to companies.  He served as Chief Executive Officer of Primedia Business from 2003 to 2004.  Prior to 2003, Mr. Maleska was a Managing Director at Veronis Suhler Stevenson.  He serves on the boards of CCC, Source Media, Questar Assessment, RFID Journal, Executive Networks, and Randall Reilly Publishing.

John P. Overbay, Director.  Mr. Overbay has been a director since April 2007.  He is a Vice President at Court Square Capital Partners.  Prior to joining Court Square in 2007, he was an Associate in Warburg Pincus’ Technology, Media and Telecommunications group from 2005 to 2007.  Previously he was an Analyst at Hicks, Muse, Tate & Furst from 2003 to 2005 and an Analyst and Associate in the Mergers and Acquisition group of JP Morgan from 2000 to 2003.  Mr. Overbay received his B.A. cum laude from Middlebury College.

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Committees of the Board of Directors

Audit Committee

We have formed a standing audit committee which consists of Ian Highet, as chairman, David Thomas and John Overbay. The audit committee will assist the Board of Directors in fulfilling its duties with respect to the integrity of financial statements, the financial reporting process, compliance with ethics policies and legal and other regulatory requirements, the independent registered public accounting firm’s qualifications and independence, systems of internal accounting and financial controls, the performance of the independent registered public accounting firm and the internal audit function.

Audit Committee Financial Expert

Our equity is not currently listed on or with a national securities exchange or national securities association, and we are not required to designate any of our Audit Committee members as an audit committee financial expert. As a result, we have not elected to delegate at this time an Audit Committee financial expert, but may elect to do so in the future.

Code of Ethics

Effective May 14, 2008, the Company implemented a Code of Business Conduct and Ethics (the “Code”) which is applicable to all officers, directors and employees of the Company, including the principal executive officer, the principal financial and accounting officer.  The Code is available on the Company’s web site at www.nci.com.

Compensation Committee

We do not currently have a Compensation Committee. However, we may appoint such a committee in the future.

Compensation of Directors

During fiscal year 2009, our director, Martin Maleska, was compensated for serving on the Board of Directors. We made payments of $0.04 million to Mr. Maleska in fiscal year 2009.

Compensation Committee Interlocks and Insider Participation

None of our officers, employees or loan officers serves or served at any time since the first day of the last fiscal year as a member of our compensation committee or participated in deliberations or our Board of Directors concerning executive officer compensation. None of our executive officers serves or served at any time since the first day of the last fiscal year as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving on our compensation committee or Board of Directors. No interlocking relationship exists between our Board of Directors or the compensation committee of any other company. See Item 13. “Certain relationships and related transactions” for a discussion of the relationship between us and Court Square Capital Partners.

Stock Option Plan

We do not currently have a stock option plan, but may implement such a plan in the future.

Item 11. Executive Compensation

Compensation Discussion and Analysis

The following discussion and analysis of compensation arrangements of our named executive officers for fiscal year 2009 should be read together with the compensation tables and related disclosures set forth below.

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Overview

Court Square Capital Partners controls 89% of GMHC’s outstanding capital stock, including the period in which the fiscal year 2009 compensation elements for our named executive officers were determined; Court Square holds three of six seats on our Board of Directors.

Our named executive officers participate in the Senior Management Bonus Plan (“SMBP”). Participants are paid at the discretion of our Board of Directors, a percentage of their salary based on the achievement of certain budget goals.

General Compensation Philosophy, Objectives and Purpose

Compensation Policy.  Our executive compensation policy surrounds a core value of our Company that the compensation of all of our employees, including our executive officers, should be set at levels that allow us to attract and retain employees who pursue success, share our passions and values and who demonstrate the ability to do so. Therefore, we set compensation levels that reflect market and are consistent with executives of comparably sized companies.  We annually review the performance of our businesses and the executives responsible for that performance. The results of this review are combined with the recommendations of our CEO and CFO to ensure that executive compensation reflects executive performance and success. Our compensation strategy is based on a base salary with an annual cash bonus tied to the achievement of certain criteria. Our compensation strategy is executed under the direction and approval of our Board. The compensation of our CEO and CFO is prescribed by their respective employment agreements (see discussion below).

Our executive officers are Daniel McCarthy, Director, Chairman of the Board and Chief Executive Officer; Gerard Parker, Director,  Senior Vice President and Chief Financial Officer; Scott Dixon, Senior Vice President of NCI – President of Real Estate Area; Marcia Bollinger, Senior Vice President of NCI– President Multi-Family Area; Adam Japko, Senior Vice President of NCI – President of Home Design Area.

Base Salary.  We believe that market competitive base salaries are an essential aspect of each executive’s total compensation. Base salary for our executives is based on the responsibilities of their positions and their ability to lead their respective teams to achieve pre-established goals.  The salary of each executive officer is determined by the Board of Directors.  In making its determinations, the Board gives consideration to the recent financial performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance and compensation paid by the Company.  The Board solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels.

Annual Bonus. We believe that each executive’s compensation should include a portion that is predicated on achieving pre-defined performance objectives.  All of the executive officers are eligible for annual cash bonuses which are awarded under the Senior Management Bonus Plan. Our objective in designing at-risk compensation for our executive officers is to incentivize our senior executives to contribute to revenue growth, manage operating expenses and maximize Company earnings.   The financial targets for EBITDA and revenue, integrated into our SMBP, are established and approved by our Board of Directors as well as other pertinent criteria.  The criteria include meeting certain EBITDA targets as well as revenue targets for each individual participant’s respective operating units and a discretionary component. Each participant’s allocation differs based on their responsibilities. The total target bonus ranges from 20% to 40% of each participant’s base salary. If all targets are exceeded, the maximum bonus ranges from 30% to 60% of each participant’s base salary. We pay bonuses in the subsequent fiscal year upon completion of the year end audit by our independent registered public accounting firm.

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Our fiscal year 2009 SMBP includes the following elements. Each element carries a certain weight in the calculation of total cash bonus:

§   achieving company-wide EBITDA targets;

§   achieving revenue targets within their respective areas;

§   achieving gross margin and other direct expenditure targets within their respective areas;

§   discretionary based on overall performance of the individual;

To be eligible to receive a bonus, participants must achieve at least 90% - 95% of the EBITDA and Revenue target.

The amount earned by each of our named executive officers under the fiscal year 2009 SMBP was calculated in May 2009 based on the fiscal year 2009 financial results.  We did not issue any long-term compensation during fiscal year 2009 to our senior executive officers.

Other. Other compensation to our executives includes typical employee benefits offered to all employees such as group medical, dental and vision coverage, group life insurance, short term disability insurance, flexible spending accounts and 401(k) Plan with Company matching.  The Company provides an automobile allowance on a case by case basis, as negotiated.  Effective February 20, 2009, the Company has suspended its 401(k) Plan matching.

The Company does not have a pension plan or an equity incentive plan. However, pursuant to their employment agreements, our CEO and CFO are entitled to purchase additional common equity in the event Court Square Capital Partners achieves certain internal rates of return on its investment in us. We do not have a nonqualified deferred compensation program for our senior executives.

Potential Payments Upon Termination or Change of Control

Pursuant to their employment agreements, our CEO and CFO are entitled to receive severance payments equal to such executive’s base salary for up to two years, should there be a material adverse change in the executive’s function and responsibilities without the consent of the executive. All other named executives subject to termination without cause may receive cash payments, at the discretion of the Board of Directors.

We are not obligated to make any cash payment or provide continued benefits to the named executive officers, other than certain vested 401(k) plans, if their employment is terminated by us for cause or by the executive without cause.

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The following table summarizes the annual compensation of our named executive officers for fiscal years 2009, 2008, and 2007.

 

Summary Compensation Table (7)
Name and Principal Position	Fiscal Year	Salary ($)		Non-Equity Incentive Plan Compensation Bonus ($) (1)		All Other Compensation ($)			Total ($)
Daniel McCarthy	2009		434,110		—		41,309	(2) (5)	475,419
Chairman & Chief Executive	2008		417,413		—		37,976	(3)(5)		455,389
Officer	2007		397,536		99,384		57,672	(4)(5)		554,592
Adam Japko	2009		295,000		—		4,229	(5)		299,229
Senior Vice President	2008		295,000		—		4,720	(5)		299,720
President of Home Design Area	2007		295,000		31,987		4,821	(5)		331,808
Marcia Bollinger	2009		271,546		34,200		6,955	(5) (6)		312,701
Senior Vice President	2008		255,272		34,200		7,814	(5) (6)		297,286
President of Multi-Family Area	2007		257,273		23,842		9,042	(5) (6)		290,157
Gerard Parker	2009		289,406		—		5,946	(5)		295,352
Senior Vice President & Chief	2008		278,275		—		7,318	(5)		285,593
Financial Officer	2007		265,024		66,256		7,221	(5)		338,501
Scott Dixon	2009		225,000		—		4,400	(5)		229,400
Senior Vice President	2008		225,000		—		6,736	(5)		231,736
President of Real Estate Area	2007		223,654		81,441		7,422	(5)		312,517

(1)	Bonuses reflected in fiscal year earned even though paid in the subsequent fiscal year. The bonuses for fiscal year 2009 will be paid in June 2009 and for fiscal year 2008 were paid in June 2008. Mr. McCarthy, Mr. Japko, Mr. Parker and Mr. Dixon have forgone their annual bonuses for fiscal years 2009 and 2008.
(2)	Includes fiscal year 2009 payments for a leased vehicle of $6,324 and apartment rental of $10,930 in Georgia for use by Mr. McCarthy. Also includes fiscal year 2009 payments made for club memberships of $6,363 and commuting expense of $17,029.
(3)	Includes fiscal year 2008 payments for a leased vehicle of $6,324 and apartment rental of $10,740 in Georgia for use by Mr. McCarthy. Also includes fiscal year 2008 payments made for club memberships of $6,132 and commuting expense of $14,149.
(4)	Includes fiscal year 2007 payments for a leased vehicle of $6,124 and apartment rental of $10,740 in Georgia for use by Mr. McCarthy. Also includes fiscal year 2007 payments made for club memberships of $5,964 and commuting expense of $34,244.
(5)	Represents matching contributions made by us pursuant to our 401(k) plan, premiums paid on life insurance plan, short term and long term disability plan.
(6)	Includes an annual auto mileage allowance of $4,800.
(7)	There were no payments or accruals of stock awards, option awards or non-equity incentive plan compensation during fiscal years 2009, 2008 and 2007.  Also, the Company did not pay or accrue for any change in pension value and non qualified deferred compensation earnings during fiscal years 2009, 2008 and 2007.

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Employment Agreements

Daniel McCarthy

We entered into an employment agreement with Mr. McCarthy which became effective as of December 23, 2004. This agreement will continue in effect until the earlier of: (i) December 23, 2009; (ii) Mr. McCarthy’s resignation, death or disability or other incapacity as determined by the Board of Directors in good faith; or (iii) termination of the employment agreement for cause or without cause.

Pursuant to his employment agreement, Mr. McCarthy’s annual base salary is $434,110, subject to annual increases of 5% of his salary for the immediate prior year. Mr. McCarthy received bonuses of $99,384 for fiscal year 2007 pursuant to his employment agreement.  In addition, Mr. McCarthy is also entitled to receive an annual bonus of up to 75% of his average salary in effect during any fiscal year based on certain EBITDA performance targets. Mr. McCarthy has foregone his annual bonus for each of fiscal years 2009 and 2008.

During Mr. McCarthy’s employment, we must provide Mr. McCarthy with family health and dental, life, short-term and long-term disability and directors’ and officers’ liability insurance and other benefits offered under our plans as the Board of Directors may establish from time to time. Mr. McCarthy is also entitled to four weeks paid vacation each year.

Pursuant to his employment agreement, we must also reimburse Mr. McCarthy for all reasonable expenses incurred by Mr. McCarthy in carrying out his duties and for commuting and living expenses in Georgia not to exceed, in the aggregate, $3,000 per month.

In the event of Mr. McCarthy’s resignation (other than within 30 days of a substantial diminution of Mr. McCarthy’s professional responsibilities or a significant reduction in his salary or benefits, services, perquisites and amenities to which Mr. McCarthy was entitled under the agreement), death, disability or other incapacity or the termination of his employment for “cause” or in connection with a sale of our business, Mr. McCarthy will not be entitled to receive his salary or any fringe benefits or performance bonus for periods after the termination of employment; provided, in the case of death, disability or other incapacity, he will be entitled to receive a pro rata portion of his performance bonus for the period during which Mr. McCarthy was employed by us at the time the performance bonus would normally be paid and based upon our actual performance for the relevant fiscal year. In the event that Mr. McCarthy’s employment is terminated by us without cause, or by him within 30 days after a substantial diminution of Mr. McCarthy’s professional responsibilities or a significant reduction in his salary or benefits, services, perquisites and amenities which Mr. McCarthy was entitled to under the agreement, then so long as Mr. McCarthy continues to comply with the confidentiality, non-competition and non-solicitation covenants under the agreement, Mr. McCarthy shall be entitled to receive (i) severance payments in an aggregate amount equal to two years’ salary based on the salary in effect at the time his employment is terminated and (ii) benefits at the same level and on the same terms as they are provided from time to time to our senior management employees for a period of two years from the date of such termination. Any such severance payments paid to Mr. McCarthy by us will be paid in equal monthly installments; provided that, Mr. McCarthy shall be required to sign a release of all past, present and future claims against Court Square Capital and GMHC, its subsidiaries and affiliates as a condition to receiving such payments and benefits.

Pursuant to his employment agreement, on January 7, 2005, Mr. McCarthy exchanged certain securities of GMH in exchange for approximately $1.7 million of Class L Common Stock of GMHC at a price of $11.00 per share and received approximately $568,348.90 of Class A Common Stock of GMHC at a price of $1.00 per share. In addition, Mr. McCarthy acquired 3.0% of GMHC fully-diluted common equity in the form of Class A Common Stock from a pool of 7.3% (1,420,872 shares) of GMHC’s fully-diluted common equity that is available to management. Such equity shall vest so long as Mr. McCarthy remains an employee. Mr. McCarthy will also have the opportunity to acquire an additional 1.4% of GMHC’s fully-diluted common equity in the form of Class A Common Stock from a pool of 2.4% (473,624 shares) of GMHC’s fully-diluted common equity that is available to management in the event that Court Square Capital actually realizes certain internal rate of returns on its investment in us. The details of this stock purchase opportunity have not yet been finalized. Accordingly, we have not recognized any compensation expense in the financial statements. We expect that the structure will be an outright purchase of the GMHC Class A Common Stock by Mr. McCarthy at a price equal to the fair value at the time of purchase, with vesting contingent on Court Square Capital realizing its internal rate of return target on the investment.

Mr. McCarthy is subject to non-competition and non-solicitation covenants during the term of his employment and for the two-year period following the termination of such employment.

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Gerard Parker

We entered into an employment agreement with Mr. Parker which became effective as of January 7, 2005. This agreement will continue in effect until the earlier of: (i) January 7, 2010; (ii) Mr. Parker’s resignation, death or disability or other incapacity as determined by the Board of Directors in good faith; or (iii) termination of the employment agreement for cause or without cause.

Pursuant to his employment agreement, Mr. Parker’s annual base salary is $289,406, subject to annual increases of 5% of his salary for the immediate prior year. Mr. Parker received bonuses of $66,256 for fiscal year 2007 pursuant to his employment agreement.  In addition, Mr. Parker is also entitled to receive an annual bonus of up to 75% of his average salary in effect during any fiscal year based on certain EBITDA performance targets.  Mr. Parker has foregone his annual bonus for each of fiscal years 2009 and 2008.

During Mr. Parker’s employment, we must provide Mr. Parker with family health and dental, life, short-term and long-term disability and Directors’ and Officers’ liability insurance and other benefits offered under our plans as the Board of Directors may establish from time to time. Mr. Parker is also entitled to four weeks paid vacation each year.

Pursuant to his employment agreement, we must also reimburse Mr. Parker for all reasonable expenses incurred by Mr. Parker in carrying out his duties.

In the event of Mr. Parker’s resignation (other than within 30 days of a substantial diminution of Mr. Parker’s professional responsibilities or a significant reduction in his salary or benefits, services, perquisites and amenities which Mr. Parker was entitled under the agreement), death, disability or other incapacity or the termination of his employment for “cause” or in connection with a sale of our business, Mr. Parker will not be entitled to receive his salary or any fringe benefits or performance bonus for periods after the termination of employment but, in the case of death, disability or other incapacity, he will be entitled to receive a pro rata portion of his performance bonus for the period during which Mr. Parker was employed by us at the time the performance bonus would normally be paid and based upon our actual performance for the relevant fiscal year. In the event that Mr. Parker’s employment is terminated by us without cause, or by him within 30 days after a substantial diminution of Mr. Parker’s professional responsibilities or a significant reduction in his salary or benefits, services, perquisites and amenities which Mr. Parker was entitled to under the agreement, then so long as Mr. Parker continues to comply with the confidentiality, non-competition and non-solicitation covenants under the agreement, Mr. Parker shall be entitled to receive (i) severance payments in an aggregate amount equal to two years’ salary based on the salary in effect at the time his employment is terminated and (ii) benefits at the same level and on the same terms as they are provided from time to time to our senior management employees for a period of two years from the date of such termination. Any such severance payments paid to Mr. Parker by us will be paid in equal monthly installments provided that, Mr. Parker shall be required to sign a release of all past, present and future claims against Court Square Capital and GMHC, its subsidiaries and affiliates as a condition to receiving such payments and benefits.

Pursuant to his employment agreement, on January 7, 2005, Mr. Parker received approximately $284,174 of Class A Common Stock of GMHC at a price of $1.00 per share. In addition, Mr.  Parker acquired 1.5% of GMHC’s fully-diluted common equity in the form of Class A Common Stock from a pool of 7.3% (1,420,872 shares) of GMHC’s fully-diluted common equity that is available to management. Such equity shall vest so long as Mr. Parker remains an employee. Mr. Parker will also have the opportunity to acquire an additional 1.0% of GMHC’s fully-diluted common equity in the form of Class A Common Stock from a pool of 2.4% (473,624 shares) of GMHC’s fully-diluted common equity that is available to management in the event that Court Square Capital actually realizes certain internal rate of return for its investment in us. The details of this stock purchase opportunity have not yet been finalized. Accordingly, we have not recognized any compensation expense in the financial statements. We expect that the structure will be an outright purchase of the Class A Common Stock by Mr. Parker at a price equal to the fair value at the time of purchase with vesting contingent on Court Square Capital realizing its internal rate of return target on the investment.

Mr. Parker is subject to non-competition and non-solicitation covenants during the term of his employment and for the two-year period following the termination of such employment.

Option/SAR Grants During the Year Ended March 29, 2009

There were no stock options granted to named executive officers during the year ended March 29, 2009.

Aggregated Option/SAR Exercises During the Year Ended March 29, 2009 and 2008 Year-End Option/SAR Values

There were no exercises of stock options (granted in prior years) by any named executive officers during the year ended March 29, 2009. As of March 29, 2009 there were no outstanding stock options or stock appreciation rights.

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Item 12. Security ownership of certain beneficial owners and management

The following information with respect to the outstanding shares of our Common Stock beneficially owned by each director, the Chief Executive Officer and other most highly compensated executive officers, all beneficial owners known to us of more than five percent of each class of Common Stock of GMHC and the directors and executive officers as a group is furnished as of June 19, 2008, except as otherwise indicated. This table includes 585,926.70 currently exercisable warrants to purchase GMHC’s Class A Common Stock owned by Citicorp Mezzanine III, L.P.

Each share of Class A Common Stock and Class L Common Stock has the general right to vote for all purposes as provided by law, including the election of directors, and are entitled to one vote for each share thereof. The holders of shares of the Class L Common Stock are entitled to receive distributions (including distributions of dividends, merger or consolidation consideration or liquidation consideration) up to a certain threshold before any such distributions are made to the holders of the Class A Common Stock. Thereafter, all holders of the Class A and Class L Common Stock are entitled to receive any proportional remaining distributions.

	Number of				Total Number
	Class L		Number of		of Common
	Common Shares		Class A Common		Shares
	Beneficially		Shares Beneficially		Beneficially
Name	Owned		Owned		Owned		Percentage
Court Square Capital Partners (1)		16,909,090.92		—		16,909,090.92		86.58	%
Ian Highet(1)		22,727.27		—		22,727.27		*
David Thomas(1)		45,454.55		—		45,454.55		*
Daniel McCarthy(2)		159,090.91		568,348.90		727,439.81		3.73	%
Gerard Parker(2)		—		284,174.45		284,174.45		1.46	%
Adam Japko(2)		—		125,000.00		125,000.00		*
Stuart Christian(2)		—		42,626.17		42,626.17		*
Scott Dixon(2)		—		125,000.00		125,000.00		*
Marcia Bollinger(2)		—		42,626.17		42,626.17		*
Susan Deese(2)		—		28,417.44		28,417.44		*
Todd Dubner (3)		—		65,000.00		65,000.00		*
Citicorp Mezzanine III, L.P. — Warrants(4)		—		585,926.70		585,926.70		3.00	%
All directors and officers as a group (11 persons)		228,636.36		1,258,819.30		1,487,455.66		7.62	%
All employees and executives of CVC as a group(1)		365,000.00		—		365,000.00		1.87	%
All other		1,363.63		—		1,363.63		*
Unallocated Management shares		—		97,052.95		97,052.95		*

* Less than 1%

(1)	The address of these entities is c/o Court Square Capital Partners, 55 East 52 St. 34th Floor New York, NY 10055. Includes 13,080,039.35 shares of Class L Common Shares held by Citigroup Venture Capital Equity Partners, L.P.; 130,210.98 shares of Class L Common Shares held by CVC/ SSB Employee Fund, L.P.; 116,018.50 shares held by CVC Executive Fund, LLC; and 3,582,822.09 shares held by CVC Gallarus Co-Investment LLC.
(2)	The address for each executive management member or director, as applicable, is c/o Network Communications, Inc. 2305 Newpoint Parkway, Lawrenceville, GA 30043.
(3)	The address of this individual is 425 Madison Avenue Suite 1500 New York, NY 10017
(4)	The address of this entity is 55 East 52 St. 34th Floor New York, NY 10055.

Item 13. Certain Relationships and Related Transactions

Our Board of Directors review all related party transactions and determines whether or not the related party transaction in question is in the best interest of our Company and its affiliates. Our executive officers submit these transactions to our Board in advance for approval.  Additionally, existing related party transactions are reviewed on an annual basis for assessment on a case by case basis for continuation, modification or termination of the respective transaction.

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Court Square Capital Partners Advisory Agreement

Pursuant to an advisory agreement dated as of December 12, 2004, among GMHC, GMH Acquisition Corp. and CVC Management LLC, now known as Court Square Capital Partners (“CSC Management”) (the “Advisory Agreement”), if we are in compliance with the financial and negative covenants in our senior credit agreement, CSC Management is eligible to receive an annual advisory fee, the amount of which is the greater of (i) $210,000 per annum or (ii) 0.016% per annum of our annual consolidated revenue, determined on a trailing twelve month basis, plus reasonable out-of-pocket expenses. Otherwise, CSC Management receives compensation for advisory services actually performed, as billed on an hourly basis.

CSC Management is also entitled to receive an early termination fee equal to the net present value of all advisory fees that would have become due under the Advisory Agreement from the effective date of the early termination until the end of the term.

The initial term of the Advisory Agreement is ten years and it automatically renews on an annual basis until terminated. We may terminate the Advisory Agreement in the event of a public offering of GMHC’s common stock under the Securities Act other than pursuant to a registration statement on Form S-4 or Form S-8 or any similar or successor form or the public registration of a combination of our debt and equity securities in which not more than 10% of the gross proceeds received from the sale of such securities is attributed to such equity securities, provided that the net proceeds of such public offering is equal to $50.0 million or more. Under this agreement we made payments to CSC Management of $0.1 million, $0.2 million and $0.2 million in each of fiscal years 2009, 2008 and 2007, respectively.  CSC Management suspended collection of all advisory fees effective September 2008.  We continue to accrue the advisory fees.

Stockholders’ Agreement

At the closing of the acquisition of our business, GMHC entered into a Securities Purchase and Holders Agreement dated as of January 7, 2005 (the “Stockholders’ Agreement”) with CVC L.P., certain of its affiliates and Court Square Capital Limited (“Court Square”), as well as certain other stockholders, including certain members of our management who own GMHC common stock and/or GMHC preferred stock and whom we refer to in this prospectus as the “minority stockholders.” The Stockholders’ Agreement provides that the Board of Directors of GMHC shall be comprised of up to five persons, including the Chief Executive Officer of GMHC and the Chief Financial Officer, and three persons designated by CVC L.P. CVC L.P. has the right to approve affiliate transactions, issuances of equity securities, incurrences of indebtedness, amendments of organizational documents and certain other matters, under certain specified circumstances and subject to certain specified exceptions.

The Stockholders’ Agreement generally restricts the transfer of shares of GMHC common stock and GMHC preferred stock. Exceptions to this restriction include transfers to affiliates, transfers for regulatory reasons, transfers for estate planning purposes and transfers after the fifth anniversary of the closing of the Acquisition if there has been no public offering of shares of GMHC common stock, in each case so long as any transferee agrees to be bound by the terms of the Stockholders’ Agreement. After an initial public offering, additional exceptions to the transfer restrictions will include sales pursuant to certain registration rights of the stockholders.

GMHC has “first offer” rights under the Stockholders’ Agreement entitling them to make an offer to purchase the shares of a stockholders prior to such stockholders being permitted to sell its shares to a third party. The stockholders have “tag-along” rights to sell their shares on a pro rata basis with CVC L.P. and its affiliates in sales to third parties. The Stockholders’ Agreement also contains a provision that requires GMHC to offer certain stockholders the right to purchase, on a pro rata basis, shares of GMHC upon any new issuance, subject to certain exceptions.

Registration Rights Agreement

In connection with their entry into the Stockholders’ Agreement, GMHC, CVC L.P. and certain of its affiliates, Court Square and the minority stockholders entered into a registration rights agreement (the “registration rights agreement”). Pursuant to the registration rights agreement, upon the written request of CVC L.P. or Court Square, GMHC has agreed to (subject to customary exceptions and limitations) on one or more occasions prepare and file a registration statement with the SEC concerning the distribution of all or part of the shares of GMHC common stock held by CVC L.P. and certain of its affiliates or Court Square, as the case may be, and use its best efforts to cause the registration statement to become effective. Subject to certain exceptions, if at any time GMHC files a registration statement for GMHC common stock pursuant to a request by CVC L.P., Court Square or otherwise, GMHC will serve notice of such a request to the other parties to the registration rights agreement and allow those parties, upon request, to have their shares of GMHC common stock (or a portion of their shares under specified circumstances) included in the offering of GMHC common stock if the registration form proposed to be used may be used to register the shares. Registration expenses of the selling stockholders (other than underwriting discounts and commissions and transfer taxes applicable to the shares sold by such stockholders or the fees and expenses, with certain exceptions, of any accountants or other representatives retained by a selling stockholder) will be paid by GMHC. GMHC has agreed to indemnify the stockholders against certain customary liabilities in connection with any registration. In addition, each stockholder has agreed to not sell any shares of GMHC common stock within ten days prior to and ninety days after the effective date of any registration statement registering equity securities of GMHC (other than a registration on Form S-4, Form S-8 or any successor form), except as part of such effective registration statement or unless the underwriters managing the offering agree to a shorter period.

Agreement with TMG Public Relations

We retain TMG Public Relations (“TMG”) to perform public relations and marketing services on the Company’s behalf on a project-by-project basis. TMG is owned by the spouse of Dan McCarthy, NCI’s Chairman and Chief Executive Officer. In each of the fiscal years 2009, 2008 and 2007, we made payments to TMG of $0.2 million, $0.4 million and $0.6 million, respectively. We expect to continue to use the services of TMG during fiscal year 2010.

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Board of Directors

The Board of Directors of our ultimate parent GMHC is currently composed ofsix directors. Because affiliates of Court Square Capital Partners own more than 50% of the voting common stock of GMHC, we would be a “controlled company” within the meaning of Rule 4350© (5) of the Nasdaq Marketplace rules, which would qualify us for exemptions from certain corporate governance rules of The Nasdaq Stock Market LLC, including the requirement that the Board of Directors be composed of a majority of independent directors. None of the members of our Board of Directors would qualify as independent.

Item 14. Principal Accountant Fees and Services

During fiscal years 2009 and 2008, we incurred the following fees for services performed by PricewaterhouseCoopers LLP:

	Fiscal year 2009		Fiscal year 2008
Audit fees	$	421,000	$	422,832
Audit related fees		—		12,161
Tax fees(1)		154,610		116,335
All other fees(2)		1,500		1,500
Total	$	577,110	$	552,828

(1) Tax fees relate to tax compliance services.

(2) All other fees for fiscal years 2009 and 2008 consist of product subscription fees.

Pre-approval of Services

All of the services described above were pre-approved by the Company’s Audit Committee.  The Audit Committee has determined that the payments made to its independent registered public accountants for these services are compatible with maintaining such auditors’ independence. All of the hours expended on the principal accountant’s engagement to audit the financial statements of the Company for fiscal year 2009 were attributable to work performed by full-time, permanent employees of the principal accountant.

The Audit Committee is directly responsible for the appointment and termination, compensation, and oversight of the work of the independent registered public accountants, including resolution of disagreements between NCI’s management and the independent registered public accountants regarding financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered public accountants.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Exhibits.

See Exhibit Index.

(b) Financial Statement Schedules.

Schedule II — Valuation and Qualifying Accounts

Allowance for Doubtful Accounts

Description	Balance at Beginning of Fiscal Year		Additions Charged to Expenses		Deductions			Balance at End of Fiscal Year
Fiscal year ended March 25, 2007	$	1,517,075	$	1,857,254	$	(1,461,418	)	$	1,912,911
Fiscal year ended March 30, 2008		1,912,911		3,207,990		(2,327,544	)		2,793,357
Fiscal year ended March 29, 2009	$	2,793,357	$	4,792,165	$	(3,637,262	)	$	3,948,260

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NETWORK COMMUNICATIONS, INC.
By:	/s/  Daniel R. McCarthy
	Daniel R. McCarthy
	Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/  Daniel R. McCarthy Daniel R. McCarthy	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	June 19, 2009
/s/ Gerard P. Parker Gerard P. Parker	Senior Vice President, Chief Financial Officer and Director (Principal Financial and Accounting Officer)	June 19, 2009
/s/ David F. Thomas David F. Thomas	Director	June 19, 2009
/s/ Ian D. Highet Ian D. Highet	Director	June 19, 2009
/s/ Martin Maleska Martin Maleska	Director	June 19, 2009
/s/ John Overbay John Overbay	Director	June 19, 2009

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Exhibit No.			Description
	1	.1	Purchase Agreement, by and among Network Communications, Inc., Credit Suisse First Boston LLC and TD Securities (USA) LLC dated November 30, 2005.(1)
	3	.1	Certificate of Incorporation of Network Communications, Inc., as amended. (1)
	3	.2	By-Laws of Network Communications, Inc. (1)
	4	.1	Indenture by and between Network Communications, Inc., and Wells Fargo Bank, N.A., dated November 30, 2005. (1)
	4	.2	Registration Rights Agreement by and among Network Communications, Inc., Credit Suisse First Boston LLC and TD Securities (USA) LLC, dated as of November 30, 2005. (1)
	10	.1	Employment Agreement of Daniel McCarthy.** (1)
	10	.2	Employment Agreement of Gerard Parker.** (1)
	10	.3	Advisory Agreement by and between GMH Holding Company, GMH Acquisition Corp. and CVC Management LLC dated December 12, 2004. (1)
	10	.4	Securities Purchase and Holders Agreement by and among GMH Holding Company, CVC, L.P., certain of its affiliates and Court Square Capital Limited dated January 7, 2005. (1)
	10	.5	Registration Rights Agreement by and among GMH Holding Company, CVC, L.P., certain of its affiliates and Court Square Capital Limited and the minority stockholders party thereto dated January 7, 2005. (1)
	10	.6	Term Loan Credit Agreement dated as of November 30, 2005, among Network Communications, Inc., Gallarus Media Holdings, Inc., the Lenders , and Credit Suisse, as administrative agent and as collateral agent for the Lenders. (1)
	10	.7	Revolving Loan Credit Agreement dated as of November 30, 2005, among Network Communications, Inc., Gallarus Media Holdings, Inc., the Lenders, and Credit Suisse, as administrative agent and as collateral agent for the Lenders. (1)
	10	.8	Guarantee, Collateral And Intercreditor Agreement dated as of November 30, 2005, among Network Communications, Inc., Gallarus Media Holdings, Inc., the Subsidiaries of the Borrower from time to time party thereto, Credit Suisse, as collateral agent for the Secured Parties, Credit Suisse, as administrative agent for the Revolving Lenders and Credit Suisse, as administrative agent for the Term Lenders. (1)
	10	.9	Patent Security Agreement dated as of November 30, 2005, between Gallarus Media Holdings, Inc., and Credit Suisse, as the Collateral Agent. (1)
	10	.10	Trademark Security Agreement dated as of November 30, 2005, between Network Communications, Inc. and Credit Suisse, as the Collateral Agent. (1)
	10	.11	Senior Subordinated Promissory Note in favor of Citicorp Mezzanine III, LP dated January 7, 2005. (1)
	10	.12	Warrant Agreement dated January 7, 2005 between Court Square Capital Limited and GMH Holding Company. (1)
	10	.13	Agreement and Plan of Merger by and among Gallarus Media Holdings, Inc., GMH Holding Company, GMH Acquisition Corp. and ABRY Partners, LLC, dated December 23, 2004. (1)
	10	.14	Lease Agreement by and between Pace Converting, Inc. and Network Communications, Inc. dated June 28, 2002. (1)
	10	.15	Agreement by and between Banta Publications Group and Network Communications, Inc., dated May 17, 2006, as supplemented by the terms attached thereto. (Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted under C.F.R. Sections 200.80(b)(4), 200.83 and 230.406) (1)
	10	.16	Applications Maintenance and Support Agreement by and between Network Communications, Inc. and Builder Homesite, Inc., dated December 16, 2003. (Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted under C.F.R. Sections 200.80(b)(4), 200.83 and 230.406) (1)

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Exhibits

Exhibit No.			Description
	10	.17	Software Support, Development and Maintenance Renewal Agreement, by and between Network Communications, Inc. and EX Squared Solutions, Inc., dated April 1, 2006. (Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted under C.F.R. Sections 200.80(b)(4), 200.83 and 230.406) (1)
	10	.18	Customer Agreement by and between Network Communications, Inc. and Kodak Polychrome Graphics LLC, dated January 15, 2006. (Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted under C.F.R. Sections 200.80(b)(4), 200.83 and 230.406) (1)
	10	.19	Sales Contract by and between Network Communications, Inc. and Zirkon Druckmaschinen GmbH Leipzig, dated as of August 25, 2005. (Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted under C.F.R. Sections 200.80(b)(4), 200.83 and 230.406) (1)
	10	.20	Term Loan Credit Agreement dated as of July 20, 2007, among Network Communications, Inc., Gallarus Media Holdings, Inc., the Lenders , and Toronto Dominion (Texas) LLC, as administrative agent and as collateral agent for the Lenders.(2)
	10	..21	Revolving Loan Credit Agreement dated as of July 20, 2007, among Network Communications, Inc., Gallarus Media Holdings, Inc., the Lenders, and Toronto Dominion (Texas) LLC, as administrative agent and as collateral agent for the Lenders(2)
	10	.22	Guarantee, Collateral And Intercreditor Agreement dated as of July 20, 2007, among Network Communications, Inc., Gallarus Media Holdings, Inc., the Subsidiaries of the Network Communications Inc. from time to time party thereto, Toronto Dominion (Texas) LLC, as collateral agent, Toronto Dominion (Texas) LLC, as administrative agent for the Revolving Lenders and Toronto Dominion (Texas) LLC, as administrative agent for the Term Lenders. (2)
	10	.23	Copyright Security Agreement dated as of July 20, 2007, between Network Communications, Inc. and Toronto Dominion (Texas) LLC, as the Collateral Agent. (2)
	10	.24	Trademark Security Agreement dated as of July 20, 2007, between Network Communications, Inc. and Toronto Dominion (Texas) LLC, as the Collateral Agent. (2)
	10	.25	Patent Security Agreement dated as of July 20, 2007, between Network Communications, Inc. and Toronto Dominion (Texas) LLC, as the Collateral Agent. (2)
	10	.26	Amendment dated June 10, 2008 to Revolving Loan Credit Agreement dated July 20, 2007 by and among the Company, Gallarus Media Holdings, Inc., the Lenders and Toronto Dominion (Texas) LLC as administrative agent and collateral agent for the Lenders. (3)
	10	.27	Second Amendment dated December 4, 2008 to Revolving Loan Credit Agreements dated July 20, 2007 by and among the Company, Gallarus Media Holdings, Inc., the Lenders and Toronto Dominion (Texas) LLC as administrative agent for the Lenders. (4)
	10	.28	Third Amendment dated May 4, 2009 to Revolving Loan Credit Agreements dated July 20, 2007 by and among the Company, Gallarus Media Holdings, Inc., the Lenders and Toronto Dominion (Texas) LLC as administrative agent for the Lenders
	21	.1	Subsidiaries of Registrant. (1)
	23	.1	Consent of Independent Registered Public Accounting Firm.
	24	.1	Power of Attorney. (1)
	31	.1	SECTION 302, CERTIFICATION OF CEO
	31	.2	SECTION 302, CERTIFICATION OF CFO
	32	.1	SECTION 906, CERTIFICATION OF CEO
	32	.2	SECTION 906, CERTIFICATION OF CFO

(1)	Incorporated by reference to the Company’s Registration Statement on Form S-4 (Registration No. 333-134701) filed with the Commission on June 2, 2006, as amended).
(2)	Incorporated by reference to the Company’s Form 10-Q filed on October 18, 2007, as amended).
(3)	Incorporated by reference to the Company’s Form 10-Q filed on July 31, 2008, as amended).
(4)	Incorporated by reference to the Company’s Form 10-Q filed on January 26, 2009, as amended).
**	Denotes management contract or compensatory plan or arrangement.

85